Why Business Ethics Matter: Theory in Context
All businesses are relational at some level. A business organization cannot exist without meaningful, sustained relationships with its employees and customers. In some situations, businesses must also maintain relationships with vendors, investors, regulators, and the general public. One way in which businesses can uphold these relationships is by adhering to a code of conduct and comporting themselves with certain ethical standards to ensure that all of these relationships are marked by fairness, justice, honesty, and integrity.
This might seem like a fairly simple concept, but business ethics can be a very nuanced and intricate field. Not only are there different interpretations of what business ethics should look like, but the application of business ethics may vary from one industry to the next. However, regardless of industry, adherence to business ethics can yield significant benefits for all parties involved. Topics related to ethics in the context of a business are sufficiently deep and complex that there are professional certificate programs solely devoted to understanding how businesses can function and communicate most ethically.
What Is Business Ethics?
To develop a proper understanding of business ethics, it may be helpful to start with a basic definition of what business ethics is and how it’s evolved over the years.
Business Ethics Definition
By definition, business ethics examines appropriate policies and practices that can be used to navigate ethical dilemmas that a business faces. It also addresses potentially controversial subjects like discrimination, bribery, different types of corporate governance, different understandings of fiduciary responsibility, and transparency with shareholders and the general public.
In many instances, business ethics is directly shaped by the law. For example, there are federal, state, and local rules and regulations that dictate penalties for insider training and provide parameters for how companies can hire employees in a just, nondiscriminatory way. In areas where the law is silent, the field of business ethics can provide companies with best practices for earning public trust and approval. Ethics also helps companies operate in a way that establishes goodwill with employees, customers, and investors alike.
Business Ethics History
While merchants and other business owners have long wrestled with issues of right and wrong, business ethics as an academic field began in the 1960s. The field emerged largely as a response to consumers, who increasingly cared about supporting businesses that practiced environmental stewardship, fair hiring practices, and other forms of corporate responsibility.
The field has evolved considerably since that time, and in many ways, it has become more complex. Thinking about ethics in a business setting is no longer a simple question of right and wrong—it is about trying to balance what a company must do to abide by the law with what it perceives to be its options for competitive advantage.
Business Ethics Principles
As an academic field, business ethics orbits around several key principles. The 12 principles that are seen as most central to this field include:
- Leadership. In this context, leadership refers to a willingness and ability to understand, synthesize, and implement the other 11 principles on the list.
- Accountability. In business, accountability means being consistent in holding everyone—including senior leaders—responsible for their own actions and for compliance with the company’s agreed-upon code of conduct.
- Integrity. Within a business, people with integrity consistently do what is right, even when it might seem like it puts them at a personal or professional disadvantage to do so.
- Respect. Business ethics requires a willingness to treat all others with respect, recognizing their right to empathy, privacy, and dignity.
Honesty. Ethical behavior within a business also requires truthfulness at all times, which means no half-truths or lies by omission. - Laws. In order for a business to be ethical, it must demonstrate respect for all relevant laws, including local, state, federal, and international laws.
Responsibility. An ethical business creates a culture in which all employees are responsible for their own work. - Transparency. Ethical companies are not required to divulge trade secrets, but they should be open to sharing as much information as possible with investors and with anyone else interested in the business’s success.
- Fairness. Simply put, everyone in the company should have the same opportunities for success, irrespective of ethnicity, gender, race, religious affiliation, or sexual orientation.
- Loyalty. An ethical leader is one who makes a commitment to their employees, seeking their best interests whenever possible.
- Compassion. Businesses should also have a vested interest in treating members of their community with empathy and compassion.
- Environmental stewardship. Finally, an important dimension of business ethics is seeking the preservation of the natural world and using natural resources responsibly.
Business Ethics and Deontology
One additional concept that is important to the study of business ethics is deontology. Deontology can formally be defined as the study of duty and obligation. For example, many ethicists would say that personhood entitles all people to certain rights and to being treated with a certain level of fairness and respect. Businesses are duty-bound to acknowledge those rights and treat all people accordingly, without crossing any ethical “lines in the sand” that might violate another person’s personhood.
Why Does Business Ethics Matter?
It may seem simplistic to think about business ethics in basic terms of doing what is right versus wrong. At the same time, more complex ethical concepts like deontology can seem unmoored from the practical, day-to-day considerations of running a company. The reality is that ethics matter in any business context, and ethical behavior can impact the company’s bottom line in a number of ways.
Having a Code of Ethics Drives Employee Behavior
For starters, it is important to note that having an established standard for business ethics can influence behavior at all levels of the company. A code of ethics provides guardrails for senior leadership, mid-level managers, and entry-level employees alike, ensuring a common framework among old and new team members. In other words, a code of ethics can ensure that everyone in the business is on the same page with regard to how they treat one another and how they treat customers.
Ethical Behavior Can Boost a Brand’s Reputation
When all employees and leaders act ethically, the company itself will begin to develop a reputation for ethical behavior. Customers, partners, vendors, and potential employees are more likely to perceive the company as an honest and credible actor. Establishing a moral and ethical reputation allows businesses to reap a number of practical benefits, including:
- Brand recognition and growth, as the company is viewed favorably by customers who prize social responsibility and social justice
- An increased ability to negotiate, as other business partners recognize the company’s essential fairness and trustworthiness
- More trust in products and services, with fewer members of the general public worrying that they might be misled or taken advantage of by the business
- Improvements to customer retention and growth
- The ability to hire and retain top talents who desire to work for companies with stalwart reputations
- The ability to attract investors who desire to work with a company that’s proven itself to be honest
These are just some of the ways in which ethical behavior can positively affect a business’s bottom line.
What Are Some Common Business Ethics Examples?
A business can reflect a commitment to ethics in multiple ways, which may vary from one company to the next. Here are just a few common, real-world business ethics examples.
Data Protection
In our digital world, virtually all businesses collect and maintain data from their end users. This might involve personal payment information, including credit card numbers and bank routing numbers. In the context of a healthcare business, it might involve sensitive or personal patient records. A big part of acting ethically is making a commitment to steward this information well, keeping it safe and confidential, making reasonable efforts to protect it from cybercrimes, and not sharing the information without the customer’s consent.
Workplace Diversity
Another one of the most common business ethics examples is a commitment to hiring and maintaining a diverse workforce. Simply put, many businesses choose to express their commitment to fairness and respect for all through intentionality in their hiring practices—actively seeking employees who represent a wide range of identities. This is certainly an example of how the law increasingly shapes business ethics, yet it is also true that workplace diversity can bring bottom-line benefits. Businesses that hire diverse employees benefit from a plurality of perspectives.
Corporate Transparency
While no business is expected to betray all of its trade secrets or surrender its proprietary products, corporate transparency is nevertheless a big part of ethical practice. Many businesses express their ethical commitment by ensuring that customers have all the information they need to make an informed purchasing decision. Additionally, it’s important that potential employees have a fair and accurate sense of the company’s culture, advancement opportunities, and professional development structures. A commitment to corporate transparency means no misleading or ambiguous communications.
Whistleblower Protections
Even in a company that has a rigorous code of conduct, unethical things can still happen. A commonly-held assumption is that, in an ethical business, employees should feel empowered to step forward with information about unethical or illegal behavior they see, without fear of retribution. In other words, employees should feel like they can speak up about any unethical things they see without worrying about getting fired or bullied by their superiors. This is known as whistleblower protection and is an important concept both ethically and legally.
Customer Prioritization
Many are familiar with the expression, “The customer is always right.” More than just an old adage, this is a good summary of customer prioritization and an important concept in business ethics. This simply means that the customer’s needs always come first, even when that places the business itself at a disadvantage. For example, if a customer purchases a product that proves to be faulty, the business may feel a moral obligation to replace or refund it, even if that means they ultimately lose money on the transaction.
Community Outreach
It is common to hear companies express an interest in “giving back” to their local community by creating opportunities to help their neighbors who are in need. Sometimes this might mean organizing volunteer opportunities for their employees, such as serving at a soup kitchen, picking up litter at a public park, or distributing holiday presents to families below the poverty line. In other instances, it might simply mean providing financial sponsorship for local nonprofits, youth sports teams, pet adoption events, and beyond.
Ecological Responsibility
One of the most common business ethics examples of all is environmental stewardship. This entails mitigating a business’s impact on the natural world and may involve the development of standards and processes to minimize air or water pollution. In other instances, it might involve an investment in carbon offsets, a commitment to no longer implement single-use plastics as part of product packaging, or opportunities for employees to become active in local trash cleanup efforts.
How Does the Business Ethics Definition Vary By Industry?
While there are certain universal concepts in business ethics, the application of those concepts can vary from one industry to the next. Consider the following industry-specific business ethics examples.
Ethics Involving Clients
Often, business ethics involve the standards for behavior toward the end customer. For example, an investment brokerage firm might face instances where the investment that’s best for the client doesn’t align with what’s best for the business itself. Likewise, an insurance brokerage might face situations in which the policy that’s in a consumer’s best interests is not the one that yields the highest commission. These are situations where the prioritization of the customer becomes a key ethical consideration.
Ethics Involving Data
Data usage has become an increasingly important ethical issue within the field of marketing, where data mining can help marketers to more precisely hone their messaging and target the right customers. Given that many consumers view this as a serious violation of their privacy, many marketing agencies have had to search for new, more ethical ways of learning about their customers—using surveys and polls as opposed to data mining.
Ethics Involving the Environment
When it comes to environmental ethics, some companies are scrutinized in different ways and at different levels of intensity. For example, oil, gas, and energy companies naturally receive a lot of oversight with respect to their greenhouse gas emissions and other forms of pollution. By contrast, an all-digital company might not receive the same level of environmental scrutiny. Even so, online-only businesses can exhibit environmental practices by ensuring eco-friendly packaging and seeking product distribution channels that have the cleanest emissions standards.
How Can Companies Practice Good Business Ethics?
It’s one thing for corporations to acknowledge the importance of business ethics and recognize some of the real-world benefits. Actually practicing ethical behavior at a corporate level can be harder. Here are a few general principles and guidelines.
Develop a Code of Conduct
First and foremost, having a written code of conduct can help to clarify expectations and keep everyone on the same page. This code of conduct may be developed in conjunction with Human Resources, which can provide insight into how to treat employees ethically and encourage them to treat one another compassionately and respectfully. The finance team may also be involved, especially with regard to the ethical disclosure of fiscal data.
Encourage Employees to Report Unethical Behavior
Another way for companies to maintain a high ethical standard is to routinely remind employees of their right to speak up about any misbehavior they witness. Offering clarity concerning protections for whistleblowers is essential.
Communicate with Transparency
In some cases it might also be appropriate for companies to communicate their ethical breaches with customers, especially in situations like a data breach, where customers might be directly affected. Honesty and integrity dictate a certain level of transparency.
Gain Further Insight into Business Ethics
Ultimately, every business benefits from behaving in a way that is not only lawful but also ethical. While this field is vast and complex, pursuing an understanding of business ethics can be essential for effective leadership.
The Business Ethics & Writing Certificate from Suffolk University’s Center for Continuing & Professional Education (CCPE) can help learners cultivate a deeper knowledge of business ethics through the integration of ethical frameworks and communication in modern business practices. Students can learn to identify and differentiate between different types of decisions and how to apply ethics and persuasive techniques in their business communication.
Find out how you can become an ethical business leader with Suffolk’s CCPE.
Sources:
Business News Daily, “A Culture of Ethical Behavior Is Essential to Business Success
The Ethics Centre, “What Is Deontology?”
Indeed, “What Are Business Ethics? Definition, Types, and Examples”
Investopedia, “Business Ethics: Definition, Principles, Why They’re Important”
Investopedia, “The Importance of Business Ethics”