Loading the player...
A:

Several factors play a role in the success of a company that are beyond the scope of financial statements alone. Organizational culture, management philosophy and ethics in business each have an impact on how well a business performs in the long term. No matter the size, industry or level of profitability of an organization, business ethics are one of the most important aspects of long-term success.

Ethics in Leadership

The management team sets the tone for how the entire company runs on a day-to-day basis. When the prevailing management philosophy is based on ethical practices and behavior, leaders within an organization can direct employees by example and guide them in making decisions that are not only beneficial to them as individuals, but also to the organization as a whole. Building on a foundation of ethical behavior helps create long lasting positive effects for a company, including the ability to attract and retain highly talented individuals and building and maintaining a positive reputation within the community. Running a business in a ethical manner from the top down builds a stronger bond between individuals on the management team, further creating stability within the company.

Employee Ethics

When management is leading an organization in an ethical manner, employees follow in those footsteps. Employees make better decisions in less time with business ethics as a guiding principle; this increases productivity and overall employee morale. When employees complete work in a way that is based on honesty and integrity, the whole organization benefits. Employees who work for a corporation that demands a high standard of business ethics in all facets of operations are more likely to perform their job duties at a higher level and are also more inclined to stay loyal to that organization.

Business Ethics Benefits

The importance of business ethics reaches far beyond employee loyalty and morale or the strength of a management team bond. As with all business initiatives, the ethical operation of a company is directly related to profitability in both the short and long term. The reputation of a business from the surrounding community, other businesses and individual investors is paramount in determining whether a company is a worthwhile investment. If a company's reputation is less than perfect based on the perception that it does not operate ethically, investors are less inclined to buy stock or otherwise support its operations.

Companies have more and more of an incentive to be ethical as the area of socially responsible and ethical investing keeps growing. The increasing number of investors seeking out ethical operating companies to invest in is driving more firms to take this issue more seriously.

With consistent ethical behavior comes increasingly positive public image, and there are few other considerations as important to potential investors and current shareholders. To retain a positive image, businesses must be committed to operating on an ethical foundation as it relates to treatment of employees, respect to the surrounding environment and fair market practices in terms of price and consumer treatment.

Be sure to read these articles to understand how ethical plays became important and how they differ across multiple industries - How have business ethics evolved over time? and How do business ethics differ from industry to industry?

RELATED FAQS
  1. Are investments in the drug sector appropriate for ethical investors?

    Explore the question of whether investments in the pharmaceutical industry are appropriate for investors who wish to pursue ... Read Answer >>
  2. How do business ethics differ from industry to industry?

    Learn how business ethics differ based on industry, from energy companies' environmental stewardship to tech firms' respect ... Read Answer >>
  3. How do business ethics differ among various countries?

    Find out why business ethics differ between countries, including laws relating to controversial topics that may differ from ... Read Answer >>
  4. Are investments in the chemicals sector appropriate for ethical investors?

    Learn why many ethical and socially responsible investors avoid or dramatically limit their portfolio exposure to the chemical ... Read Answer >>
  5. Can I match a fund to my religion?

    Specialized mutual funds offer investments tailored for particular religions including Judeo-Christian faiths and Islam. ... Read Answer >>
  6. Why is social responsibility important to a business?

    Take social responsibility seriously, and your business could benefit from happier, more productive staff members while helping ... Read Answer >>
Related Articles
  1. Investing

    Ethical Investing Tutorial

    Learn everything there is to know about ethical investing.
  2. Small Business

    What is a Code of Ethics?

    A code of ethics is a collection of principles and guidelines an organization expects its employees to follow.
  3. Financial Advisor

    The Ethics Of Investing

    The proper application of ethics to the world of investments is a highly subjective topic.
  4. Small Business

    What are Business Ethics?

    Business ethics is the system of laws and guidelines by which business professionals and corporations operate in a fair, legal and moral fashion. It’s a broad topic, covering everything from ...
  5. Personal Finance

    Standards And Ethics For Financial Professionals

    Scandals and fraud have given financial professionals a black eye. Learn how to avoid typical ethical dilemmas.
  6. Financial Advisor

    Ethical Wills Share Final Thoughts With Heirs

    This document allows a testator, the person making the will, to leave a personal legacy.
RELATED TERMS
  1. Ethical Investing

    Using one's ethical principles as the main filter for securities ...
  2. Code Of Ethics

    A guide of principles designed to help professionals conduct ...
  3. Business Ethics

    The study of proper business policies and practices regarding ...
  4. CFA Institute

    Formerly known as the Association for Investment Management and ...
  5. Chartered Financial Analyst - CFA

    A professional designation given by the CFA Institute (formerly ...
  6. Security Analyst

    A financial professional who studies various industries and companies, ...
Hot Definitions
  1. Preferred Stock

    A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares ...
  2. Net Profit Margin

    Net Margin is the ratio of net profits to revenues for a company or business segment - typically expressed as a percentage ...
  3. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  4. Current Ratio

    The current ratio is a liquidity ratio measuring a company's ability to pay short-term and long-term obligations, also known ...
  5. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  6. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
Trading Center