Business ethics (also known as corporate ethics) is a form of
applied ethics or professional ethics, that examines ethical
principles and moral or ethical problems that can arise in a business
environment.
What is good corporate ethics?
Business ethics is an evolving topic. Generally, there are about 12 ethical
principles: honesty, fairness, leadership, integrity, compassion, respect,
responsibility, loyalty, law-abiding, transparency, and environmental concerns.
Corporations establish business ethics to promote integrity among their employees and gain
trust from key stakeholders, such as investors and consumers.
WHAT ARE BUSINESS ETHICS?
Business ethics are principles that guide decision-making. As a leader, you’ll
face many challenges in the workplace because of different interpretations of
what's ethical. Situations often require navigating the “gray area,” where it’s
unclear what’s right and wrong.
When making decisions, your experiences, opinions, and perspectives can
influence what you believe to be ethical, making it vital to:
Be transparent.
Invite feedback.
Consider impacts on employees, stakeholders, and society.
Reflect on past experiences to learn what you could have done better.
“The way to think about ethics, in my view, is: What are the externalities that
your business creates, both positive and negative?” says Harvard Business
School Professor Vikram Gandhi in Leadership, Ethics, and Corporate
Accountability. “And, therefore, how do you actually increase the positive
element of externalities? And how do you decrease the negative?”
Ethical Responsibilities to Society
Promoting ethical conduct can benefit both your company and society long
term.
“I'm a strong believer that a long-term focus is what creates long-term value,”
Gandhi says in Leadership, Ethics, and Corporate Accountability. “So you
should get shareholders in your company that have that same perspective.”
Prioritizing the triple bottom line is an effective way for your business to fulfill
its environmental responsibilities and create long-term value. It focuses on
three factors:
Profit: The financial return your company generates for shareholders
People: How your company affects customers, employees, and
stakeholders
Planet: Your company’s impact on the planet and environment
Check out the video below to learn more about the triple bottom line, and
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Ethical and corporate social responsibility (CSR) considerations can go a long
way toward creating value, especially since an increasing number of
customers, employees, and investors expect organizations to prioritize CSR.
According to the Conscious Consumer Spending Index (pdf), 67 percent of
customers prefer buying from socially responsible companies.
To prevent costly employee turnover and satisfy customers, strive to fulfill your
ethical responsibilities to society.
Ethical Responsibilities to Customers
As a leader, you must ensure you don’t mislead your customers. Doing so can
backfire, negatively impacting your organization’s credibility and profits.
Actions to avoid include:
Greenwashing: Taking advantage of customers’ CSR preferences by
claiming your business practices are sustainable when they aren't.
False advertising: Making unverified or untrue claims in advertisements or
promotional material.
Making false promises: Lying to make a sale.
These unethical practices can result in multi-million dollar lawsuits, as well as
highly dissatisfied customers.
Ethical Responsibilities to Employees
You also have ethical responsibilities to your employees—from the beginning
to the end of their employment.
One area of business ethics that receives a lot of attention is employee
termination. According to Leadership, Ethics, and Corporate Accountability,
letting an employee go requires an individualized approach that ensures
fairness.
Not only can wrongful termination cost your company upwards of $100,000 in
legal expenses, it can also negatively impact other employees’ morale and
how they perceive your leadership.
Ethical business practices have additional benefits, such as attracting and
retaining talented employees willing to take a pay cut to work for a socially
responsible company. Approximately 40 percent of millennials say they would
switch jobs to work for a company that emphasizes sustainability.
Ultimately, it's critical to do your best to treat employees fairly.
“Fairness is not only an ethical response to power asymmetries in the work
environment,” Hsieh says in the course. “Fairness—and having a successful
organizational culture–can benefit the organization economically and legally.”
WHY ARE BUSINESS ETHICS IMPORTANT?
Failure to understand and apply business ethics can result in moral
disengagement.
“Moral disengagement refers to ways in which we convince ourselves that
what we’re doing is not wrong,” Hsieh says in Leadership, Ethics, and
Corporate Accountability. “It can upset the balance of judgment—causing us to
prioritize our personal commitments over shared beliefs, rules, and principles
—or it can skew our logic to make unethical behaviors appear less harmful or
not wrong.”
Moral disengagement can also lead to questionable decisions, such as insider
trading.
“In the U.S., insider trading is defined in common, federal, and state laws
regulating the opportunity for insiders to benefit from material, non-public
information, or MNPI,” Hsieh explains.
This type of unethical behavior can carry severe legal consequences and
negatively impact your company's bottom line.
“If you create a certain amount of harm to a society, your customers, or
employees over a period of time, that’s going to have a negative impact on
your economic value,” Gandhi says in the course.
This is reflected in over half of the top 10 largest bankruptcies between 1980
and 2013 (pdf) that resulted from unethical behavior. As a business leader,
strive to make ethical decisions and fulfill your responsibilities to stakeholders.
HOW TO IMPLEMENT BUSINESS ETHICS
To become a more ethical leader, it's crucial to have a balanced, long-term
focus.
“It's very important to balance the fact that, even if you're focused on the long
term, you have to perform in the short term as well and have a very clear,
articulated strategy around that,” Gandhi says in Leadership, Ethics, and
Corporate Accountability.
Making ethical decisions requires reflective leadership.
“Reflecting on complex, gray-area decisions is a key part of what it means to
be human, as well as an effective leader,” Hsieh says. “You have agency. You
must choose how to act. And with that agency comes responsibility.”
Related: Why Are Ethics Important in Engineering?
Hsieh advises asking the following questions:
Are you using the “greater good” to justify unethical behavior?
Are you downplaying your actions to feel better?
“Asking these and similar questions at regular intervals can help you notice
when you or others may be approaching the line between making a tough but
ethical call and justifying problematic actions,” Hsieh says.
BECOME A MORE ETHICAL LEADER
Learning from past successes and mistakes can enable you to improve your
ethical decision-making.
“As a leader, when trying to determine what to do, it can be helpful to start by
simply asking in any given situation, ‘What can we do?’ and ‘What would be
wrong to do?’” Hsieh says.
Many times, the answers come from experience.
Gain insights from others’ ethical decisions, too. One way to do so is by taking
an online course, such as Leadership, Ethics, and Corporate Accountability,
which includes case studies that immerse you in real-world business
situations, as well as a reflective leadership model to inform your decision-
making.
