Business ethics is the study of appropriate business policies and practices regarding potentially controversial subjects including corporate governance, insider trading, bribery, discrimination, corporate social responsibility, and fiduciary responsibilities. The law often guides business ethics, but at other times business ethics provide a basic guideline that businesses can choose to follow to gain public approval. Show
Business ethics ensure that a certain basic level of trust exists between consumers and various forms of market participants with businesses. For example, a portfolio manager must give the same consideration to the portfolios of family members and small individual investors. These kinds of practices ensure the public receives fair treatment. The concept of business ethics began in the 1960s as corporations became more aware of a rising consumer-based society that showed concerns regarding the environment, social causes, and corporate responsibility. The increased focus on "social issues" was a hallmark of the decade. Since that time period, the concept of business ethics has evolved. Business ethics goes beyond just a moral code of right and wrong; it attempts to reconcile what companies must do legally versus maintaining a competitive advantage over other businesses. Firms display business ethics in several ways.
Business ethics are meant to ensure a certain level of trust between consumers and corporations, guaranteeing the public fair and equal treatment. Here are a few examples of business ethics at work as corporations attempt to balance marketing and social responsibility. For example, Company XYZ sells cereals with all-natural ingredients. The marketing department wants to use the all-natural ingredients as a selling point, but it must temper enthusiasm for the product versus the laws that govern labeling practices. Some competitors' advertisements tout high-fiber cereals that have the potential to reduce the risk of some types of cancer. The cereal company in question wants to gain more market share, but the marketing department cannot make dubious health claims on cereal boxes without the risk of litigation and fines. Even though competitors with larger market shares of the cereal industry use shady labeling practices, that doesn't mean every manufacturer should engage in unethical behavior. For another example, consider the matter of quality control for a company that manufactures electronic components for computer servers. These components must ship on time, or the manufacturer of the parts risks losing a lucrative contract. The quality-control department discovers a possible defect, and every component in one shipment faces checks. Unfortunately, the checks may take too long, and the window for on-time shipping could pass, which could delay the customer's product release. The quality-control department can ship the parts, hoping that not all of them are defective, or delay the shipment and test everything. If the parts are defective, the company that buys the components might face a firestorm of consumer backlash, which may lead the customer to seek a more reliable supplier. When it comes to preventing unethical behavior and repairing its negative side effects, companies often look to managers and employees to report any incidences they observe or experience. However, barriers within the company culture itself (such as fear of retaliation for reporting misconduct) can prevent this from happening. Published by the Ethics & Compliance Initiative (ECI), the Global Business Ethics Survey of 2021 surveyed over 14,000 employees in 10 countries about different types of misconduct they observed in the workplace. 49% of the employees surveyed said they had observed misconduct, with 22% saying they had observed behavior they would categorize as abusive. 86% of employees said they reported the misconduct they observed. When questioned if they had experienced retaliation for reporting, a whopping 79% said they had been retaliated against. Indeed, fear of retaliation is one of the major reasons employees cite for not reporting unethical behavior in the workplace. ECI says companies should work toward improving their corporate culture by reinforcing the idea that reporting suspected misconduct is beneficial to the company and acknowledging and rewarding the employee's courage for making the report.
Business ethics concerns ethical dilemmas or controversial issues faced by a company. Often, business ethics involve a system of practices and procedures that help build trust with the consumer. On one level, some business ethics are embedded in the law, such as minimum wage, insider trading restrictions, and environmental regulations. On the other hand, business ethics can be influenced by management behavior, with wide-ranging effects across the company.
Consider an employee who is told in a meeting that the company will face an earnings shortfall for the quarter. This employee also owns shares in the firm. It would be unethical for the employee to sell their shares since they would be subject to insider information. Alternatively, if two large competitors came together to gain an unfair advantage, such as controlling prices in a given market, this would raise serious ethical concerns.
Business ethics are important because they have lasting implications on several levels. With increased investor awareness on environmental, social, and governance issues, a company's reputation is at stake. For instance, if a company partakes in unethical practices, such as poor customer privacy procedures and protections, it could result in a data breach. This, in turn, may lead to a significant loss of customers, erosion of trust, less competitive hires, and share price declines.
Ethical decision-making and leadership are the basis of ethical organisations, corporate social responsibility, 'fairtrade', sustainability, the 'triple bottom line' and other similar concepts This article introduces the concept and reasoning behind ethical leadership and ethical organisations. Ethical principles provide the foundations for various modern concepts for work, business and organisations, which broaden individual and corporate priorities far beyond traditional business aims of profit and shareholder enrichment. Ethical factors are also a significant influence on institutions and public sector organisations, for whom the traditional priorities of service quality and cost management must now increasingly take account of these same ethical considerations affecting the commercial and corporate world. The modern concept of ethical organisations encompasses many related issues including:
Any other aspects of good modern leadership, management and organisations which relate to ethics, could be added to the list. Ethics is a very broad area. There are many different definitions and interpretations of the concept. There are no universally agreed rules of ethics, no absolute standards or controls, and no fixed and firm reference points. This is fascinating given how hugely important ethics have now become in modern life and society. The concept of ethics will be discussed in more detail below. What does Ethical Mean?This explanation attempts to go deeper than the usual descriptions of ethical organisations because ethics in work and business are both a reflection of and influenced by ethical aspects of life and the wider world. The aim of this article not to tell you what's ethical and what's not. The aim is to help you to determine better for yourself what is ethical and what is unethical. As mentioned above, there is no universally accepted definition of what ethical entails.
Ethical - Morality and MoralsThe modern Oxford English Dictionary says:
Note. This is merely an example of the word in use - it is not an opinion - nevertheless, it's an example which reflects modern attitudes and the context in which ethical questions now arise which would not readily have done so a generation or two ago.
The OED adds some extra explanation about ethics, summarised thus: "Western ethical philosophy can be divided roughly into three types:
A single precise definition of ethical is not easy to agree. How has the Idea of Ethical Changed over Time?To show how ideas change over time, the 1933 Oxford English Dictionary says first of ethics (when seemingly the word 'ethic' was used as an adjective like today's use of the word ethical):
This significant definition of ethos is offered since it suggests the relative component within ethics: "The prevalent tone of sentiment of a people or community..." Extending this theme, in a practical sense, aside from what is covered by law or other clear standards, whether something is considered to be ethical by people (markets, customers, media, etc.) is generally a matter of opinion. The same might be said of morality. Both concepts - ethics and morality - are subjective and a reflection of society and civilisation, which of course implies that precise meanings will change. Both are relative in time and situation. Ethics and the Law
Such a vague way of judging whether something is ethical is not to diminish the importance of ethical factors. On the contrary.
For example, it is unlawful to drive a little faster than the speed limit. But the vast majority of people consider it to be acceptable and continue to do so. The UK poll tax of the 1980s was lawful, yet public reaction (much of it unlawful) against it caused the law to be changed.
Ethical Business and InvestmentEthical business - as other ethical issues - are a matter of individual and collective judgement. Therefore, it is possible to go so far only in outlining ethical considerations and to give some modern examples of interpretation which seem to be generally accepted. Ethical Investment
Ethical investment has been a growing aspect of business investment since the 1970s, although arguably the first types of ethical businesses can be traced back to the Quaker and Methodist movements of the 1800s.
Ethical business or investment is concerned with how profit is made and how much profit is made, whereas traditional profit-centred free-market based business is essentially only concerned with how much profit is made.
In this context, 'social' and 'socially responsible' include related factors such as:
Typically the above are interpreted within ethical investment so as to regard the following sectors and activities as being difficult to reconcile with profit and investment. As with other perspectives on this page, this is not a definitive list or set of absolute criteria. It's a set of examples to illustrate typical (modern Western) concerns of ethical investors and ethical business people:
This is not an exhaustive list and is subject to change - as the world changes. Ethical Standards Over TimeAs stated, the above outline is not a pronouncement of what is ethical and unethical. It's a reflection of current attitudes, which you can use in your own way alongside the other information on this page to develop your own ideas as to what's ethical and what's not.
Thus, ethical behaviour is a relative judgement, as well as a subjective one - We cannot impose one society's moral code onto another society with different needs and demands. Advantages for CorporationsAnd so here lies substantial advantage for corporations and other groups and bodies which anticipate such changes. They adapt quicker and are seen generally to lead rather than follow. They also manage change more successfully, since they have time to do it. Organisations and institutions which fall behind public ethical expectations find catching up a lot more difficult. The Overlap and Differences between Ethics and LawMany believe that the word ethical equates to lawful and that by being lawful an organisation or activity is automatically ethical. However, this is not always the case. While many things that are unethical are also unlawful, ethics do not equate to law:
Notable examples are situations in which the law or the way law is applied, is considered unethical ('wrong' is the typical description) by sufficient numbers of people to pressure the legal system to change. You can perhaps think of examples when this has happened, and such cases are examples of an ethical viewpoint being ultimately more powerful than the law. Examples of this happening through (Western) history illustrate the tendency for ethical considerations to drive the law:
The above analysis highlights how unlawful acts are not always unethical and ethical acts are not always lawful. The Overlap and Differences between Ethics and ReligionFor many people, ethics and ethical judgements are based on a religious belief. However, religion is not a basis for arriving at consistent standards of ethics, any more than the law is. To illustrate the point:
For people who are not religious, or who have a different religious faith to decision-maker, these words are a little disturbing in the context of ethical decision-making.
Note. These questions aim to highlight the difference the overlaps and differences between religion and ethics and do not criticise the concept of religion per se. Unethical Behaviours, Activities, PoliciesInstead of trying to arrive at a standard or all-encompassing rule of what is ethical, it is helpful to illustrate the depth and variety of ethics through suitable examples. This is an extension of the ethical business investment items listed above and goes into far greater detail of different behaviours which might often be regarded as unethical. The first category might seem obvious and clear-cut, and actually, it's a reasonable starting point for the vast majority of ethical decisions, but this one point cannot be applied exclusively in assessing whether something is ethical or not:
Conversely, and more importantly, very many legal activities and behaviours can be extremely unethical. For example, behaviours that are not necessarily unlawful but which are generally considered to be unethical to Western society would now typically include:
You will perhaps think of other examples of behaviours or activities which are not necessarily unlawful, but which a reasonable majority of people (especially those directly affected by the activities) would consider as unfair, unjust or simply wrong and therefore effectively unethical. Most of the above are subject to extent or degree, whereby serious extensive examples are more likely to be unethical than minor transgressions and negligible effects. Ethics and Public OpinionEthical considerations are not wholly determined by the majority view, just as they are not wholly defined by law or religion. For instance, ethics are not a matter of a referendum or vote. Popular opinion alone is an unreliable measurement of what is ethical for several reasons:
To conclude, popular opinion is a significant factor in the consideration of what is ethical, but it is not the only factor and the significance of popular opinion in determining ethical decisions will vary according to the situation. A significant influence on ethical judgement is the 'flip-side' of whatever situation is under question: the effects of the 'ethical' decision. Upholding an ethical principle might not be sensible if the effect of doing so causes a wider or greater disadvantage. This sort of justification, when used for unethical actions and policies, is often referred to as being 'for the greater good'. Such a viewpoint is associated with a 'utilitarianism' approach to ethics.
The combination of the following factors in ethical decision-making is rarely effective:
'The greater good' argument is commonly used to support actions containing these elements when usually a less risky and aggressive stance is best. Remember a significant inescapable part of ethical actions are the views and needs of the rational majority, of the people affected by the action or decision. If you don't know reliably what these (views and needs) are then you don't understand the flip-side enough to justify anything, let alone a risky borderline decision. Beware of this 'greater good' dimension also when you see it used by others, because the defence of an unethical decision as being "...for the greater good..." is often used cynically and dishonestly. Utilitarianism, Ethics and Corporate GovernanceCorporate governance in the face of big ethical decisions is characterised by wisdom and objectivity, not by subjective personal belief, worse still when it protected by control mechanisms and the recklessness which often accompanies emotional insecurity or a strong personal 'faith' or power delusion.
Objectivity is the key to ethics, not personal belief or religion or personal power. Leaders who make decisions subjectively and personally for reasons of building power, reputation and wealth, entirely miss the point about ethics, and their fundamental philosophy (or lack of) effectively prevents any real ethical objectivity. Ethical ObjectivitySo, law alone is not a basis for ethical decision-making. Nor is religion. Nor is 'the greater good'. Even the rational views and needs of the affected majority are not a basis alone for ethical decision-making. What is the basis of ethical decision-making?Our best suggestion is: Objectivity and fairness are the basis of ethical decision-making.
ObjectivityCybernetics is a really useful way to look at objectivity. Objectivity entails understanding how systems work and inter-relate. But systems here means merely the general sense of people and the way life is organised. Systems does not refer to complex mathematics or scientific formulae. Again, it requires you to step back - to detach yourself, resist personal bias and emotion - step back, be objective, mature - fair. Objectivity is a wonderfully potent and extremely flexible ability to pursue. Especially if you can combine it with the ability to facilitate rather than influence. Objectivity is flexible because it can be approached and achieved in so many different ways - intuitively, logically, systematically, creatively - anyone can do it. In the same way that the truth - purity, probity - is available to anyone who cares to look for it. What does Ethical Objectivity Entail?Here are some suggestions of the main angles. The list is not exhaustive - you will see other significant perspectives for different situations. For small local decisions, most of the list might not apply. However, if your decision has potentially significant effects, consider these different perspectives in striving for as much objectivity as you can. Ethical considerations comprise several variables in one combination or another if you are striving for real objectivity:
Principles for Ethical Decision-Making
Different Personalities when Running OrganisationsDifferent people relate to ideas about how to run organisations in different ways. Not everyone readily relates strongly to the principles of corporate integrity, sustainability, the 'Triple Bottom Line' and so on. These are essentially idealistic views and as such will mostly appeal to idealistic people. Therefore, if you are an idealist, remember that not everyone is an idealist. Here are some examples:
Therefore, when explaining the importance and aims of corporate ethics, consider the audience. People have different strengths and styles, and some need their own reasons for buying into idealistic aims, outside of idealism itself.
As ever we need different people's strengths to be able to achieve this (and while this is an over-simplification), some people are better taking care of the profit, some the people, and some the planet - but everyone needs to be aware of all three, and the fact that the future great organisations will be the ones whose people can best manage the mix. Here as some resources that may be useful: Organisational Benefits for Adopting Ethical Corporate GovernanceSignificant organisational benefits arise from adopting and applying good corporate governance and ethical leadership. Businesses and other services organisations derive substantial advantage and avoid serious risks, by acting correctly, with humanity, compassion, and with proper consideration. Corporate governance is a crucial foundation in achieving these aims because it provides a framework for the organisation's leadership.
Ethical Decision-Making IdeasThe UK Institute of Business Ethics suggests a simple 'test' for ethical decision-making in business (see their website for their version). Adapted below it is applicable to all decisions in all types of organisations and in life as a whole. It's a remarkably easy test to apply. Try it next time you have to make a decision:
If you can honestly answer Yes to each of the above questions then you are likely to be making an ethical decision. If you have any doubt about saying Yes to any of the questions then you should think about things more carefully. Maybe there is an entirely different and better solution - there often is.
Leaders can sometimes be blinded by their own feelings of self-importance, and more dangerously can believe that the leader's job requires them to shoulder the burden of decisions which cause anguish and suffering, or worse. Believing that leadership carries some sort of right to take risks with other people's well-being is nothing more than arrogant delusion. A strong feature of good leadership is knowing when, and having the strength, to find another way - the ethical way. Considering Stakeholders in Corporate Responsibility and EthicsIf we consider fully what a modern ethical organisation is, we must inevitably take a far wider view in defining modern stakeholders.
Individuals are stakeholders too of course, but for practical reasons, most organisations will necessarily view stakeholders as groups, and for the purposes of this explanation the term 'stakeholder' here also means a stakeholder group.
This is especially relevant in the context of ethics, corporate responsibility, sustainability, etc. In fact, every person on this earth is arguably a stakeholder in every organisation on this earth. It's not acceptable to dismiss or deny a group as a stakeholder on the basis that the relationship is too difficult to measure. If the group is affected by the organisation then it's a stakeholder and the group's needs must be considered. Thus the organisation acknowledges its full responsibilities. The question is then one of type and degree - in other words, the needs of each stakeholder and the extent of the effect of the organisation on each stakeholder. Modern Stakeholder Model or AnalysisSo a good modern stakeholder model or analysis would be one which recognises all of the stakeholders and then identifies a relationship (needs and interests, etc.) and also shows a degree of impact for each stakeholder. Such an analysis can be helpful in training and development, and is arguably also essential in strategic planning and decision-making.
Modern Stakeholder Analysis ExampleFor example, a villager in deepest Africa is a stakeholder in all UK organisations given their (our) effect on the world's natural shared resources and the natural world as a whole. Children yet to be born on the other side of the world are stakeholders of any organisation given that its activities use, deplete, spoil, (or preferably instead) protect, enhance, and improve the resources and quality of life available to future generations.
Stakeholders can be found in any or all of the following groups depending on the type of organisation. Below are examples of stakeholder groups, including conventional 'investor' stakeholders, and more modern stakeholder ideas:
Many of these groups would not conventionally be considered to be stakeholders, but think about it: each of these groups could have an interest in and could be affected by the activities of an organisation. If a connection is not easy to see and understand it doesn't mean the connection doesn't exist. Given that this sort of modern stakeholder perspective produces such a wide-ranging and extensive list of stakeholder groups, it's essential to apply (for any given situation) some method of evaluating and expressing relative stakeholder interests and needs, and also to measure and show the varying significance of the stakeholder relationships; the degree of impact or dependence.
Stakeholder Analysis Template
Note. As mentioned above you'll need to adapt this for your own purposes so that it helps you to identify your stakeholder groups, their needs and expectations and rights, perhaps some sort of quantification or value indicator, a relative weighting and then maybe a ranking or a priority, or a linkage to strategic planning and decision-making.
Using a stakeholder analysis like this helps to identify an organisation's full responsibilities, not just the obvious conventional investor requirements to produce a profit and return on investment. In the modern world, an organisation's obligations extend far beyond these traditional financial aims. If you are in doubt as to stakeholder expectations and needs, ask them what they are. Fundamentally this is all about understanding and respecting the needs of others, and as far as possible incorporating them into the philosophy, the aims, the processes, and the activities of the organisation. P4 Model - Modern, Ethical Management and LeadershipBelow is a modern model for management and leadership in the 21st century. It's an interpretation of the 'personality' of good ethical modern management and leadership. As such it's not a process or technique - it's an attempt to characterise good, modern ethical management and leadership.
This P4 model is not to be confused with the traditional Four P's of Marketing which is a different thing. For attribution purposes this model was created by Alan Chapman and first published on this website in April 2006. Related Resources |