Importance of Ethics in Business

Anna Spooner
Business ethics

Business ethics is more than just a concept used to enhance the image of a corporation; ethics are the very foundation of success. Business ethics should be applied from the very moment a firm opens its doors. Business ethics actually consists of the actions of individuals working within businesses.

Business Ethics and Individual Behavior

The subject of ethics is often considered abstract or relative by those who believe that rules do not always apply to them. Rules and laws apply to everyone, as do standards of right and wrong behavior. Each individual's actions within the company affects both the individual and the entire organization. When an employee acts ethically and responsibly, it helps the entire organization.

Leaders set the tone for ethics in their organizations. It is unfortunate that some employees in the upper echelons of the corporate ladder decide to act unethically, but it is a fact of business and of life. For this reason, it is important for a business to be careful of who they promote within their company.

When the wrong kinds of people are promoted in an organization, it sends a message that unethical behavior is not only tolerated, it is rewarded. Companies looking to be successful cannot afford to have leaders who send negative messages about ethics.

Corporate Social Responsibility

Corporate social responsibility is a phrase heavily used in the business world. Corporate social responsibility refers to business practices and initiatives that benefit society, not just the company.

For instance, businesses that focus on energy efficiency and initiatives that benefit the environment are practicing corporate social responsibility. So are companies that practice philanthropy and have excellent labor practices. Corporate social responsibility is an integral part of business ethics and should be practiced by all entities, whether large or small.

Corporate social responsibility involves each individual within a company participating in giving back to the community. In this way, the entire company is contributing to society and acting ethically. To understand the importance of ethics in business, it's important to realize how business ethics affect those involved. Ethical and unethical behavior directly impacts not only the organization but the community and society at large.

Business Ethics Examples

Business ethics are not as complicated or abstract as one might think. A simple way to evaluate whether or not a practice is ethical is to determine the ultimate impact of that practice.

Example 1: Executive Compensation and Layoffs

When the CEO of a company accepts a raise or does not take a pay-cut when several people are being laid off, this may be considered unethical. The CEO has a responsibility to do what's best for the entire corporation. When a company has to lay off employees but the CEO doesn't share in the suffering, it shows a lack of care for those in the organization.

Example 2: Below Standard Wages

Below Standard Wage

Paying a fair wage is an ethical practice, but some companies or managers seek to pay the lowest possible wages to boost profits. However, this can backfire and harm the business. If a store pays his or her employees less than the going rate while knowing exactly what the going rate is, several things could happen to damage the business.

  • Studies show that higher-wage companies within an industry perform better than lower-wage companies. As a result, the store is likely to under-perform.
  • Poorly paid employees are more likely to quit, costing the store money in turnover, rehiring, and retraining.
  • Underpaid employees are less engaged with their work, less likely to go the extra mile, and less innovative.

Effects of Unethical Business Practices

Poor ethical decisions can affect a company in a variety of ways. For example:

  • Legal problems: Businesses that act unethically in ways that break the law may face large fines and other penalties.
  • Poor employee performance: A lack of ethics within a company affects the way employees do their job. People can decide that because leaders can break the rules, they can too. This can lead them to damage the company. They may also become discouraged or not see the need to work hard in an unethical environment.
  • Poor company credibility: When a company is unethical, it affects its reputation. Not only will the leaders and company lose respect from employees, they will lose credibility with the general public as well. This can result in reduced sales, lost customers, and significant financial harm.

Impact of Ethical Practices

On a more positive note, an establishment that gives significantly to charity each year is practicing ethical behavior and exhibiting corporate social responsibility. While this practice benefits the company by allowing them to write off the donation against their taxes, it also sends out a positive message and has a positive impact on the community. This practice of giving back can bring in more customers, increase or enhance positive business relationships, and even allow the firm to add new employees.

Ethical practices also help companies develop an excellent reputation, which helps bring in additional customers, generates positive publicity, and can help solidify support for the organization in times of crisis and controversy.

Business Ethics are Ultimately Personal Ethics

Business ethics and personal ethics go hand in hand because a company is simply a community of employees working together to achieve specific goals. As a result, employees must share the ethics the company champions, or at least be willing to practice them while employed.

Some businesses give their prospective employees informational materials that contain a mission statement, policies, and other ethical responsibilities that all employees must abide by. While these efforts are commendable, it does nothing if the employee refuses to respect the organization by following the guidelines laid out for them. Instead, companies should look for employees that fit the culture and ethics of the business from the outset.

Understanding the importance of ethics in business is the key to success. Customers, management, and employees all appreciate honest and ethical practices. Business ethics are vital because they help maintain a great reputation, help avoid significant financial and legal issues, and they ultimately benefit everyone involved.

Importance of Ethics in Business