A Definition for Business Ethics

What is Business Ethics?

Business ethics can be defined as written and unwritten codes of principles and values that govern decisions and actions within a company. In the business world, the organization’s culture sets standards for determining the difference between good and bad decision making and behavior.

In the most basic terms, a definition for business ethics boils down to knowing the difference between right and wrong and choosing to do what is right. The phrase 'business ethics' can be used to describe the actions of individuals within an organization, as well as the organization as a whole.

Stakeholder Versus Shareholder

There are two schools of thought regarding how companies should approach a definition for business ethics: the shareholder perspective and the stakeholder perspective.

Shareholder Perspective

Those who approach ethical decision making from a shareholder perspective focus on making decisions that are in the owners' best interest. Decisions are guided by a need to maximize return on investment for the organization’s shareholders. Individuals who approach ethics from this perspective feel that ethical business practices are ones that make the most money.

Stakeholder Perspective

The phrase corporate social responsibility is often used in discussions of business ethics. The idea behind this concept is the belief that companies should consider the needs and interests of multiple stakeholder groups, not just those with a direct financial stake in the organization’s profits and losses.

Organizations that approach business ethics from a stakeholder perspective consider how decisions impact those inside and outside the organization. Stakeholders are individuals and groups who affect or who are affected by a company’s actions and decisions. Shareholders are definitely stakeholders, but they are not the only ones who fall under the definition of stakeholder.

Stakeholders may include: employees, suppliers, customers, competitors, government agencies, the news media, community residents and others. The idea behind stakeholder based ethical decision making is to make sound business decisions that work for the good of all affected parties.

What is Ethical Behavior?

Different people have different beliefs about what constitutes ethical behavior. The law defines what is and is not legal, but the distinctions between moral right and wrong are not always so clear. In many situations lines between right and wrong are blurred. Such situations can lead to ethical dilemmas.

When faced with ethical dilemmas, it’s important to consider outcomes of the decision-making process. One way of dealing ethical dilemmas is by using the four way test to evaluate decisions. This test involves asking four questions:

1. Is my decision a truthful one?
2. Is my decision fair to everyone affected?
3. Will it build goodwill for the organization?
4. Is the decision beneficial to all parties who have a vested interest in the outcome?

When these four questions can truthfully be answered with a “yes,” it is likely that the decision is an ethical one.

Another way of making sure decisions are truly ethical is by using the publicity test. Ask yourself how you would feel if your actions were published in your hometown newspaper. If you would be comfortable having your parents, grade school teachers, and other people find out what you did, chances are that your decision is an ethical one. However, if you would not want these individuals to learn about your actions, you probably need to rethink your decision.

Management and Business Ethics

A company’s managers play an important role in establishing its ethical tone. If managers behave as if the only thing that matters is profit, employees are likely to act in a like manner. A company’s leaders are responsible for setting standards for what is and is not acceptable employee behavior. It’s vital for managers to play an active role in creating a working environment where employees are encouraged and rewarded for acting in an ethical manner.

Managers who want employees to behave ethically must exhibit ethical decision making practices themselves. Managers have to remember that leading by example is the first step in fostering a culture of ethical behavior in their companies. No matter what the formal policies say or what they are told to do, if employees see managers behaving unethically, they will believe that the company wants them to act in a like manner.

Other Factors Impacting Organizational Ethics

Many factors impact ethical decisions employees and managers make on a daily basis, including:

• Corporate culture
• Existence and application of a written code of ethics
• Formal and informal policies and rules
• Norms for acceptable behavior
• Financial reward system
• System for recognizing accomplishment
• Company attitude toward employees
• How employees are selected for promotions
• Hiring practices
• Applications of legal behavior
• Degree to which professionalism is emphasized
• The company’s decision making processes
• Behaviors and attitudes of the organization’s leaders

Importance of Ethical Business Decisions

Companies and businesspeople who wish to thrive long-term must adopt sound ethical decision-making practices. Companies and people who behave in a socially responsible manner are much more likely to enjoy ultimate success than those whose actions are motivated solely by profits. Knowing the difference between right and wrong and choosing what is right is the foundation for ethical decision making. In many cases, doing the right thing often leads to the greatest financial, social, and personal rewards in the long run. [Category: Business Communications]]