What is Business Ethics?
We must use our moral compass to decipher what is right and what is wrong. In life and in business, there will be varying perceptions as to what is morally right. That is why business ethics is essential in all business practices, and it is relevant to both individual employees and the organisation as a whole.
A business’s primary aim, by definition, is to make a profit. But businesses should not overlook ethical practices in their drive to generate profit. Instead, ethical standards should be followed, and all members of the business community should strive to ‘do the right thing’.
Business ethics is the practice of operating ethical values of business behaviour, through adopting the right business policies and practices. It applies to all aspects of the business from the way staff are treated to accounting practices.
Is ethics the same as the law?
Both ethics and the law govern the actions of individuals. However, ethics is about moral principles that govern a person’s behaviour when taking part in a task or activity. It is about behaviour that is morally right. Whereas laws are in place to protect individuals and they are enforced for people to follow. Despite it encompassing ethical principles, laws impact decision making and maintain order in society. In business, the law guides business ethics. Nevertheless, there are loopholes that companies have found which may be deemed as unethical, despite being legal.
In the early 2000s, many of Britain’s major banks were exposed for mis-selling highly profitable personal protection insurance, also known as PPI. At the time, the sale of PPI policies to borrowers was legal but when the scandal broke many viewed it as an unethical practice. As a result, the banks were forced to pay out billions of pounds in costs back to their customers.
Why is business ethics important?
Not following ethical standards can be particularly damaging to any business. There is an increased risk of losing credibility and trust if they are found to be unethical. It also has the power to create tension among employees which can develop into a culture of distrust. Employee performance may also drop if found to be following unethical practices.
Businesses have more and more incentives to follow ethical guidelines. A survey from YouGov in 2020 found that 62% of Britons preferred companies to have a moral message. By adopting ethical standards, businesses can help grow sales while also benefitting society.
Where business ethics may be challenged…
Business ethics applies to all areas of business conduct. However, controversial areas in which you may have to consider ethical standards include:
- Marketing may use inappropriate advertising.
- Corporate governance could involve conflicts of interest and transparency.
- Personal selling can be done so in an unethical way such as cold calling.
- Suppliers exploiting labour costs in developing countries.
- Pricing that is raised temporarily during moments of high demand such as a natural disaster.
- Human resources issues including zero-hour contracts.
- Tax avoidance concerns.
Other areas to be aware of in business include discrimination, insider trading, and bribery.
Ethics versus corporate social responsibility
While business ethics is closely linked to corporate social responsibility (CSR), it is not the same thing. CSR is a company policy or obligation which must be followed by all stakeholders to benefit the society it operates in. CSR policy looks at incorporating social and environmental concerns into its everyday practices. For example, a business could ban the use of plastic bottles as part of a policy to tackle environmental issues. Ethics is instead about the moral behaviour and decision-making of every individual within a business, no matter where they rank. However, as part of CSR, businesses may have implemented ethical codes of practice to guide their employees.
How to challenge business ethics
While it may not be illegal, unethical practices can have serious consequences for firms. There are many ways to challenge and prevent unethical behaviour. Many individual employees or managers are encouraged to report any incidences of unethical business practices. Some businesses can introduce an ethical protocol to prevent any wrongdoing among their stakeholders. The protocol may contain information outlining how to report unethical practices, for example, through an anonymous hotline.
The biggest barrier can be in the company culture itself. It is up to businesses to create a culture of trust, openness and encouragement to report any wrongdoing within their operations. If companies were to introduce straightforward ethical guidelines, it will be considerably easier to prevent the unethical practice.
Influence of consumers and pressure groups
Businesses that adopt unethical practices can suffer from bad publicity as a result.
Pressure groups – known as groups of people trying to influence a business or government on a particular issue – are one element that drives businesses to behave ethically.
Pressure groups work by lobbying and through boycotting events, and/or creating social media and digital marketing campaigns. For example, animal rights group PETA’s fight to stop a list of retailers from sponsoring the Grand National horse race, which is something the pressure group believes to be unethical.
Consumers can also fight back against what they deem to be unethical. This is seen particularly on social media, with more and more brands being held accountable for unethical practices. Makeup retailer Sephora faced backlash in 2018 and was forced to withdraw the sale of its “Starter Witch Kit” following criticism from members of the Wiccan community, who deemed the product to be offensive.
Business ethics and the supply chain
There is increased awareness among consumers regarding business ethics and the supply chain. According to the 2020 Ethical Consumer Markets Report, more people than ever before are choosing to shop with ethically sourced brands. That is why is it imperative that businesses make sure their supply chain also follows the same ethical practices.
Some areas of unethical practices from within the supply chain can include production in sweatshops, forced labour, child labour, and payment considerably below the minimum wage.
With an increasing number of consumers demanding ethical behaviour and social responsibility from brands, extra effort should be made to make sure there are fair employment practices within a business’s supply chain. Firms must consider every link in the supply chain and make sure there is fair pay and ethical work standards.
Starbucks has an ethical verification programme in place with the Coffee and Farmer Equity (C.A.F.E.) Practices to make sure all coffee beans are ethically sourced from C.A.F.E. certified plantations. However, the coffee chain has faced criticism in the past for not following its fair-trade agreements regarding the ethical sourcing of its coffee beans.
Teaching business ethics
Business ethics is a subjective concept, but there are basic teachings available to guide businesses. Elements of ethics include respect, honour, integrity, trustworthiness, and fairness.
Teaching ethics is particularly important for those studying the subject. By exposing students to unethical situations, it will be likely to have a significant impact on their responses in a real-life situation. It not only develops critical thinking but also introduces students to the dangers of rationalisation. For example, complying with a senior colleague who convinces you that something unethical is instead right and permitted.
For those already in the sector, businesses can offer extra training to help guide ethical decision-making in real-life scenarios. The training can be implemented into the business-wide training programme. Businesses can also adopt e-learning, which may act as a useful tool to teach a lot of staff at one time.
How ethical standards may differ in business
Not all ethical standards are the same for every business. For example, social media companies must make sure their ethical standards are particularly high when it comes to data sharing. Facebook faced backlash after personal data from millions of its users was collected without their consent by consulting firm Cambridge Analytica.
However, the ethical standards of a supply chain may be more of a focus for a retailer. British retailer Primark has been scrutinised in the past for unethical labour practices and poor employee working conditions.
Ethical standards that a company follows may also depend on where in the world the business operates. Therefore, businesses can select ethical practices and methods that best suit them.
What is Business Ethics: Conclusion
At the heart of the business debate is ethics versus profits. Generally, the more ethical you are, the less profit you are likely to receive in the short term. Firstly, this could be due to the higher costs involved in acting ethically. Secondly, it could also result in lower revenues. For example, if you decided to alter your supply chain and use companies that pay their staff the living wage, it will incur generally cost more than a company that uses manufacturers overseas that are paid under the minimum wage for that country or region.
However, business ethics can be of significant benefit to a company – notably improving its reputation and, as a result, increasing sales and profits in the long term. While it not only contributes to a better society, the benefits of ethical business practice also include a higher employee satisfaction rate, an increased competitive advantage with customers, and a culture of trust among stakeholders and investors.
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