5 Reasons your organization needs to think about business ethics

What business professionals think about ethics

Have you ever tried to Google the term “business ethics articles?” If so, doing so yields a list of entries. These entries cover many different topics. For example, they discuss money getting in the way of corporate ethics.

They also explore how to establish a culture of ethical behavior at your company, address the importance of business ethics in saving the environment, and consider the moral responsibilities of business leaders.

This diversity should be no surprise to anyone taking a philosophy class. The word “ethics” covers a lot of territory, and great thinkers throughout history have struggled to define its concepts.

Business ethics is no exception. An interesting article put out by the Markkula Center for Applied Ethics at Santa Clara University notes that when sociologists asked business people “What does ethics mean to you?” they received answers such as:

• “Ethics has to do with what my feelings tell me is right or wrong.”

• “Ethics has to do with my religious beliefs.”

• “Being ethical is doing what the law requires.”

• “Ethics consists of the standards of behavior our society accepts.”

The importance of ethical considerations in business

Experts in the field present different mindsets, too. For instance, the concept of corporate social responsibility (CSR) has many business owners today examining their role in the environmental crisis or figuring out how to demonstrate support for social causes.

Nobel Prize-winning economist Milton Friedman, however, contends: “There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

Alternately, business ethics notable Edward Freeman proposes a Stakeholder Theory in which companies and the executives who manage them should “create value” for “those groups without whose support the organization would cease to exist.”

This theory considers groups such as customers, employees, suppliers, local communities, and more. Also, using the word “value” instead of “profit” brings more than monetary concerns into the mix.

Because of the complexity, many leaders might be tempted to leave the debate of ethical issues to business school classes. However, a business that fails to consider its ethical standards may regret it. Here, we look at five reasons why business ethics must be discussed in every organization.

Unethical behavior can lead to a legal mess

Yes, it is true that “legal” and “moral” are not always synonymous. But let’s start with perhaps the most apparent reason every company must be concerned about ethical behavior — failure to do so can cause legal problems.

The law has certain standards that must be upheld, and companies whose business practices go against them face hefty fines and possible jail time for wrongdoers. Like it or not, conducting business within the United States means abiding by its governmental rules.

The Internal Revenue Service goes after tax evaders or cheaters. The U.S. Equal Employment Opportunity Commission says you cannot discriminate against workers on the basis of race, national origin, gender, sexuality, religion, disability, or age.

The Occupational Safety and Health Administration sets rules designed to keep employees from workplace harm. Whether to go above and beyond requirements presents dilemmas to individual companies, but laws provide a minimal starting point for ethical business concepts such as fairness and honesty.

An ethical culture plays a significant role in attracting job applicants and retaining employees

Businesses rely on human capital. Securing qualified talent and keeping it around is both a priority and a challenge. Insufficient labor reduces productivity and causes the company to spend time and money trying to fill the gap.

Human beings possess their own individual sense of right and wrong. When an employer’s actions and attitudes contrast with someone’s personal beliefs, problems result.

Modern job seekers can find a plethora of information on potential employers. Negative hiring practices such as nepotism, favoritism, and discrimination can make candidates immediately pass over a given company.

Likewise, hearing about poor employee treatment, questionable customer practices, breaking laws, and the like leads prospects to avoid a company more often than not. Why chance getting into a sticky situation?

Those who take on jobs and later discover ethical conflicts experience great turmoil. Even if a worker is not performing questionable acts, he may fear for his reputation through guilt by association or feel deflated to be there.

Unethical workplace situations cause stress. Leaders may pressure employees to keep quiet, overlook things, or actively commit crimes to keep their jobs or advance. The weight of how to respond, including whether or not whistle-blowing would result in repercussions, often proves too heavy, and leaving to seek employment elsewhere proves a saner option.

Research supports this type of outcome. According to Deloitte’s 2022 Gen Z and Millennial Survey, nearly two in five people from these age groups say they have rejected a job or assignment because it did not align with their values.

Meanwhile, those who are satisfied with their employers’ societal and environmental impact and efforts to create a diverse and inclusive culture are more likely to want to stay with their employer for more than five years.

An unethical corporate culture can damage your reputation

A global survey conducted by the Human Resource Institute (HRI) and commissioned by the American Management Association (AMA) posed the interesting question, “Why should companies behave ethically?” The number one response was not “to do the right thing” (though that answer did come in a close second). The top-ranked reason was “to protect a company’s brand and reputation.”

Undeniably, we live in a world where social media and around-the-clock news stations report business happenings quickly and thoroughly. A company can become known for several harmful practices.

For instance, it might pay women less than men for equal work, violate human rights in its overseas manufacturing plants, or clearly choose practices that favor profit over environmental sustainability.

Consequently, these actions can kill relationships with potential customers and damage relationships with potential investors.

Practicing corporate social responsibility can help you stand out

While not Friedman’s cup of tea, many modern businesses make CSR part of their business practices and ethics. They purposely operate in ways that enhance society — such as supporting social causes, minimizing carbon footprints, performing volunteer work, and donating to charity.

These actions not only increase morale in your organization but can also generate good public vibes. With so many businesses centered on profitability, a firm marketed as one that cares about the greater good draws attention.

Ethical business practices are favorable for your bottom line.

It is no secret that businesses want to make money, and research shows a link between ethical values and profitability. According to Ethisphere’s Ethics Index, the 2022 World’s Most Ethical Companies honorees outperformed a comparable index of large-cap companies by 24.6 percentage points from January 2017 to January 2022.

What might explain this finding? Maybe customers are drawn more to companies that make good ethical decisions. Fines, lawsuits, and lawyer fees consume much of the profits at companies with a questionable code of ethics.

It also stands to reason that leaders and employees alike at places with a high ethical culture demonstrate greater respect for one another, leading to better decision-making and less conflict among teams. They may also have a greater desire to give 100% because they trust their employers have their best interests at heart.

It could even be theorized that people who work at places whose practices align with their personal code of ethics sleep better at night. With plenty of Zzzs and a clear conscience, they arrive at work ready to perform rather than focusing on whether or not they are doing the right thing.

More resources:
Unethical workplace behavior: A guide in workplace ethics and integrity
Honesty at work: Why it’s important and what it looks like
Workplace etiquette: The ultimate guide to professionalism

Want more insights like these? Visit Beth Braccio-Hering’s author page to explore her other articles and expertise in business management.