To start up a business, small business owners usually place significant focus on getting the product right and many make the assumption that the company culture – including an ethics policy – will sort itself out in time. In reality, building an ethical business is about a lot more than being compliant and meeting legal requirements. Some experts believe that building an ethical business gives a business a market advantage.

In one 11-year study of over 200 firms like Hewlett-Packard, Xerox, Nissan, First Chicago and others, detailed in Corporate Culture and Performance two authors – John Kotter and James Heskett – found that those company cultures characterized by arrogance, inward focus, and bureaucracy had an innate inability to adapt to change. Fundamental to reversing unhealthy cultures is effective leadership motivated to serve their customers, employees and stockholders. In the end, companies that improved their corporate culture increased net income by 755%.

An ethics code won’t make people act in an ethical manner or make people who routinely make poor decisions suddenly act wisely, but it can define what is right, instill an ethical culture and clarify standards of contact – especially in areas not governed by law. Essentially, it sets the ethical tone of the company and gives everyone a set of standards to work by.

Three features of an effective ethics code:

  1. Inclusive – that is, everyone at all levels of the company is expected to participate

  2. Valid – that is the content must be consistent with standard ethical principles

  3. Authentic – that is, policies are enforced and values are reinforced in word and action

One of the keys to setting an effective ethical code is recognizing the myths and avoiding the pitfalls that are associated with a poorly functioning ethical code.

10 Common Myths about Corporate Ethics

The following are common myths of corporate ethics:

  1. It’s impossible to manage ethics. While codes of behavior do not guarantee an ethical culture, they do articulate desired behavior and present clear values for guidance.

  2. It’s ethical if it’s legal. We all know about loopholes and lax enforcement, but just because you can justify it legally doesn’t mean it’s right.

  3. It’s ethical if it’s for a good cause. Anyone can be vulnerable to rationalizations when they are advancing a noble aim. In the end, it leads to deception and concealment.

  4. It’s ethical if everyone’s doing it. If the behavior is ethically questionable, justification is easier when there is ‘safety in numbers’, but it is still a faulty rationale.

  5. It’s ethical if I don’t personally gain. Poor decisions made for others or under institutional purposes is still wrong; personal gain is not a final test of impropriety.

  6. It’s ethical to fight fire with fire. Promise-breaking, lying and other misconduct is unacceptable even if others routinely engage in it; rise above it instead.

  7. It’s ethical if I do it for someone else. A white lie, withholding information and other missteps disregards the fact that most people would rather know unpleasant information than comforting falsehoods.

  8. It’s ethical if it’s part of my job. Separating personal ethics from work ethics can make decent people do truly despicable things; they should never have to do something they wouldn’t normally do.

  9. It’s ethical if I deserve it. Being overworked or underpaid never justifies accepting favors or gratuities because these are not fair compensation for one’s services or efforts.

  10. It’s ethical if no one gets hurt. Ethical values are not always factors to be considered in the ground rules for good decision-making, they are the ground rules.

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Top Benefits of Corporate Ethics

The Josephson Institute Center for Business Ethics describes the following as the top benefits of an established corporate ethics code:

  • Helps a company communicate expectations to their staff to support suppliers, vendors, and customers.

  • Employees and managers have guidance when the ethical course of action is not immediately obvious.

  • Creates a climate of integrity that helps the company introduce new employees to it’s corporate culture and values.

  • Builds public trust and enhances the corporation’s reputation.

  • Offers protection in pre-emptive defense against lawsuits.

  • Helps a company remain in compliance with complex government regulations.

In the end, corporate ethics are a prime example of one place where you and your company get one chance for a great  first impression. If you lose that opportunity, you may never get it again. Following the examples of institutions that have shown unethical behavior that they could legally justify isn’t the result of a few bad apples in the barrel – it is often a consistent and perniciously unethical culture bred and nurtured throughout the company.


About the author

Matt Faustman

Matt Faustman

Matt is the co-founder and CEO at UpCounsel. Matt believes in the power of online platforms to change antiquated ways of life and founded UpCounsel to make legal services efficiently accessible. He is responsible for our overall vision and growth of the UpCounsel platform. Before founding UpCounsel, Matt practiced as a startup and business attorney.

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