The primary ethical conflict in operations is to find ethical ways to maximize profits and

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. 

When you start a for-profit business, making as much money as possible is probably a goal. Similarly, any partners, financial investors or creditors would like you to maximize profits. However, it is important to weigh profit objectives with potential ethical issues at the onset of your operation to avoid public backlash and negative long-term implications.

Many of the ethical issues in profit maximization center on customers, given that they directly provide the revenue you need to earn a profit. Profit maximization dictates that you attract customers and create sales at all costs. However, ethical demands suggest you need to operate with honesty, transparency in marketing and a more customer-centric attitude. In the short-term, you may miss sales by being honest. However, building a reputation for integrity and customer-friendliness can benefit you with increased customer loyalty and higher long-term profit as a result.

Profit maximization also suggests that your best move in a community is to figure out how to get the best location, tap into all possible subsidies and give little consideration to how your money-making endeavors affect the local area in which you operate. Ethically, this isn't a good way to build a favorable reputation with community leaders and citizens. Instead, communities typically expect companies to get involved in local activities and events and to give back in some way for the financial benefits they receive, even if that may take some revenue away from the bottom line.

Labor is one of the most significant costs to a business and costs impede profit. Thus, profit maximizers pay the lowest possible wages, cut corners on benefits and may even hire illegal workers or fail to pay for overtime. Aside from the legal implications, creating a work environment that is unfair for employees fails the ethics test. Along with basic compensation factors, companies also must promote a non-discriminatory culture. Paying for safety training and equipment can also eat into profit, but ethics require you need to provide the safest operation possible for your workers.

Business associates and partners that support your profit-generation also have some ethical expectations. First, they expect that you operate with integrity to avoid indirectly damaging their reputations. Additionally, your suppliers expect that you communicate honestly, don't use their products for unethical purposes and pay your bills on time. Treating suppliers fairly may cost more initially, but strong supplier partnerships can provide benefits to your operation and brand in the long-term.

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References

Writer Bio

Kevin Johnston writes for Ameriprise Financial, the Rutgers University MBA Program and Evan Carmichael. He has written about business, marketing, finance, sales and investing for publications such as "The New York Daily News," "Business Age" and "Nation's Business." He is an instructional designer with credits for companies such as ADP, Standard and Poor's and Bank of America.

Image Credit

Comstock/Comstock/Getty Images

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The benefits of adopting ethics in business are more important than ever before in maintaining a sustainable and profitable business. It is no longer acceptable for a business to operate in an entirely self-interested manner, having no regard to the impact it has on the local community. In the modern commercial environment there is a strong emphasis on businesses meeting their legal guidelines and ethical obligations. Trading in an ethical and socially-conscious manner will benefit businesses off all sizes on a number of levels.

One of the major advantages of business ethics is the opportunity to foster a sense of goodwill among the general public toward your business. Customers are increasingly concerned with using products produced in an environmentally sustainable manner and where the producers are paid a fair wage for their work — for example, fair trade coffee. Being seen as meeting your social and societal obligations will ingratiate your business to the public and attract socially responsible consumers.

In most cases, it will be important to shareholders that your business is managed in an ethical fashion. Transparent accounting practices and an engaging, consultative relationship with your shareholders will encourage confidence in your business. Investors will be more willing to put capital into a business that they can see is ethically managed, because there is less chance that the business will be founded on unsafe practices. Ethically-minded investors may also be unwilling to invest in a business that they see as socially or environmentally irresponsible.

Advantages of business ethics can extend beyond moral obligation; they can also benefit a company's bottom line. Ethical behavior can serve to differentiate your brand from those of your competitors if you operate in an oversubscribed market, offering you a competitive edge. Identifying your product and business practices as being founded on strong ethical principles makes your product or service more attractive to consumers — a good example of this model would be the Body Shop, a cosmetics company whose products are not tested on animals.

A powerful argument in favor of running your business in an ethical manner, aside from the financial benefits that can be gained, are the moral obligations your business has toward the community. A successful business takes from the community in the form of profits, which are distributed among its employees, directors and shareholders in wages and dividends. As an integral part of society, the business has a moral obligation to behave in an ethical manner toward employees and third parties, and to be conscious of its environmental impact.

The knock-on effects of adopting a strong ethical ethos will benefit a business. Honest, open accounting practices will help build a stronger financial base for the company and may help avoid lawsuits or sanctions for malfeasance. The knock-on effect of fairly compensating employees and meeting your tax liabilities will be a prosperous, more robust local economy, which will benefit everyone in the long run.