What are the importance of ethical responsibilities?

Organizational ethics are the policies, procedures and culture of doing the right things in the face of difficult and often controversial issues. Ethics topics that challenge organizations include but aren't limited to discrimination, social responsibility and fiduciary issues. Ethics issues and how any organization practices ethics are more important than ever because social media readily exposes issues that might have been swept aside in previous generations.

An organization devoting resources to developing policies and procedures that encourage ethical actions builds a positive corporate culture. Team member morale improves when employees feel protected against retaliation for personal beliefs. These policies include anti-discriminatory rules, open door policies and equal opportunities for growth. When employees feel good about being at work, the overall feeling in the organization is more positive. This breeds organizational loyalty and productivity, because employees feel good about showing up for work.

An organization can lose consumer confidence very quickly with a few bad online reviews. Organizations have to retain consumer loyalty through ethical practices that start with fair and honest advertising methods and continue through the entire sales process. One area that organizations can lose consumer confidence is failing to honor guarantees or negatively deal with complaints. This is why consistent policies and employee training is imperative. Companies must direct employees on how to treat customers according to its core values.

When an organization takes the time to identify what is important to consumers and its target market, it is better able to set value statements and protocols to meet higher ethical standards. For example, a coffee distributor that focuses on fair trade and farming sustainability, builds a brand supporting environmental and social responsibility.

Organizations that don't develop policies on ethical standards risk financial liabilities. The first liability is a reduction in sales. For example, a real estate development company can lose customer interest and sales if its development reduces the size of an animal sanctuary. This doesn't mean a company must abandon growth. Finding an ethically responsible middle ground is imperative to sway public opinion away from corporate greed and toward environmental responsibility.

The second area of financial liability exists with potential lawsuits. No organization is exempt from a disgruntled employee or customer who claims discrimination. Sexual discrimination in the workplace is costing CEOs, politicians and celebrities their livelihood because they are not appropriately dealing with accusations and harassment claims. Organizations must maintain policies and procedures addressing various types of harassment and discrimination. Moreover, organizations must remain consistent in the execution of policies dealing with accusations. This helps reduce frivolous lawsuits that could bankrupt smaller organizations.

Like finance and marketing, ethics has become an essential business function. But why? In this blog, we shall explore the main reasons why business ethics is important for companies as well as budding business professionals.

What Is Business Ethics?

By definition, business ethics refers to the standards for morally right and wrong conduct in business. Law partially defines the conduct, but “legal” and “ethical” aren’t necessarily the same. Business ethics enhances the law by outlining acceptable behaviors beyond government control.

Corporations establish business ethics to promote integrity among their employees and gain trust from key stakeholders, such as investors and consumers. While corporate ethics programs have become common, the quality varies. According to the 2018 Global Business Ethics Survey (GBES), less than one in four U.S. workers think their company has a “well-implemented” ethics program.

Business ethics is an essential skill.

Almost every company now has a business ethics program. In part, that’s because technology and digital communication have made it easier to identify and publicize ethical missteps. To avoid the negative implications, companies are devoting more resources to business ethics. In one survey of accountants, for example, 55 percent said they believe the importance of business ethics will continue to grow in the next three years. In addition to establishing formal programs, companies are creating ethical workplaces by hiring the right talent. “High integrity and honesty” is the second-most important skill for business leaders, according to a recent survey. Today’s business professionals must understand the link between business ethics and business success.

Business ethics drives employee behavior.

According to the 2018 Global Business Ethics survey, employees are more likely to apply ethical reasoning when their company clearly demonstrates why business ethics is important. Ninety-nine percent of U.S. employees who experience a strong ethics culture said they’re prepared to handle ethical issues. Companies that advocate for business ethics motivate their employees to perform their roles with integrity.

The first step in building this kind of ethical culture is to create an ethics program. According to the U.S. Department of Commerce, a complete ethics program should touch on all of the business functions. That includes operations, human resources, and marketing, to name a few. The global research company Gartner advises companies to integrate their ethics program with business operations.

Doing so can maximize the program’s impact by making ethical processes part of employees’ workflow. According to Gartner, an ethics program should:

1. Define the program mandate
2. Mitigate and monitor risk
3. Establish policies and procedures
4. Oversee allegations of misconduct
5. Provide training and communications
6. Reinforce behavioral expectations
7. Manage the function of behavior ethics

Corporations have a critical role in developing good ethics in business. But educational institutions also play a fundamental part in shaping ethical leaders. U.S. News & World Report reported that ethics education is vital to a well-rounded MBA curriculum. At the University of Redlands, we understand why business ethics is important. Business professionals currently face some of the world’s most significant problems. Complex dilemmas like climate change, safety, and security require critical thinking and ethical reasoning. That’s why we equip students with these skills.

Redlands’ ACBSP-accredited MBA program develops students as competitive and ethical business leaders. Through a cutting-edge, interactive curriculum, we prepare students to meet and advocate for the behavioral expectations of an ethical workplace. Our students investigate the ethical, legal, and social factors of decision-making, and cultivate an ethical framework of business decisions in one of four concentration areas. We underscore ethics throughout our online MBA program, preparing students to promote an exceptional culture of ethics wherever they choose to work.

Business ethics benefits the bottom line.

Another reason why business ethics is important is that it can improve profitability. Honorees on this year’s list of the World’s Most Ethical Companies outperformed the Large Cap Index by 10.5 percent over three years. A well-implemented ethics program can also reduce losses. Twenty-two percent of cases examined in the 2018 Global Study on Occupational Fraud and Abuse cost the victim organization $1 million or more. Companies that practice questionable ethics may also experience a decrease in stock price and severed business partnerships, which can affect profitability. In addition, business ethics is linked to customer loyalty. Over half of U.S. consumers said they no longer buy from companies they perceive as unethical. On the flip side, three in 10 consumers will express support for ethical companies on social media. Business ethics cultivates trust, which strengthens branding and sales.

Understanding why business ethics is important

Amidst growing scrutiny of business practices, it’s more important than ever for companies to carry out work the right way. Ethics programs are an exceptional tool for promoting moral conduct. Organizations also need employees dedicated to ethical decision-making.

Learn more about how our bachelors and masters business programs can help enhance your skills as an ethical business leader today. 

The system of moral and ethical beliefs that guides the values, behaviors, and decisions of a business organization and the individuals within that organization is known as business ethics.

Some ethical requirements for businesses are codified into law. Environmental regulations, the minimum wage, and restrictions against insider trading and collusion are all examples of the government setting forth minimum standards for business ethics.

What qualifies as business ethics in history has changed over time and the different areas of ethics are important to every business.

• Business ethics involve a guiding standard for values, behaviors, and decision-making.
• Ethics for business have changed over time but they're important for every company.
• Running a business with ethics at its core from the top down is essential for company-wide integrity.
• Behaving in a consistently ethical manner can lock in a solid reputation and long-term financial rewards for companies.
• Employees tend to remain loyal to, and perform more effectively for, a company with a high standard of ethics.

A management team sets the tone for how an entire company runs on a day-to-day basis. When the prevailing management philosophy is based on ethical practices and behavior, leaders within an organization can direct employees by example. They can guide them in making decisions that are beneficial to them as individuals and to the organization as a whole.

Building on a foundation of ethical behavior helps create long-lasting positive effects for a company. One such effect is the ability to attract and retain highly talented individuals. Another is a positive reputation within the community.

Running a business in an ethical manner from the top down establishes stronger bonds between individuals on the management team. This, then, creates greater stability within the company.

When management leads an organization in an ethical manner, employees follow in those footsteps. Employees make better decisions in less time when business ethics are a guiding principle. This increases productivity and overall employee morale.

When employees work in a way that is based on honesty and integrity, the whole organization benefits. Employees who work for a corporation that demands a high standard of business ethics in all facets of operations are more likely to perform their job duties at a higher level. They're also more inclined to stay loyal to that organization.

Enron Corporation, an American energy and commodity services company, collapsed after the Securities and Exchange Commission (SEC) investigated its improper accounting practices and revealed that the company hid massive losses and liabilities while paying its executives millions. Thousands of employees suddenly were left jobless. Several executives were convicted of federal crimes. The company's unethical behavior also led to the downfall of one of the oldest and biggest accounting firms, Arthur Andersen.

Business ethics differ from industry to industry, and nation to nation. The nature of a business' operations has a major influence on the ethical issues with which it must contend.

For example, an ethical quandary can arise for an investment brokerage when the best decision for a client and their money runs counter to what pays the brokerage the highest commission. A media company that produces TV content aimed at children may feel an ethical obligation to promote good values and eschew off-color material in its programming.

A striking example of industry-specific business ethics is in the energy field. Companies that produce energy, particularly nonrenewable energy, face unrelenting scrutiny on how they treat the environment.

One misstep, whether it's a minor coal ash spill at a power plant or a major disaster such as the 2010 BP (BP) oil spill, can force a company to answer for its actions. Numerous regulatory bodies and society at large may pursue whether the company skirted its duty to protect the environment in an aggressive pursuit of higher profits.

A stringent, clearly defined system of environmental ethics is paramount for an energy company if it wants to thrive in a climate of increased regulations and public awareness on environmental issues.

Companies such as Amazon (AMZN) and Google (GOOGL), which conduct most of their operations online, are not scrutinized for their environmental impact the way energy companies such as BP and Exxon (XOM) are. When it comes to protecting their customers' privacy and security, however, their ethics are examined very closely.

A particular area in which technology companies must make tough ethical decisions is marketing. Advancements in data mining technology enable businesses to track their customers' movements online and sell that data to marketing companies or use it to match customers with advertising promotions.

Many people view this type of activity as a major invasion of privacy. However, such customer data is invaluable to businesses, as they can use it to increase profits substantially. Thus, an ethical dilemma is born. To what extent is it appropriate to spy on customers' online lives to gain a marketing advantage?

The importance of business ethics reaches far beyond employee loyalty and morale or the strength of a management team bond. As with all business initiatives, the ethical operation of a company is directly related to profitability in both the short and long term.

The reputation of a business in the surrounding community, among other businesses, and for individual investors is paramount in determining whether a company is a worthwhile investment. If a company is perceived to operate unethically, investors are less inclined to buy stock or otherwise support its operations.

Companies have more and more of an incentive to be ethical as the area of socially responsible and ethical investing keeps growing. The increasing number of investors seeking out ethically operating companies to invest in is driving more firms to take this issue more seriously.

Business ethics represents a standard of behavior, admired values, trustworthy methods of operation, and respect for customers that a company incorporates, and insists that all employees adhere to, as it functions from day to day.

By behaving according to a high ethical standard, companies can strengthen the drive to succeed internally among executives, management teams, and staff. Furthermore, companies can attract and keep investors who themselves are attracted to companies that align with their own standards of ethical behavior. In other words, business ethics can help companies build long-lasting, solid reputations and financial success.

That's a good question, especially when the financial advantages arising from a high degree of ethical behavior can be so great. A couple of reasons may be that some CEOs, management teams, or employees may feel it's just easier to work outside of an ethical standard. They may reach certain financial goals faster and not care about the long-term repercussions. It may seem to be less expensive to work without moral and ethical boundaries. Where money is concerned, good ethics can be forgotten.

With consistent ethical behavior comes an increasingly positive public image. There are few other considerations as important to potential investors and current shareholders. To retain a positive image, businesses must be committed to operating on an ethical foundation as it relates to the treatment of employees, respecting the surrounding environment, and fair market practices in terms of price and consumer treatment.