Foundations of business ethics

Business ethics are important in many ways, not just to the business itself but to the community around them, customers, and employees. To understand the importance, you must first understand what business ethics are, and to do that, you must dive into the foundations of business ethics.

The Corporate Finance Institute provides an excellent explanation: By definition, business ethics are the moral principles that act as guidelines for the way a business conducts itself and its transactions. In many ways, the same guidelines that individuals use to conduct themselves in an acceptable manner – in personal and professional settings – also apply to businesses.

In short, business ethics determine what is right and wrong for a business. These ethics apply to everything from how the company does business, like following tax laws, setting fair prices, and treating customers, to the environment that surrounds them, like not dumping waste in a stream and not negatively impacting the people, animals, and land.

To many people, these ethics are something they believe is implicit and do not need to be laid out, but they come from somewhere. It is rooted in the foundations of business ethics and the moral code they are pulled from.

History

Many of the business ethics that exist today are there because, at one point, someone broke them. If we go back to the start of workplace safety, it is embroiled in scandals like that of the Triangle Shirtwaist Factory Fire in New York City. The fire killed 146 workers due to the poor working conditions, cramped spaces, and locked doors. Workers could not get out when the fire broke out, and emergency exits were locked to prevent stealing.

It is hard to believe that things like that happened even as far back as 1911, but there are many more examples of poor working conditions that negatively impacted the lives of employees. The phrase “business ethics” wasn’t even popularized until the 1970s in the United States. Many companies set their own standards, and some set none. Greed was a contributing factor to the need for business ethics.

Tragedies like the Triangle Shirtwaist Factory Fire are not as common as they once were, thanks to business ethics. Businesses are held to an expectation that they will follow a moral code and provide a safe environment for their workers. There are even entire government agencies dedicated to ensuring they are followed.

Dangerous conditions are not the only unethical business practice, although they are the most concerning. In 2002, the US federal government (Congress) passed a law to protect investors against companies producing fraudulent financial reports. The Sarbanes-Oxley (SOX) Act was the government’s response to many scandals like Enron, which led to the company being sued for billions of dollars by shareholders after their stocks fell to just a dollar, completely and totally unexpectedly.

The bankruptcy filing led to the largest audit in history (at the time). It was determined that the company used fraudulent accounting practices to hide debt and exaggerate income, making it look like a good investment when nothing was further from the truth. Ultimately, Enron did complete the filing for bankruptcy and is no longer in existence.

Many more examples of unethical business practices have influenced the need for business ethics to exist and be spelled out. Transparency is the key to an effective and influential company that would not appear as a case study for poor ethics.

Different government oversight committees help companies adhere to a code of ethics. Most have anonymous tip lines that anyone from workers to customers can use to report something unethical the company is doing. It is best to start on the right foot with a solid code of ethics that the company will follow when doing business.

The bottom line is that business ethics exist out of necessity. Many of the ethics today come from bad things that happened, which led by the example of what not to do. Even if most people feel that ethics are simpler than that, the need exists to solidify them, write them down, and ultimately adhere to them.

Foundation

Facility Management News and Resources from the McMorrow Report show that six concepts—ethics, values, morals, integrity, character, and laws—form the foundation of ethical business practices. They further state that a company’s business ethics must be adapted to its circumstances and beliefs.

Ethics are the overall goal here, but they follow the beliefs of the person in charge. Everyone has their own set of ethics they follow.

Values are likely one of the most diverse concepts. Each individual has their own values based on what they believe is important in their life. As such, each company will have the same diversity, so all members setting out to create these business ethics would need to align their values.

Morals are very similar to ethics and influence the company’s ethics the most out of all six concepts. These morals are usually deeply formed by culture and belief systems. Loosely stated, many places follow the same basic set of morals not to harm others. There is more to morals, but that is the most basic one that most come from.

Integrity is based on morals and honesty. While many can agree that honesty is important, as shown in the example above, not everyone has the same moral compass, companies included.

Character is more personal and represents who you are as a person and, as a whole, plays a role in business ethics. The people creating these ethics should intend to follow them, and if guidelines are created for the sake of needing them without the intention to do business with them, it will show the poor character of the person or people in charge of the company.

Lastly are laws. Laws are inflexible guides to how a company must conduct business. These laws can vary from place to place, but the overall intent is to keep the business accountable for its actions and prevent misleading or harm to the public and other companies.

While all six of these concepts play their role in the creation of any one company’s business ethics, it shows how hard it could be to meld all of it together. There are also other factors that play a role in the development of business ethics for the company.

Outside pressure can help form a company’s business ethics. Laws exist to ensure that there is a guideline to follow, but even further than that is social pressure. The community can directly impact business ethics by impressing their beliefs onto the company, and if they do not conform, they could lose business.

Morals, values, and integrity can also have the same external pressures. They are also greatly influenced by internal sources. They start when the company is just forming and are based on the person or people that formed it. It is their goals and beliefs that make them at the beginning, and then external pressures continue to mold them as the company grows.

In the news, you will often see a company CEO, or another top position called out directly for the unethical things that the company has done. This further shows how much the person in charge influences the company’s business ethics. It is also another external pressure.

Where the company is based also impacts its ethics. Culturally, not all morals are the same, and so it has an impact on the company and how the company does business. There are also different laws from country to country, state to state, and even city to city.

Creating a code of ethics

Several industries and businesses have created codes of conduct to meet the particular commercial challenges they face. An organisation establishes that members and staff cannot use ignorance as an excuse for unethical behaviour by creating a code of ethics. The right role of corporate management in promoting business ethics often include setting expectations clearly and upholding them, respecting and listening to other points of view, acting consistently throughout time, and fostering an environment free from harassment and inequity. Each member of the profession can be expected to uphold a standard established by a professional code of ethics. It is a commitment to act in a way that safeguards the welfare of the general public.

So how does a company decide what its code of ethics will be? It is not quite as simple as it may seem.

All the different influences from internal and external sources are taken and melded into one set of ethics. In some cases, that may be easier said than done. Not everything lines up.

A Doctorate of Business Administration (DBA) would provide the tools to study, analyze, and create a solid code of business ethics. Focusing on practical ways to do business and the laws that govern them, a DBA would go a long way to supporting the company.

Many degrees can now be obtained online, allowing students to continue working as they earn them and potentially use that degree to further the business or their career. It would also allow students to network with peers for advice, not only with their degree but also with their business.

Marymount University can help you earn your Doctorate of Business Administration in as little as three years and 36 credits, putting you on the road to success with your business, whether it is just starting, advancing, or building a career at the company you work for already. You can learn more at any time and connect with Marymount University to see if the program is right for you.

Conclusion

As demonstrated in the examples above, not everyone has the same moral compass, and if they oversee a company and their values do not align with the public or the government, these business ethics are in place to make sure that the company at least tries to show they will do business in a way that is ethical.

The easiest ones to create are the ones that are law. Financial reporting, for example, is mandatory and must be done in a certain way to keep the company honest and open about how it is doing. Take Enron again. It shows that despite the way things should be done, they can always be done in an unethical manner.

Government committees oversee this information now, thanks to that scandal and what was, at the time, the largest audit in history. There are also other government agencies to help with different aspects of doing business, such as the Environmental Protection Agency.

The best course of action is to be honest and clear when creating a company’s business ethics. And then to make sure that the company intends to follow them.

One way to ensure the company has a solid code of ethics is to be informed. This is important and will help the company in the long run by hiring the right people and building these ethics to withstand changes within the company.