Business Ethics

Ethical Foundation

There is an endless number of situations that can arise in business involving ethical decisions. Some clear, some not so clear. It is important to have a strong grasp of ethics to make the correct and moral choice. While it is impossible to foresee all issues that may arise, a general understanding can be a strong guide.

• Act with integrity – Always conduct business in a just and moral manner.
• Practice and promote ethics - Encourage others to act with integrity. Promote strong ethical standards.
• Maintain and improve competence in yourself and others - Continue your education and help others learn as well.
• Use logical judgment – Use your moral and ethical knowledge in every day decisions.

Business Ethics are Now Becoming Law

In the wake of the Enron disaster, the Securities and Exchange Commission (SEC) passed a business ethics-related law known as the Sarbanes Oxley Act. The act is a blueprint for companies to govern their financial activities.

As a result of this act, ethical awareness in the workplace has risen as well as scrutiny from governing officials. If a firm is found conducting business in an unscrupulous manner, the penalty is severe. It takes the risk of ignoring business ethics to a whole new level, and not a good one.

Corporate Governance

Now that companies have to increase their business ethics awareness, corporate governance is an important issue to investors. Shareholders want more information on the decisions made by the board of governors, owners, and mangers alike. In their analysis, investors should consider many corporate issues.

• Independence of Board Members – Does the board have a majority of independent members making decisions and avoiding conflicts of interest?
• Qualifications of Managers – Are the decision-makers qualified to make decisions now and in the future? How are board members and managers selected?
• Conflicts of Interest – Do managers engage in any activities outside the company that may bias future decisions?
• Compensation – Who determines salary, incentives, and stock options for those who run the firm?
• Strategy – Where does the company plan to go and what strategies will they implement to get there? What are the risks and rewards?

How to Establish Business Ethics

Whether a firm is large or small, business ethics are equally important. While a firm may not be large enough have a board of governors, it is still important for managers and owners to take steps to promote upstanding behavior.

• Ethics handbook – Management can issue a guidebook instructing and educating employees.
• Ethical testing – Employers can promote continuing education of business ethics by periodically administering tests aimed at maintaining a code of ethics.
• Protections – Management can instill programs and protections such as a Chinese wall or restricted list to prevent temptations and conflicts of interest.
  • Chinese wall - An intrafirm barrier used to keep departments seperate to avoid sharing information that could lead to financial gain or create a conflict of interest.
  • Restricted List - In regard to financial firms, certain investments are restricted due to inside information.
• Management – Companies can create a department or hire specific employees specific to handling ethical issues.

Conducting Business

Business is important. It’s the backbone of our economy. However, if the backbone is flawed by unethical activities, our economy can be crippled. This has been the case over the last few years. Many companies have toppled and ruined lives due to unethical behavior. Now, business ethics are not just words collecting dust in a binder, they are tools to prevent catastrophe and promote success.