A business is defined as the activity of an organization or enterprising entity engaged in commercial, industrial, or professional activities to produce or exchange goods or services. Businesses can be for-profit entities or non-profit organizations that operate to fulfill a charitable mission or further a social cause.
Businesses must establish a clear set of values that promote ethical practices and social responsibility. In today’s business climate, companies are increasingly under scrutiny by private citizens. A company that builds its foundation on sound principles will have a better chance of staying competitive in a volatile market.
Business ethics are considered to be the blueprint for building a successful organization. If an organization is built on socially responsible values, it will be stronger than an organization that is built on profit alone. More than just a positive reputation, the core ethics of a business dictate how every decision, process, and procedure will take place. This steadfast governance applies even if the business faces hard times or difficult situations. Some will even argue that businesses require full transparency in today’s world. Businesses are more than people working together to offer a product or service. Businesses are often viewed as entities that should protect stakeholders from unethical behaviors and activities. A set of governing rules should be in place to set the bar high for ethical compliance in every organization.
Why is corporate ethics so important in business?
The idea of business ethics may seem subjective, but it comes down to acceptable levels of behavior for each individual who makes up the organization. This behavior must start at the top with responsible actions demonstrated by leadership. By doing so, leaders create a set of rules that are to be followed by others in the company. These rules can be based on the deep values that the company has concerning the quality of products and services, the commitment to customers, or how the organization gives something back to the community. The more a company lives by its set of ethics, the more likely it is to be successful. Anna Spooner, who writes for LovetoKnow, shares tips on how to evaluate whether or not an organization is creating ethical practices by determining the impact of each practice. Some examples include:
Executive compensation rates during employee layoffs. Let’s say a company is struggling during an economic downturn and must lay off a portion of its workforce. Does the CEO of the company take his or her annual raise or take a pay cut when others are losing their jobs? One could say that to take a raise is unethical because the CEO should also sacrifice some pay for the good of the company.
Fair compensation for employees. Paying employees minimum wage, or just above minimum wage, is not always fair compensation. In most regions, the cost of living has not been adjusted in years, meaning that people are surviving on less money. Ethics can make a difference here.
Ethical business practices, guided by a corporate set of standards, can have many positive outcomes, including recruitment and retention improvement, better relationships with customers, and positive PR. In 2015, Dan Price, CEO of the Seattle payment processing firm Gravity Payments, voluntarily took a huge pay cut and vowed to raise his employees’ wages to $70,000. This move was great for the company, which claims that revenues and profits skyrocketed, and they experienced a 91 percent employee retention rate over the last few years. On the opposite side, unethical business behaviors can have a negative impact on any business. Even if an unethical decision is made by a single member of the executive team, it can have far-reaching repercussions. Some possible results of unethical business actions may include:
Poor company reputation. In an increasingly transparent world, unethical decisions made by businesspeople become permanent stains on the company. Social networks have become sounding boards for anything deemed unethical or politically incorrect, and everyone from disgruntled employees to dissatisfied customers can rate companies on public company review websites.
Negative employee relations. If employees continually see a discrepancy between what’s expected of them and how leadership behaves, this contrast can create serious problems in the management of employees. Some employees may become disengaged, while others will stop working as hard. After all, if the same rules don’t apply to everyone, why even bother? The downside to negative employee relations is that the entire company becomes less productive, less responsive to customers, and less profitable.
Recruitment and retention problems. Once a company has developed a negative reputation, it can be difficult to recruit new talent, let alone retain the talent that’s already there. Disengaged employees who grow tired of the double standards will leave. This attrition can impact customers who then have to deal with less experienced and less interested employees, who are already overworked and frustrated.
Company credibility lost. Customers are savvy enough to follow what’s going on from an ethics standpoint. If they hear of a problem, they begin to question the actions of every person at the company. For example, if a member of the board is accepting expensive gifts from clients in exchange for favorable pricing of materials, this situation could set off major alarms for other customers, and even vendors. The company can expect to lose business if this unethical behavior continues.
Poor ethics can quickly spiral downward, destroying every aspect of the business and making it very difficult to compete. It’s critical for every business to pay attention to ethical standards and continually remind employees at all levels that their behavior has an impact on the entire organization.
- Business Law I Essentials. OpenStax. https://openstax.org/books/business-law-i-essentials/pages/1-introduction