What Is Business Ethics?

Ethics is generally understood as a set of moral principles that influence people’s behavior and decisions. Similarly, business ethics is a set of principles that define an organization's behavior and activities, as well as its employees' actions. 

A business’s ethical principles are often laid out in a company’s code of conduct, which provides a guiding standard for values, behaviors, and decision-making for the organization’s employees and managers. If all people had the same standard values, publishing a code of conduct would not be necessary. But this is not the case: values vary between individuals and between businesses.

Because of these variations, ethical conflicts can arise. Business are often faced with challenges around balancing what's right with what's profitable.

Doing the right thing matters, even when no one is watching.

What Influences Business Ethics?

Different factors might influence an organization’s ethical standards, from the owners’ or managers’ personal views to pressure from public opinion. This is why it’s important to have guidelines in place, whether it's an internally published code of conduct, a value statement that's shared with customers, or both.

Governments can also impact business ethics, either by concretely defining the right thing for businesses to do or by creating minimum requirements. An example is the minimum wage, which is dictated by law in the U.S. Any company must at least pay employees that wage, but can also choose to pay them more.

Public opinion often influences business decisions as well. For instance, as customers increasingly prioritize sustainability, more companies are aiming to demonstrate their commitment by taking actions and being as transparent as possible. For example, some food, beverage, and retail companies only offer paper straws that can be recycled or composted. These types of intentional actions can help build customer loyalty and drive repeat purchases.

Some ethical decisions might only be known to a company's employees, like extending paid maternity leave. However, customers increasingly want a 360-degree view of how a company runs and how it treats its employees.

All values-based decisions reflect a company's overall culture, and it's important that leaders consider the organization’s established values when making business decisions.

Four Core Business Ethics

While influences on business ethics can change over time, certain core values should always be present for both companies and their employees.

Here are four core values of business ethics.

1. Honesty

This is crucial for a company to build trust with employees, vendors, and customers. It sets the tone for a company’s culture. Many customers wouldn't choose to spend their money with a business known for dishonest practices. Honesty leads to trustworthiness and encourages people to buy products or services from you and spread the word about your company.

2. Integrity

Doing the right thing matters, even when no one is watching. Following the law is the minimum standard of integrity, but integrity is also about making sound decisions even in stressful times. A commitment to integrity can go a long way. 

3. Respect

It's important to make colleagues, partners, suppliers, and customers feel valued. A business with strong ethics respects its employees by treating everyone equally, being inclusive, and listening to employees' opinions. Prioritizing diversity has been shown to benefit a company in many ways. Treating people with fairness and respect can help companies foster a stronger sense of connection and a more successful team.

Businesses can also show customers respect by consistently listening to them and acting on feedback. Companies might also show respect by finding ways to give back to their communities.

4. Responsibility

Employees at all levels of an organization are expected to show personal responsibility. At a minimum, this means completing their assigned work. Perhaps even more importantly, it means acknowledging mistakes and working out solutions. Taking responsibility can help teams benefit from experimentation, accept mistakes as learning opportunities, and ultimately thrive.

Likewise, businesses have responsibilities to their employees. Many of these are set in law, such as workers' compensation insurance, which is enacted by each state. Additionally, the Fair Labor Standards Act is a federal law that sets the minimum wage, overtime pay, recordkeeping, and youth employment standards. Other employer responsibilities might be outlined in a company’s values statement.

Business Ethics Challenges

The four core values may seem straightforward, but adhering to them can get complicated when a business’s responsibility to its customers, its community, and society conflicts with its desire to increase profits. Those paper straws, for example, might cost a lot more than the plastic alternative. Business owners and managers must constantly decide how to balance public opinion with profit in a responsible, respectful way.

Not all business ethics challenges are simple. For example, misconduct in small businesses can potentially lead to complicated, expensive legal cases. But turning a blind eye to them can create a toxic work environment and harm a company's culture.

Social media has also raised ethical concerns and dilemmas for businesses. For example, should a company fire an employee based on social media activity? What carries more weight: the constitutional right to free speech or a company’s code of conduct? The answers to these questions are not always easy.

The Takeaway

Business ethics can easily vary from one business to the next because not everyone has the same definition of right and wrong. Also, businesses are financially-driven, and there can be challenges  with making profit-driven versus ethical choices. The goal is to find the right balance for your business.

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