Companies and Business Ethics

Business ethics play a major role in the business world today. Since their development they have become a major influence on anything business related. The importance of business ethics was chosen to give more of an in-depth look at not only basic benefits that business ethics bring about, but some not so known benefits that come about as well. Business ethics bring about a great moral to the corporation and its culture, allowing the organization to use this as a tool for a multitude of organizational affairs. While there are some that oppose the use of business ethics in today’s business world, the benefits that are brought about outweigh the opposition’s points. With the benefits that are brought about and the oppositions invalid arguments, it can be plainly seen why business ethics should be implemented and a core aspect of any business that is looking to be successful in today’s world.

Maintaining a piece of today’s ever changing market is becoming increasingly difficult. The needs of the consumer fluctuate drastically, competition is at an all-time high, and the number of competitors is increasing daily. Considering all of these factors it is feasible to see why a cutthroat mentality is needed and sometimes used for business. However, this cutthroat mentality is the reason why organizations are no longer fully trusted. With decisions and actions made by Enron, Arthur Andersen, and Bernard Madoff, how are consumers and the public supposed to fully give their trust to something or someone. Recently organizations were looking for a way to create a positive public image, improve employee retention and moral, sustain a competitive advantage, and increase their bottom line. For these reasons and more companies today are starting to see the importance of business ethics and how they can impact a company’s overall performance.

The following should help give a further insight into the importance of business ethics; how companies should implement them, the positive public image they bring about, and the affect they have on a company’s bottom line. However, business ethics if not implemented and followed properly do not bring about any benefits and create more problems than before. Business ethics are also seen as a restriction to a company’s freedom however, they can help create a competitive advantage that affects their business, employees, and customers for the better.

In the beginning business ethics appeared to a fad that would fade away after a few short years. But as businesses continued shaming themselves year after year, business ethics became an ongoing phenomenon that business professionals were forced to better understand. Business ethics started to become prevalent in employee trainings, orientations, meetings, and even academia. Some colleges went as far as requiring completion of a business ethics course before receiving their business degree. Today every college offers a business ethics course, and completion of business ethics is a requirement for any business degree. According to Linda Trevino, author of the book, Managing Business Ethics, “”Recent business history has proven beyond any doubt that divorcing business from ethics and values runs huge risks.” (Trevino, 2010) Referring to the historical events such as Enron, the financial disaster of 2008 and Bernard Madoff, in which all helped to increase the importance of business ethics in today’s society. This would make sense as why businesses and school prefer their employees to have a greater understanding of business ethics and how to spot unethical behavior

Business ethics became the forefront of the business world after the Sarbanes-Oxley Act (SOX), which was introduced after the slew of scandals during the 21st century. These scandals educated the world to lack of integrity and business ethics that were prevalent in the American business industry during that time. According to Laws.com, “The Sarbanes-Oxley Act might have never been created had it not been for the perfect storm of events that surrounded it origins” referring to the unethical acts perpetrated by, Enron and Arthur Andersen. (Laws, 2013) SOX passed in 2002 by congress, is considered the most far-reaching change in control and accounting standards since 1934 and the SEC Act. SOX developed new regulations that enforced penalties for corporate fraud, such as jail time and large penal fines. According to our text book Sarbanes-Oxley, made securities fraud a criminal offense, created and accounting oversight board, and develop a greater transparency in financial reports. (Ferrell, 2011, p. 15) If it were not for SOX the idea that business ethics being a fad might have actually been true, and we might not have some of the more ethical, upstanding, corporations that we do today.

Business ethics are now a social norm for any business; especially in the start-up or creation of a new organization. They are seen as a basic set of principles of how businesses and professionals should conduct themselves. As the internet globalized business, “business ethics provide a common ground everyone can agree upon” (Symes, 2014) making it simpler and safer for any organization to conduct its business worldwide. Companies with different backgrounds are becoming easier to asses, as business ethics form a set of standards, such as GAAP (Generally Accepted Accounting Principles), to which they adhere. This “common ground” that business ethics develop has helped to establish better relationships between businesses, employees, and the consumer. SOX also assisted with globalizing business, as businesses became for transparent the opportunity to see what you are investing in became more clear. This transparency allows businesses to gain a better sense if they should go into business with one another.

Business ethics has a major impact on the relationship between a company and its employees. According to a study done by the Ethics Resource Center in 2010, “employee engagement is heavily influenced by factors that have nothing to do with money…” (Martin, 2010) This shows that employees output in their career is not entirely determined on how much they make. The study then goes on to say, “But when it comes to encouraging employees to pour discretionary effort into their work and deliver superior performance, the chance to contribute to something larger than themselves and be recognized for it is likely to provide a much stronger incentive [than pay]”. (Martin, 2010) Revealing that most employees would prefer to be recognized for doing something ethical than receiving a bonus sum of money. An organizations business ethics also influences employees to behave ethically as well. According to Steven Symes, writer for Chron.com, “If employees feel they are expected to act ethically and are treated ethically by their employer, they are less likely to engage in unethical behavior that would hurt their employer”. (Symes)

Ethical behavior by a company’s employees creates a stronger relationship between the company and employee. This is evident as, “Employees are less likely to take company property, including office supplies, or make larger claims on expenses for travel or other business-related activities, including the cost of conducting some non-business activities.” (Symes) Business ethics help give an employee a sense of pride for the company they work for, making the employee enjoy and want to do their job well. In a Forbes article written by, Sharon Allen, a poll revealed that “97% of recent MBA grads would be willing to make a financial sacrifice of nearly $15,000 a year off their starting salaries to work for a company that practices good corporate social responsibility and ethical business conduct.” (Allen, 2009) This article reveals how willing employees are to work for an ethical company, $15,000 off their starting salary is a large amount of money, especially for recent grads. The feeling of working for a great, ethical and socially responsible company cannot be replaced by a larger salary.

Business ethics play an important role at the consumer level. Company’s today look for ways to gain the biggest part of their market possible. This was usually done through product quality and price which are known as competitive advantages. Business ethics have now become so prevalent that they are starting to become a competitive advantage as well. Business ethics, in the consumer’s eyes, are best described as integrity, honesty, and trust. This ideology or thought process of how business ethics are perceived, gives meaning as to how influential business ethics can be. Don Knauss, author of the article The Role of Business Ethics in Relationships With Customer published on Forbes.com, explained it best, “…influence does not mean attempting to muscle a customer into behaving one way or another. Rather, influence comes from integrity and trust. Integrity, to me, is the foundation of trust, and trust is the grease of commerce.” (Knauss, 2010) Don’s explanation gives a better understanding of how an ethical business has more of a chance to “influence” a consumer because of their implementation of business ethics.

Since 2006 the Ethisphere Institute has produced a list documenting what they believe are the World’s Most Ethical Companies (WME). The list is not a ranking list; however, being acknowledged on the list is an achievement in itself. In an article written by, Jacquelyn Smith, Alex Brigham, executive director of the Ethisphere Institute, is quoted saying, “Companies have become increasingly aware of the advantages being ethically conscious has to offer, especially in the global economy. Companies find that ethical business practices increase their competitiveness in their respective industries, helping to further substantiate the notion that a culture of ethics is crucial to sustainable excellence.” (Smith, 2013)

This helps shed light on how businesses are seeing the importance of an ethical culture in their organization. Smith also states, “… many companies also display the designation in their marketing materials to attract customers, particularly in new markets, where the company may not be well-known.” (Smith, 2013) By marketing as one of the most ethical companies, companies are appealing to a markets softer side, also revealing that their company is not all about a profit. This allows the consumer to feel like they are also intertwined in the ethical business that the company does.

The largest factor when dealing with business ethics is how a company develops and implements them. If a company does a poor job at implementing them, then it falls through and more chaos and problems are created than were previously present. According to Patrick Murphy, author of Implementing Business Ethics in the Journal of Business Ethics, “A company should both organize for ethical business policies and execute them. The organizational dimension refers to structural components including codes of ethics, conferences and training programs and an ethical audit.” (Murphy, 1988) Meaning that an organization should not just have a code of business ethics, it should make that code apart of the company wide culture.

This should be done by top management playing the key role in the implementation process. When employees see top management truly involved with something that they can get behind employees will eagerly follow suit. When this takes place the culture changes and the next step is maintaining these ethical standards throughout the organization. As an organization becomes entirely ethical, the organization should strive to look for another ethical step to take. A company should never be complacent with their ethical standards, there is always room for improvement, and an organization that is truly ethical will and should utilize whatever they can to improve their ethical goals.

While all of these benefits sound great to an organization the big question everyone is pondering; what affect will this have on the bottom line? This is a reasonable concern; as every single company out there should care about the profitability of their organization. As the above has mentioned employees care more about recognition of an ethical action than being a bit underpaid. While I do not believe that a company should drastically cut wages, creating bonuses based on recognition rather than money has demonstrated more employee involvement and an expense reduction in employee salaries. Business ethics also allows for more trust among businesses, bridging gaps that were created by historically unethical practices. This can assist in partnerships, new suppliers, and relationships, creating opportunities for new markets and ultimately increased profits.

According to the article Ethical practices linked to profitability, by Paul Parks, “While there are too many variables to conclusively prove that ethical behavior leads to increased profits, the majority of studies demonstrate a statistically relevant connection.” (Parks, 2008) While this does not give an exact statistical cause relation between business ethics and profits, the study proved that the majority of the companies surveyed that had increased profits did have a strong code of ethical standards, meaning there is a positive correlation between the two. . The article goes on to state, “…fairness in business dealings can maximize profitability.” (Parks, 2008) Since fairness is associated in the ideology of business ethics it would be logical to infer Parks statement is also referring to business ethics.

Unfortunately like everything else good in the world there has to be an argument against. Currently those who oppose business ethics refer to the fact that it takes away from a business’s freedom. Lynne MacDonald, writer for Chron.com, further explains this by stating, “… a multinational company may move its manufacturing facility to a developing country to reduce costs.” (MacDonald, 2014) While this may not seem like a big deal, ethically outsourcing any work, especially to a country where child labor, poor health and safety, and coerced employment are legal, is viewed as unacceptable, nor ethical. We can also look at history to see what happens when business ethics are not implemented and used in organizations.

We should do whatever we can to prevent such things as the Enron scandal, and the Bernard Madoff Ponzi scheme. While business ethics may not stop or even nullify these occurrences, they do allow people to better spot unethical behaviors and what they should do from there. MacDonald (2014), goes on to say, “However, it could be argued that the restrictions on company freedom benefit wider society.” What she is referring to is the fact that business ethics are more beneficial for society than a profitable company, as seen by the effects of the unethical companies and persons stated above. This is why companies today have started to measure their success by what is known as the “triple bottom line”. The triple bottom line is broken down into: people, planet, and profit. The Dow Jones Sustainability Index benchmarks companies who report their performance based on the triple bottom line.

As you have read business ethics offers organizations a multitude of benefits. Internal benefits dealing with employee retention, recruiting new employees, and increased employee moral are all positives that business ethics help to develop. They also cultivate external benefits, creating a positive public image, which helps attracts potential new customers, retain already existing customers and makes for a socially responsible image for the company. Business ethics also help with the business side as well, by the aforementioned benefits of attracting potential new customers, gaining more of the market; it makes working with other businesses easier. Trusting each other, being able to look at one another’s business and get a sense of what exactly is being done, makes forming a relationship a little less stressful. Opponents of business ethics and the laws that followed believe that business ethics take away from a business’s freedom and are too costly to implement.

However, after the economic collapse in 08’, the companies that had business ethics in place and were developed from top management down were less affected by the downfall. The above are confirmed, measurable benefits of business ethics being implemented in a company; however, further research should be done to statistically confirm that business ethics has a cause relationship with profit in an organization. After revealing all of the benefits that business ethics can bring to a business and how opponents are incorrect in their assumptions, you should have a better understanding of why business ethics are so important in today’s business world.

References
Allen, S. (2009, July 21). The New ROE: Return On Ethics. Forbes. Retrieved February 12, 2014, from http://www.forbes.com/2009/07/21/business-culture-corporate-citizenship-leadership-ethics.html Ferrell, O. C., & Fraedrich, J. (2013). Business ethics: ethical decision making and cases (9th ed.). Mason, OH: South-Western/Cengage Learning. Knauss, D. (2010, January 19). The Role Of Business Ethics In Relationships With Customers. Forbes. Retrieved February 11, 2014, from http://www.forbes.com/2010/01/19/knauss-clorox-ethics-leadership-citizenship-ethics.html MacDonald, L. (n.d.). Advantages & Disadvantages of Business Ethics. Small Business. Retrieved February 12, 2014, from http://smallbusiness.chron.com/advantages-disadvantages-business-ethics-10414.html Martin, L. (2010, July 1). Ethics Resource Center. ERC. Retrieved February 12, 2014, from Murphy, P. (1988). Implementing Business Ethics. Journal of Business Ethcis, 7(12), 907-915. Retrieved February 14, 2014, from http://web.b.ebscohost.com/abstract?direct=true&profile=ehost&scope=site&authtype=crawler&jrnl=01674544&AN=5400499&h=H9myYgFjM8GCEWc8pLajOjIiLsLIZfDkIatB2oWx%2fjlI%2foSkc2oAmwMW188T1O4YQJTZEAykIU0aPQjFS83emw%3d%3d&crl=c Parks, P. (2008, June 1). Ethical practices linked to profitability. Widgets RSS. Retrieved February 12, 2014, from http://www.bizjournals.com/sanantonio/stories/2008/06/02/focus2.html?page=all Smith, J. (2013, March 6). The World’s Most Ethical Companies. Forbes. Retrieved February 12, 2014, from http://www.forbes.com/sites/jacquelynsmith/2013/03/06/the-worlds-most-ethical-companies-in-2013/ Symes, S. (n.d.). Importance of Ethical Conduct in a Business. Small Business. Retrieved February 12, 2014, from http://smallbusiness.chron.com/importance-ethical-conduct-business-25163.html