What is business ethics?
Business ethics is the study of appropriate business policies and practices on potentially controversial subjects, including corporate governance, insider trading, corruption, discrimination, corporate social responsibility and fiduciary responsibilities. The law often guides business ethics, but at other times, business ethics provides a basic guideline that companies can choose to follow to gain public approval.
Key points to remember
- Business ethics refers to the implementation of appropriate business policies and practices on possibly controversial subjects.
- Some issues raised in an ethics discussion include corporate governance, insider trading, corruption, discrimination, social responsibility and fiduciary responsibilities.
- The law generally sets the tone for business ethics, providing a basic guideline that companies can choose to follow to gain public approval.
Understanding business ethics
Business ethics ensures that a certain level of basic trust exists between consumers and the different forms of market participants with companies. For example, a portfolio manager should pay the same attention to the portfolios of family members and small individual investors. These types of practices guarantee fair treatment to the public.
The concept of business ethics began in the 1960s when companies became aware of a burgeoning consumer society that expressed concerns about the environment, social causes and corporate responsibility. The increased emphasis on so-called social problems marked the decade.
Since this period, the concept of business ethics has evolved. Business ethics goes beyond a simple moral code of good and evil; it attempts to reconcile what companies must do legally against maintaining a competitive advantage over other companies. Companies display business ethics in several ways.
Business ethics aims to ensure a certain level of trust between consumers and businesses, ensuring that the public is treated fairly and equitably.
Examples of business ethics
Here are some examples of business ethics at work as companies try to balance marketing and social responsibility. For example, the company XYZ sells cereals with all-natural ingredients. The marketing department wants to use all-natural ingredients as a selling point, but it has to temper the enthusiasm for the product with the laws that govern labeling practices.
Some competitors advertise high fiber cereals which have the potential to reduce the risk of certain types of cancer. The grain company in question wants to gain more market share, but the marketing department cannot make questionable health claims about cereal boxes without the risk of litigation and fines. Even if competitors with larger market shares in the grain industry use shady labeling practices, this does not mean that all manufacturers should behave unethically.
For another example, consider the question of quality control for a company that manufactures electronic components for computer servers. These components must be delivered on time, otherwise the parts manufacturer may lose a lucrative contract. The quality control department discovers a possible defect and each component of a shipment is subject to checks.
Unfortunately, checks may take too long and the on-time shipping window may pass, which could delay the customer’s product release. The quality control department can ship the parts, hoping that they are not all defective, or delay the shipment and test everything. If the parts are faulty, the company that purchases the components may face a storm of consumer reaction, which may lead the customer to seek a more reliable supplier.
In a recent national business ethics survey, respondents found an unprecedented level of unethical behavior. About 41% of employees noticed a fault at work, compared to 45% in 2020.
The survey concluded that an uncertain economic climate may have led to less risk taking in for-profit businesses, which has prompted more managers and executives to act more ethically. The survey found that 60% of professional misconduct occurred among managers and 24% of employees accused senior managers of unethical behavior.