BUSINESS ETHICS 

• 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 as they do to wealthier clients.
• 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, 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 vs. maintaining a competitive advantage over other businesses. Firms display business ethics in several ways.

 4. Principles of Business Ethics

It's essential to understand the underlying principles that drive desired ethical behaviour and how a lack of these moral principles contributes to the downfall of many otherwise intelligent, talented people and the businesses they represent.

There are generally 12 business ethics principles:

Leadership: The conscious effort to adopt, integrate and emulate the other 11 principles to guide decisions and behaviour in all aspects of professional and personal life.

Accountability: Holding yourself and others responsible for their actions. Commitment to following ethical practices and ensuring others follow ethics guidelines.

Integrity: Incorporates other principles such as honesty, trustworthiness and reliability. Someone with integrity consistently does the right thing and strives to hold themselves to a higher standard.

Respect for others: To foster ethical behaviour and environments in the workplace, respecting others is a critical component. Everyone deserves dignity, privacy, equality, opportunity, compassion and empathy.

Honesty: Truth in all matters is key to fostering an ethical climate. Partial truths, omissions and under or overstating do not help a business improve its performance. Bad news should be communicated and received in the same manner as good news so that solutions can be developed.

Respect for laws: Ethical leadership should include enforcing all local, state and federal laws. If there is a legal grey area, leaders should err on the side of legality rather than exploiting a gap.

Responsibility: Promote ownership within an organization, allow employees to be responsible for their work and be accountable for yours.

Compassion:  Employees, the community surrounding a business, business partners and customers should all be treated with concern for their well-being.

Fairness: Everyone should have the same opportunities and be treated the same. If a practice or behaviour would make you feel uncomfortable or place personal or corporate benefit in front of equality common courtesy and respect it is likely, not fair.

Loyalty: Leadership should demonstrate confidentially and commitment to their employees and the company.  Inspiring loyalty in employees and management ensures that they are committed to best practices.

Environmental concern: In a world where resources are limited, ecosystems have been damaged by past practices and the climate is changing, it is of utmost importance to be aware of and concerned about the environmental impacts a business has.  All employees should be encouraged to discover and report solutions for practices that can add to damages already done.

5. Importance of Business Ethics

There are several reasons business ethics are essential for success in modern business. Most importantly, defined ethics programs establish a code of conduct that drives employee behaviour from executives to middle management to the newest and youngest employees. When all employees make ethical decisions, the company establishes a reputation for ethical behaviour.

Its reputation grows and it begins to experience the benefits a moral establishment reaps.

1. Brand recognition and growth
2. Increased ability to negotiate
3. Increased trust in products and services
4. Customer retention and growth
5. Attracts talent
6. Attracts investors

When combined, all these factors affect a business's revenues. Those that fail set ethical standards and enforce them are doomed to eventually find.

6. Types of Business Ethics

There are several theories regarding business ethics and many different types can be found, but what makes a business stand out are its corporate social responsibility practices, transparency and trustworthiness, fairness and technological practices.

6.1. Corporate Social Responsibility (CSR)

• It is the concept of meeting the needs of stakeholders while accounting for the impact meeting those needs has on employees, the environment, society and the community in which the business operates.
• Of course, finance and profits are important, but they should be secondary to the welfare of society, customers and employees because studies have concluded that corporate governance and ethical practices increase financial performance.

6.2. Transparency and Trustworthiness

• Companies need to ensure they are reporting their financial performance in a way that is transparent.
• This not only applies to required financial reports but all reports in general. For example, many corporations publish annual reports to their shareholders.
• Most of these reports outline not only the submitted reports to regulators but how and why decisions were made if goals were met and factors that influenced performance.
• CEOs write summaries of the company's annual performance and give their outlooks.
• Press releases are another way companies can be transparent. Events important to investors and customers should be published, regardless of whether it is good or bad news.

6.3. Technological Practices and Ethics

• The growing use of technology of all forms in business operations inherently comes with a need for a business to ensure the technology and information it gathers are being used ethically.
• Additionally, it should ensure that the technology is secured to the utmost of its ability, especially as many businesses store customer information and collect data that those with nefarious intentions can use.

6.4 Fairness

• A workplace should be inclusive, diverse and fair for all employees regardless of race, religion, beliefs, age or identity.
• A fair work environment is where everyone can grow, be promoted and become successful in their way.

7. Implementing Good Business Ethics

• Fostering an environment of ethical behaviour and decision-making takes time and effort it always starts at the top.
• Most companies need to create a code of conduct/ ethics, guiding principles, reporting procedures and training programs to enforce ethical behaviour.
• Once conduct is defined and programs implemented, continuous communication with employees becomes vital.
• Leaders should constantly encourage employees to report concerning behaviour additionally, there should be assurances that whistle-blowers will not face adversarial actions.

8. Monitoring and Reporting Unethical Behaviour 

• When preventing unethical behaviour and repairing its adverse side effects, companies often look to managers and employees to report any incidences they observe or experience.
• However, barriers within the company culture (such as fear of retaliation for reporting misconduct) can prevent this from happening.

9. Global Business Ethics Survey of 2021

• Published by the Ethics and 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.

• Indeed, fear of retaliation is one of the primary reasons employees cite for not reporting unethical behaviour 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.
• Additionally, they should acknowledge and reward the employee's courage in making the report.

For Prelims & Mains 

Source: The Investopedia