What is Business Ethics?
Business ethics (also known as corporate ethics) is a form of applied ethics or professional ethics, that examines ethical principles and moral or ethical problems that can arise in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations. These ethics originate from individuals, organizational statements or from the legal system. These norms, values, ethical, and unethical practices are the principles that guide a business. They help those businesses maintain a better connection with their stakeholders.
Business ethics is the study of appropriate business policies and practices regarding potentially controversial subjects including corporate governance, insider trading, bribery, discrimination, corporate social responsibility, and fiduciary responsibilities. The law often guides business ethics, but at other times business ethics provide a basic guideline that businesses can choose to follow to gain public approval.
The term ‘business ethics’ came into common use in the United States in the early 1970s. Interest in business ethics increased dramatically during the 1980s and 1990s, both within major corporations and within academia. For example, many major corporations today promote their commitment to ethical business practices under headings and roles such as codes of conduct, ethics & compliance departments, ethics officers, and social responsibility reports or charters.
Understanding Business Ethics
Ethics means the set of rules or principles that the organization should follow. While in business ethics refers to a code of conduct that businesses are expected to follow while doing business. Through ethics, a standard is set for the organization to regulate their behavior. This helps them in distinguishing between the wrong and the right part of the businesses.
The ethics that are formed in the organization are not rocket science. They are based on the creation of a human mind. That is why ethics depend on the influence of the place, time, and the situation.
Business ethics refers to contemporary organizational standards, principles, sets of values and norms that govern the actions and behavior of an individual in the business organization. Business ethics have two dimensions, normative business ethics or descriptive business ethics. As a corporate practice and a career specialization, the field is primarily normative. Academics attempting to understand business behavior employ descriptive methods. The range and quantity of business ethical issues reflects the interaction of profit-maximizing behavior with non-economic concerns.
Business ethics ensure that a certain basic level of trust exists between consumers and various forms of market participants with businesses. For example, a portfolio manager must give the same consideration to the portfolios of family members and small individual investors. These kinds of practices ensure the public receives fair treatment.
The concept of business ethics began in the 1960s as corporations became more aware of a rising consumer-based society that showed concerns regarding the environment, social causes, and corporate responsibility. The increased focus on so-called social issues was a hallmark of the decade.
Since that time period, the concept of business ethics has evolved. Business ethics goes beyond just a moral code of right and wrong; it attempts to reconcile what companies must do legally versus maintaining a competitive advantage over other businesses. Firms display business ethics in several ways.
Why Is Business Ethics Important?
Business ethics is important for a variety of reasons. First and foremost, it keeps the business working within the boundaries of the law, ensuring that they aren’t committing crimes against their employees, customers, consumers at large, or other parties. However, the business also has a number of other advantages that will help them succeed if they are aware of business ethics.
Businesses can also build trust between the business and consumers. If consumers feel that a business can be trusted, they will be more likely to choose that business over its competitors. Some businesses choose to use certain aspects of business ethics as a marketing tool, particularly if they decide to highlight a popular social issue. Leveraging business ethics wisely can result in increased brand equity overall.
Being an ethical business is also highly appealing to investors and shareholders. They will be more likely to sink money into the company, as following standard ethical business practices and leveraging them properly can be a path to success for many businesses.
Following business ethics can also be beneficial for the business’ employees and operations. Attracting top talent is significantly easier for ethical businesses. Employees not only appreciate a socially aware employer, but will also perceive them as the kind of business that will act in the best interest of their employees. This produces more dedicated employees and can also reduce recruitment costs.
Examples of Business Ethics
Here are a few examples of business ethics at work as corporations attempt to balance marketing and social responsibility. For example, Company XYZ sells cereals with all-natural ingredients. The marketing department wants to use the all-natural ingredients as a selling point, but it must temper enthusiasm for the product versus the laws that govern labeling practices.
Some competitors’ advertisements tout high-fiber cereals that have the potential to reduce the risk of some types of cancer. The cereal company in question wants to gain more market share, but the marketing department cannot make dubious health claims on cereal boxes without the risk of litigation and fines. Even though competitors with larger market shares of the cereal industry use shady labeling practices, that doesn’t mean every manufacturer should engage in unethical behavior.
For another example, consider the matter of quality control for a company that manufactures electronic components for computer servers. These components must ship on time, or the manufacturer of the parts risks losing a lucrative contract. The quality-control department discovers a possible defect, and every component in one shipment faces checks.
Unfortunately, the checks may take too long, and the window for on-time shipping could pass, which could delay the customer’s product release. The quality-control department can ship the parts, hoping that not all of them are defective, or delay the shipment and test everything. If the parts are defective, the company that buys the components might face a firestorm of consumer backlash, which may lead the customer to seek a more reliable supplier.
What are the Types of Business Ethics?
Business ethics as a field of study is incredibly diverse, but many concepts can be divided into a few basic principles. Every business should strive to follow these guidelines in the pursuit of success.
Trustworthiness
Achieving trustworthiness typically involves being transparent and honest in all actions and communications. Being trustworthy can have a positive impact both internally and externally. Consumers appreciate openness, as it provides them with insight into how a business operates and conceptualizes the work that they do. Employees also appreciate this quality in a business that they work for.
Respect
Showing respect for employees and customers involves following through on all promises — and providing sincere apologies and appropriate compensation if anything falls through. Showing a lack of respect will deter customers from engaging with a business and lower a business’ reputation. It will also do significant damage to employee morale and increase turnover.
Fairness
Treating customers and employees with a sense of fairness and justice is a key type of ethics. Manipulative behaviors aren’t just unethical, but they are also unhelpful — and the top priority of any business should be to be helpful to its customers and employees. It is also important to treat all people equally.
Caring
Businesses, at the end of the day, are composed of human beings. There are human beings that consume goods or services from the business, and then there are human beings that work to produce those goods or services. Being open to their struggles and coming to the table with solutions will show empathy — a valuable tool for any business to utilize. Showing a sense of caring and keeping the lines of communication is not just the ethical thing to do, but can also boost internal and external perceptions of the business.