Business ethics is the set of underlying beliefs through which a company propagates its operations. Trust, honesty and thinking unshackled by profit driven motive are considered ethical. The importance of ethics in today’s business environment has never been more significant. Any organization can deny following ethical standards as no company is compelled to follow ethics. The short term prospects of ethical operations often negatively affect profit however the fruits of ethicality only bloom in long term
In this article, we shall focus on the effects of ethical practices on stakeholders (customer, society, investor, etc.)on a business. The overall impact of ethical practices on inter-related results in a positive impact on the business group.
The best understand the importance of ethics is through examples of companies spanning across the 2 ends of the spectrum of ethicality. Enron, Satyam and Lehman Brothers, Infosys, Berkshire Hathaway and Google. Enron, Satyam and Lehman Brothers are some examples of business groups who fail due to unethical practices despite huge size of business and rapid growth in their business in short times. On the other hand, Infosys, Berkshire Hathaway and Google are some companies who are doing well in their business (even in time of recession).
Introduction to Business Ethics
Business ethics set the standard for how your business is conducted. Ethical principles provide the foundations for various modern concepts for work, business and organizations, which broaden individual and corporate priorities far beyond traditional business aims of profit and shareholder enrichment. Ethical factors are also a significant influence on institutions and public sector organizations, for whom the traditional priorities of service quality and cost management must now increasingly take account of these same ethical considerations affecting the commercial and corporate world.
Importance of Ethics in today's Business world
With legal scandals concerning insider trading and employee theft making the news, it is no wonder that businesses are increasingly giving attention to the ethical basis of their business and how to lead in an ethical way.
Ethical investment is a useful aspect for considering ethical business, since large scale investment is ultimately subject to market forces, which largely reflect public opinion. As such ethical investment criteria and examples tend to be a good guide towards ethical attitudes of large sections of people and society, rather than the 'expert' views of leaders and gurus.
Ethical business or investment is concerned with how profit is made and how much profit is made, whereas traditional profit-centered free-market based business is essentially only concerned with how much profit is made.
The modern concept of ethical practices in organizations encompasses many related issues including corporate social responsibility (CSR) - or simply social responsibility, ethical management and leadership, fair-trade, globalization (addressing its negative effects), sustainability, social enterprise, 'mutual, cooperatives & employee ownership'.
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Benefits of Ethical Practices in Business
As never before, there are huge organisational advantages from behaving ethically, with humanity, compassion, and with proper consideration for the world beyond the boardroom and the shareholders:
Customers are increasingly favouring providers and suppliers who demonstrate responsibility and ethical practices. Failure to do so means lost market share, and shrinking popularity, which reduces revenues, profits, or whatever other results the organisation seeks to achieve.. Factors identified include increases in customer loyalty, enhancement of brand image, and tiebreaker effects for customer purchasing decisions. Empirical evidence suggests that customers' sensitivity to corporate citizenship continues to gain momentum. Good corporate citizenship also enhances overall business performance, particularly improved competitive advantage, higher financial returns, and better reputation. A considerable number of studies, including work done by this editor, demonstrate a positive link.
The best staff wants to work for truly responsible and ethical employers. Failing to be a good employer means good staff leaves, and reduces the likelihood of attracting good new-starters. This pushes up costs and undermines performance and efficiency. Aside from this, good organisations simply can't function without good people. Earlier research by Walker warns that a low level of employee loyalty exists globally, as does a dwindling level of faith in organizational ethics and leadership. Numerous other surveys show employee turnover and other corporate culture issues present the greatest risk of failing to achieve corporate goals. The Walker study found three major areas of employee concern that companies need to address in order to build a culture of stronger, more loyal relationships. They are fairness at work, care and concern for employees, and trust in employees. To achieve these goals, a values-oriented code of conduct is the necessary first step toward greater consideration of ethical issues during the decision-making process.
Productivity of Staff
Staff who work in a high-integrity, socially responsible, globally considerate organisation are far less prone to stress, attrition and dissatisfaction. Therefore they are happier and more productive. Happy productive people are a common feature in highly successful organisations. Stressed unhappy staff are less productive, take more time off, need more managing, and also take no interest in sorting out the organisation's failings when the whole thing implodes. In a workplace which is driven by ethical practices, people are less likely to spend precious energy in internal turf battles, both personally and departmentally. This can free up an enormous amount of energy for task accomplishment which versus internal friction. It thus empowers teams and organizations to better serve customers and operate more efficiently. The result can be greater power and influence in the market place.
Reputation of Organization
It takes years, decades, to build organisational reputation - but only one scandal to destroy it. Ethical responsible organisations are far less prone to scandals and disasters. And if one does occur, an ethical responsible organisation will automatically know how to deal with it quickly and openly and honestly. People tend to forgive organisations who are genuinely trying to do the right thing. People do not forgive, and are actually deeply insulted by, organisations who fail and then fail again by not addressing the problem and the root cause. Arrogant leaders share this weird delusion that no-one can see what they're up to. Years ago maybe they could hide, but now there's absolutely no hiding place.
Attraction for Potential Investors
Very few investors want to invest in organisations which lack integrity and responsibility, because they don't want the association, and because they know that for all the other reasons here, performance will eventually decline, and who wants to invest in a lost cause?
Hardly any leader will admit in the cold light of day that he would prefer to be remembered for doing something good, rather than making a pile of money or building a great big empire. It's human nature to be good. Humankind would not have survived were this not so. The greedy and the deluded have traditionally been able to persist with unethical irresponsible behaviour because there's been nothing much stopping them, or reminding them that maybe there is another way. Part of the re-shaping of attitudes and expectations is that making a pile of money, and building a great big empire, are becoming stigmatised. The ethical practices are fundamentally changing the view of what a lifetime legacy should be and can be. And this will change the deeper aspirations of leaders, present and future, who can now see more clearly what a real legacy is.
Ethics programs are an insurance policy -- they help ensure that policies are legal.
There is an increasing number of lawsuits in regard to personnel matters and to effects of an organization's services or products on stakeholders. As mentioned earlier in this document, ethical principles are often state-of-the-art legal matters. These principles are often applied to current, major ethical issues to become legislation. Attention to ethics ensures highly ethical policies and procedures in the workplace. It's far better to incur the cost of mechanisms to ensure ethical practices now than to incur costs of litigation later. A major intent of well-designed personnel policies is to ensure ethical treatment of employees, e.g., in matters of hiring, evaluating, disciplining, firing, etc. Drake and Drake (California Management Review, V16, pp. 107-123) note that "an employer can be subject to suit for breach of contract for failure to comply with any promise it made, so the gap between stated corporate culture and actual practice has significant legal, as well as ethical implications."
Ethics programs help avoid criminal acts "of omission" and can lower fines
Ethics programs tend to detect ethical issues and violations early on so they can be reported or addressed. In some cases, when an organization is aware of an actual or potential violation and does not report it to the appropriate authorities, this can be considered a criminal act, e.g., in business dealings with certain government agencies, such as the Defense Department. The recent Federal Sentencing Guidelines specify major penalties for various types of major ethics violations. However, the guidelines potentially lower fines if an organization has clearly made an effort to operate ethically.
Cooperation among Industries and Society results in Sales revenue
Attention to ethics is also strong public relations -- admittedly, managing ethics should not be done primarily for reasons of public relations. But, frankly, the fact that an organization regularly gives attention to its ethics can portray a strong positive to the public. People see those organizations as valuing people more than profit, as striving to operate with the utmost of integrity and honour. Aligning behavior with values is critical to effective marketing and public relations programs. Consider how Johnson and Johnson handled the Tylenol crisis versus how Exxon handled the oil spill in Alaska. Bob Dunn, President and CEO of San Francisco-based Business for Social Responsibility, puts it best: "Ethical values, consistently applied, are the cornerstones in building a commercially successful and socially responsible business."
In order to be successful, ethical business practices need to be supported by the culture of the business. Management should lead from the front on ethical business practices and build ethical business practices into each dimension of the business from production to follow up customer service.
Ethics programs help maintain a moral course in turbulent times.
Wallace and Pekel explain that attention to business ethics is critical during times of fundamental change -- times much like those faced now by businesses, either non-profit or for-profit. During times of change, there is often no clear moral compass to guide leaders through complex conflicts about what is right or wrong. Continuing attention to ethics in the workplace sensitizes leaders and staff to how they want to act consistently.
When all these related and somewhat overlapping components combine synergistically, they increase the power and influence of individuals, teams, and organizations. Also, most people know that ethical behavior can empower their personal lives as well. All these happening prove beneficial for business on a long term.