Ethics

Overview

The connection of business ethics to sustainability is as plain as doing the right thing. In sustainability parlance, this extends doing what is right for the business to doing what is right for the environment and society at large. In this sense, business ethics are the means by which an organization defines and articulates what kind of “person” it is in all its relationships.

Resources

• We Shouldn’t Always Need a Business Case to Do The Right Thing

Business risks

In its most extreme form, the failure of business ethics can threaten the very existence of a company. From Enron to Worldcom to Madoff Investment Securities, companies have been destroyed by unethical, fraudulent activities. While dramatic and headline grabbing, such criminal cases are rare. But no company ends up embroiled in an ethics scandal overnight. In most cases, there is a gradual buildup of indifference toward, tolerance of, and sometimes pressure for, unethical behavior. Left unchecked, unethical behavior can be a slippery slope.

Anti-competitive practices, conflicts of interest, supply chain bribery and deception, and other ethics violations pose significant risks to a company. Whether these activities are occasional or systemic, the risks of company fines and penalties, and possible imprisonment for individual actors, are significant. Lapses in ethical behavior often result in harm to reputation and brand equity. Significant ethics failures can cause lasting harm to stakeholder relationships. A company that is been proven unethical will likely experience a diminished ability to attract and retain customers, employees, and investors. Trust, once lost, is difficult and costly to win back.

What can businesses do?

All businesses should have a Business Ethics Policy or a Code of Conduct that addresses business ethics issues, including prohibitions on bribery, corruption, conflicts of interest, anti-competitive behavior, and other forms of deceptive business practices. Every employee should be educated on company ethics standards, and trained on their personal responsibilities and obligations under such standards. All employees should be encouraged to identify and discuss any concerns or ethics issues that arise in their work environment, without any fear of retribution. A company should make it clear in a Whistleblower policy that the company values and will protect those who expose unethical behavior.

Company leaders should speak openly about expectations for ethical behavior. They should model ethical conduct as a deliberate outcome. They should evaluate all business strategies and actions to assess the potential for unintended consequences that could harm their stakeholders’ trust in the company’s ethics. To further protect the company’s credibility and reputation, leaders should measure and be transparent about violations, as well as actions taken to uncover and correct the root causes of such events.

Corruption

Corruption carries significant risks beyond legal liability, because it can put an organization’s social license to operate at risk. As a result, organizations develop, train the entire workforce on, and monitor the effectiveness of, policies and practices that prohibit and prevent corruption. See related issue: Governance, Culture, Business behavioral norms.

Anti-competitive practices

Anti-competitive practices are often defined and prohibited by law, and can vary based on jurisdiction. Some behaviors may be acceptable in one location, but not in another. Understanding and informing relevant members of the workforce about local requirements is key. This is an issue of making sure there are effective organizational knowledge flows and controls.

Business behavioral norms

Business behavioral norms form and are part of an organization’s way of doing business. When those norms are grounded in ethics and are widely accepted within the organization, particularly among managers, the organization is more likely to avoid or more quickly detect and stop any unlawful or unethical activities. Implementing and embedding a Code of Ethics with regular and consistent training programs is one way to ensure healthy behavioral norms.

Ethics basics

Business ethics is about applying moral principles in a business context. It examines and provides solutions for ethical problems – moral dilemmas – that arise in a business environment. Business ethics provide for the same moral principles that drive an individual’s best actions and behavior to apply to business activities.

Acting in an ethical way involves distinguishing between right and wrong and then making the right choice. Governments use laws and regulations to mandate businesses to behave appropriately. Business ethics evolve from the organization itself as part of its culture and way of being. They are often written in the form of a code of conduct and trained on how to ensure common understanding of expected behavioral norms for all individuals engaged with the business.

Codes of ethics often reiterate legal requirements to ensure understanding and compliance, but also go beyond to regulate areas and details of behavior that lie outside of governmental control. An organization’s leadership, and by extension its employees, are responsible for ensuring that business ethics form the basis of the company’s values system and culture, with precise guidelines for proper behavior.