Business Ethics: Definition, Importance, Examples, Benefits

What’s it: Business ethics is defined as a moral principle that guides companies in taking actions, decisions, and policies, especially related to how to conduct business and management’s responsibilities to stakeholders, the environment, and society. These principles govern the behavior of the company and the people within it.

Business ethics are important because they lay the foundation and provide direction for its behavior and its people. Thus, they are consistent with the principles, norms, and business practices in which the company operates.

Ethical values can be universal such as fairness, honesty, and reciprocity, which apply globally. Meanwhile, others can be different for each culture and country.

Why is business ethics important?

Business ethics is a key aspect in maintaining the company’s success. More and more parties are demanding businesses to behave ethically. Moreover, it’s likely to get more and more popular in the future. So, they are increasingly important to build a positive reputation and corporate image.

Ethics affect the way a company deals with customers, regulations, employees, and the impact of company activities on public health, the environment, and the welfare of society. And, when it behaves unethically, it can significantly impact a company’s bottom line. For example, the company has poor customer privacy procedures and protections. That can cause the company to lose customers significantly, fall in confidence, and drop stock prices.

What are some examples of business ethics?

There are various examples where decision making often has an ethical or moral dimension, including:

• Bribing officials can increase your business’s chances of winning tenders from the government. Should it be done?
• Should companies advertise on television for adult products at times when young children watch television?
• Is it necessary to treat waste if your company has to spend a lot of money to do so?
• Is your company looking for regulatory soft spots to benefit your own business?
• Should your company hire local employees with various backgrounds or not?

The answers to the above questions contain an ethical dilemma. At this point, the company’s code of conduct should cover and explain how decisions should be made when faced with such dilemmas.

Some people may practice strict ethics. While others may not. Some people may still justify less ethical but important decisions to reduce costs or increase profits as long as they are legal. For this reason, the answers to the above dilemmas will also differ between individuals.

What are the benefits of business ethics?

Practicing business ethics can be expensive in the short term. It may also be a difficult decision to make. But, it can provide benefits in the long run. Here are some of the benefits of business ethics:

Avoid lawsuits. Complying with regulations can be expensive but not complying with them can be even more expensive, for example, requiring companies to pay significant fines.

Attract high-performing talent. Many professionals are attracted to work in ethical companies. In addition to being a match with their moral principles and values, working in such a company also reduces the chances of getting caught up in the negative consequences of ethical mistakes such as lawsuits. Moreover, companies have ethical guidelines, which can make them more comfortable when facing ethical dilemmas.

Good corporate image. Ethical policies can generate good publicity. For example, environmentally friendly operations can be a strong reason for environmentally conscious consumers to continue to buy products from the company. On the other hand, unethical actions can lead to decreased consumer confidence, loss of their loyalty, and decreased sales.

Adaptive to the business environment. Ethical behavior is gaining popularity, and many people are demanding corporate social responsibility. Thus, promoting ethics can make companies more successful than those that do not.