Define Business Ethics: Everything You Need to Know
Professionals define business ethics as the examination of proper business practices and policies when considering topics that can be controversial. 3 min read
Professionals define business ethics as the examination of proper business practices and policies when considering topics that can be controversial. Business ethics are often guided by the law, though some organizations opt to operate ethically to earn the acceptance of the public. Ethical business practices help to establish a level of trust between organizational stakeholders and consumers.
Topics at Play in Business Ethics
Controversial ethics topics that are frequently examined in business settings include:
- The way corporations are governed.
- Issues with insider trading.
- Bribery at the corporate level.
- Discrimination against protected groups.
- CSR, or corporate social responsibility.
- Fiduciary, trust-based, responsibilities.
A portfolio manager, as an example, has to give the portfolios of his or her family members the same treatment as those of smaller private investors who are not related. This is to guarantee that others are treated fairly. Business ethics is, however, more than just a personal code of ethics. It is based on balancing the things companies have to do under the law and things they do to maintain a competitive advantage in the marketplace.
The Business Ethics Movement Began in the 1960s
An increased awareness of environmental and social issues during a time of rising consumerism led to the development of the business ethics concept in the 1960s. Today, those ethics can be seen in a variety of ways. Businesses are responsible to many different stakeholders, including customers, clients, and shareholders. Balancing the interests of all stakeholders can be tricky for business leaders when ethical issues arise.
Examples of Business Ethics Laws
Laws that are in place impose some types of business ethics, such as:
- The SEC, or Securities and Exchange Commission, rules over investment banking and how stockbrokers are permitted to operate.
- Attorney-client privilege laws cover ethical decisions in the legal profession.
- An attorney who breaches a client's confidentiality can lose his or her license to practice law.
- Labeling for a product like cereal is governed by laws, so businesses have to balance enthusiasm for their products with accurate statements.
Moral Judgments in Business Ethics
When business leaders have to make decisions on issues that aren't governed by laws, moral judgments and personal ethics are used. These moral rules come into play when companies deal with non-regulated issues regarding shareholders, customers, and employees. The moral approach is also used in medical research when human patients are involved. Peer review boards preside over the experiments to make sure researchers employ moral judgment and make ethical decisions.
Ethics in Corporate Culture
When companies infuse their beliefs, core values and preferred courses of action regarding both common and unusual business events, they define the company's corporate culture. Employees are then able to make decisions based on the company's values when faced with ethical dilemmas. Companies can define these ethics-based business values by providing strong examples to desired behavior in different situations. Having employees role-play through ethically-loaded situations is one way to work toward achieving a corporate culture that has positive business ethics at its core.
Ways Companies Encourage Ethical Behavior
There are a number of things business leaders can do to encourage ethical business behavior, according to business experts and ethicists. These things include:
- Preparing a statement of organizational values to create a defined framework of behavior expectations.
- Including the company's operating principles in the statement to share why the company exists, management's beliefs, and planned behavior that supports the company's ethics policy.
- Actively reviewing the company's strategic plans and goals to be sure they align with the basic ethical standards set by the company.
- Reviewing standard operating procedures and performance metrics to be sure they do not encourage unethical behavior.
- Leading by example.
- Treating customers, competitors, and employees with integrity.
- Penalizing anyone within the organization who doesn't act with integrity.
These corporate social responsibility behaviors all work together to help in the building of an ethical workforce.
The Overall Goal of Business Ethics
A lot of people don't put a high value on practicing business ethics and describe it as a sentimental effort. Others, however, believe good ethics are essential to efficiently running a business. Modern business ethics aren't about why or if ethics should be part of the business world, though, they're about how businesses can use a moral code to guide business decisions with the goal of benefiting all of an organization's stakeholders.
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