Business Ethics: Definition & Importance

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KEY TAKEAWAYS

• Business ethics are a company’s moral compass.
• They encourage employees, as well as the organization as a whole, to act with integrity.
• When a company has a strong sense of business ethics, it tends to be more successful.
• Ethics create better relationships inside and outside of the company.

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What Is Business Ethics?

Business ethics is the study of appropriate business practices. It is also the active policy that a business uses to guide the way that they do business. Business ethics covers a wide range of topics and subjects. These areas may change from business to business, depending on the industry the business gets involved in.

Some of the most common areas of interest involving business ethics are:

• Corporate governance
• Insider trading
• Bribery
• Discrimination
• Social responsibility
• Financial responsibility

All of these areas come together in order to create the policies that businesses operate under. Without business ethics, the rights of consumers and employees would have no protection. In short, business ethics discourage unethical behavior.

Business Ethics and the Law

There is no legal requirement for a business to create a business ethics policy. Rather, businesses tend to create business ethics policies willingly. When doing so, businesses can ensure that their employees are acting ethically as well as legally.

Laws tend to guide and shape business ethics. The main reason is that if a business’s ethics reflect the law, they don’t have to worry about breaking it.

Why Business Ethics are Important

Business ethics are a very important part of any business. When a company creates policies on an ethical basis, it can use them to help with any moral dilemmas in the workplace. Business organizations need an ethics policy for two reasons:

• Ethics policies help a company build trust with their consumers
• Ethics policies help a company handle any internal ethical dilemma that may arise

Let’s take a look at exactly why business ethics are important for a company below.

Business Ethics is Essential to Success

At this point in time, we’re living in a digital age. That means anything and everything that a company does is accessible to the public. With it, that brings plenty of opportunity for criticism.

An example that comes to mind in recent years is the way that Amazon treats warehouse employees. This is an ethical issue. The treatment of employees was and continues to be published online. This information has led to major criticisms of the tech giant.

Customers and employees expect companies to act with integrity. This means that a business ethics policy is essential for all companies. If a company is not acting with integrity, the ability to out them has become much easier.

In today’s climate, ethical business practices are a must. Company culture is everything. A company operating with unethical business practices won’t last long. Business behavior must adhere to business policies at all times. That means on the front lines and behind the scenes. 

As such, many companies are devoting much more time and money to ethical business practices. Many are publishing internal ethical business literature that they use to be accountable. They are also used to teach employees how to act in the organization. This brings us to our next point.

An Ethics Policy Drives Employee Behavior

In order for a business to appear ethical, all employees must act in an ethical manner. If a company hires employees that don’t act with integrity, the business risks criticism as a whole. This is especially important when hiring upper management candidates. The actions of these employees reflect upon the company as a whole.

Please note that employees who get an ethics policy are more likely to act in an ethical manner. This boils down to two different reasons why, though:

• Employees need an ethics policy to outline appropriate behavior they aren’t aware of. Negligence is a large part of business ethics, and it reflects on the company rather than the employee.
• Employees who would knowingly act in an unethical manner get discouraged from doing so. They would rather act ethically than risk punishment for being unethical.

When ethics drive employee behavior, you end up with ethical workplace culture. This is what most businesses should be striving for. If your workplace community is inherently ethical, then your business will be better reflected in public.

Ethical Behavior Increases Success

Let’s think about the concept of business ethics for a moment. An ethical employee is one that does things the right way. They are also someone that reports when things aren’t done correctly. When employees act this way, a business is more likely to be successful. 

Doing process the correct way means that they are being done in the most efficient way. When they aren’t done efficiently, then money is likely lost. Overall, ethical workplace culture is going to improve profits.

Depending on the company, having an unethical workforce creates the potential to lose massive amounts of money. If the company is large enough, this could result in the loss of billions of dollars. Companies that practice unethically have to pay both social costs and monetary costs. Often, the two go hand in hand.

Integrating Business Ethics with Workplace Operations

Integrating business ethics with workplace operations is the best way to promote ethical awareness in a company. As discussed previously, an ethical workplace is a social one. A complete ethics program should touch all parts of a business. 

This means that all employees, including executives, have higher ethical standards. When you have ethical business leaders, you have an ethical business overall. Below you’ll find 7 steps for creating an effective ethics program within a business.

1. Define the Program Mandate

This is at the highest level, and it describes how a company uses an ethics program. It sets up the requirements for abiding by the ethics program itself.

2. Mitigate and Monitor Risk

A business has a responsibility to understand what ethical risks it may face. It should monitor those risks and do everything it can to prevent them. This is the ethical standard that businesses should be following.

3. Establish Policies and Procedures

After defining the program mandate and internal risks, an ethics policy gets established. Ethics policies need to be clear, and the procedures contained within them need to be applicable to all employees. Once a policy is in place, a business can begin operating in an ethical manner.

4. Oversee Allegations of Misconduct

As employees are violating the ethics policy, it is a business’s responsibility to follow up on the allegations. If a company has an ethics policy, but it does not enforce it, then there is no point in having one. Misconduct needs handled appropriately by the business organization for effectiveness.

5. Provide Training and Communication

When ethical standards are not met or violated, a company must communicate this. Depending on the misconduct, communication may be entirely internal. 

When an employee violates the policy, training should remedy the issue. This helps to prevent it from happening again.

Please note that if the violation creates a large impact, then the company may not have to report it to the public. Examples of this include data breaches or large financial missteps. If a company does not report these, they are not considered ethical or trustworthy by the public.

6. Reinforce Behavioral Expectations

As violations present themselves, a company should reinforce among employees how they should act. Often, this is as simple as an email to the entire company. Sometimes, though, more drastic actions may be necessary. This could include large-scale meetings or training. Businesses should expect to have to provide ethics training at least annually. This keeps the entire workforce on the same page.

7. Manage the Function of Behavior Ethics

As time moves forward, expectations surrounding ethical behavior are going to change. It is a company’s responsibility to manage its ethics policy to reflect modern expectations. As you do this, you can then expect your workforce to function ethically according to the public. This is a driving factor in public success.

Different Types of Business Ethics

There are a large number of different ethical areas that a business is going to encounter. These may be on an individual level or on a company-wide level. Regardless, it’s important to understand the different types of business ethics if you want your company to perform ethically.

Personal Responsibility

Though it may seem contradictory, personal responsibility plays a large part in business ethics. Employees should demonstrate personal responsibility for their actions, regardless of position. 

For the most part, personal responsibility relates to fulfilling job duties as expected. Depending on the employee, though, there may be more to it than that. It will mean different things to different employees because we are all individuals.

Corporate Responsibility

Businesses should also fulfill their expectations in a responsible manner. This includes fulfilling promises to employees and investors. It also includes doing things in a legal manner. Businesses need to show responsibility when it comes to practicing business fairly in all aspects. Often, if a business comes under fire, it is because of unfair treatment in one or more areas.

Environment Protection

As the world becomes more aware of climate change, companies are striving for environmental protection. The key to protecting our environment is by transitioning to renewable and clean energy sources. Companies that use renewable power aren’t just helping the planet. They’re also building a sustainable future for their businesses.

Many businesses are switching over to solar power, and in some regions, it’s actually cheaper than traditional power sources. Making this switch can not only help your business save money but also help you contribute positively to society.

Respect

One of the most volatile topics when it comes to business ethics is respect. Businesses should treat their customers, as well as their employees, with respect. Over the last decade, large conversations have come up about the treatment of employees. 

Large companies are feeling pressure from the public about the respectful treatment of employees. Respect is going to continue to get talked about until major changes come, most likely.

Loyalty

Loyalty is another business ethic that is beginning to shift in terms of public perception. In the past, businesses and employees should demonstrate loyalty to one another. In recent years, loyalty to employers has begun to wane. 

Many employees feel that they are not shown the same loyalty by the businesses they are working for. As such, relationships between employees and employers are beginning to deteriorate. The result of this deterioration is a shift in the way that businesses treat their employees to encourage loyalty.

Trust

For the most part, trust is a concept that involves businesses and customers. With digital technology in nearly all facets of life, data protection has become a hot topic. Customers have the expectation that they can trust a business to protect their personal data. When data breaches occur, it breaks a consumer’s trust. This results in the company having to earn back that trust, which isn’t always to do.

Fair Treatment

Fair treatment is similar to respect. A business organization should treat all employees the same way, regardless of rank. Unfortunately, this is the business ethic that’s most often skewed by companies. Executives get special treatment in many cases. This includes how they act ethically, as well as executive compensation. Fair treatment is another hot topic when it comes to business ethics.

Financial Health 

Your business’s financial health should be your focus. But you must consider how it impacts the other two elements of the triple bottom line. You need to think about your profitability and how this impacts your company in a social and environmental way.

If you run a company that relies on manufacturing for its products, then you want to ensure that the processes are ethical and sustainable. You might also want to take into account where the materials come from. Any negative consequences on the environment or people in the process of making your products.

Doing things ethically and sustainably doesn’t happen overnight. It takes time, energy, and work. But by investing in these things now, while they’re still far out on the horizon, you can have more time to plan ahead.

Social Responsibility 

The term “socially responsible” has become a popular phrase so often that it can lose meaning. What does it really mean?

One way to define socially responsible business is to say that these businesses focus on “helping people and the planet thrive.” This means that the company’s decisions, processes, products, and governance all contribute to a better world.

Community and Environmental Responsibility

Now more than ever, businesses should be contributing members of the national or global community. This means getting involved with current events and making statements. It could also signify making financial contributions to communities and charitable associations. 

Most importantly, it also means practicing business in a way that’s environmentally responsible. Companies are responsible for the majority of the world’s environmental destruction. As such, they are being asked to change procedures to act in a responsible manner.

Examples of Business Ethics

There are a large number of business ethics that should exist in all companies and employees alike. A few of the most important according to today’s standards are:

• Data Protection: Businesses need to ethically handle the data collected from consumers. This includes not sharing it unless given express permission to do so. It also means protecting employee records and employees protecting company data.

• Workplace Diversity: When hiring employees, businesses are expected to act fairly. This means creating a diverse workplace. As an added bonus, workplaces with more diversity tend to operate more effectively. This means that everyone wins.

• Whistleblower Protection: If an employee reports that a company is unethical, they must be protected. This is a legal obligation that businesses have.

• Transparency: Companies are expected to be honest with employees and customers. This means providing information in a concise manner and clarifying when necessary.

• Environmentally Conscious: Reducing their carbon footprint is one of the most ethical things a company can do. 

Summary

Business is changing rapidly, and so too must the way we approach our work. Today’s ethical and sustainable businesses are not only nimble and adaptive, but they’re also future-focused and that’s a good thing!