Business Ethics

Loading the player...

What is 'Business Ethics'

Business ethics is the study of proper business policies and practices regarding potentially controversial issues, such as corporate governance, insider trading, bribery, discrimination, corporate social responsibility and fiduciary responsibilities. Law often guides business ethics, while other times business ethics provide a basic framework that businesses may choose to follow to gain public acceptance.

BREAKING DOWN 'Business Ethics'

Business ethics ensure that a certain required level of trust exists between consumers and various forms of market participants with businesses. For example, a portfolio manager must give the same consideration to the portfolios of family members and small individual investors. Such practices ensure that the public receives fair treatment.

The concept of business ethics arose in the 1960s as companies became more aware of a rising consumer-based society that showed concerns regarding the environment, social causes and corporate responsibility. Business ethics goes beyond just a moral code of right and wrong; it attempts to reconcile what companies must do legally versus maintaining a competitive advantage over other businesses. Firms display business ethics in several ways.

Case Studies

In the case of a company that sells cereals with all-natural ingredients, the marketing department must temper enthusiasm for the product versus the laws the govern labeling practices. Some competitors' advertisements tout high-fiber cereals that have the potential to reduce the risk of some types of cancer. The cereal company in question wants to gain more market share, but the marketing department cannot make dubious health claims on cereal boxes, or it risks facing litigation and fines. Even though competitors, who have a larger market share of the cereal industry, use shady labeling practices, that doesn't mean every manufacturer should engage in unethical behavior.

Another case study involves quality control for a company that manufactures electronic components for computer servers. These components must ship on time, or the parts manufacturer risks losing a lucrative contract. The quality control department discovers a possible defect, and every component in one shipment faces checks. Unfortunately, the checks may take too long, and the window for on-time shipping could pass, and that, in turn, delays the customer's product release. The quality control department has the option of shipping the parts, hoping that not all of them are defective, or the company can delay the shipment and test everything. If the parts are defective, the company that buys the components might face a firestorm of consumer backlash, which may lead to the customer to seek another, more reliable supplier.

Statistics

The National Business Ethics Survey comes out every two years. In the 2013 edition, respondents saw an all-time low in unethical behavior. Around 41% of employees saw misconduct on the job, compared to 45% in 2011. The survey concluded that possibly an uncertain economic climate led to less risk-taking in for-profit businesses leading more managers and executives to act more ethically. The survey found that 60% of misconduct on the job occurred among managers, and 25% of employees blamed senior-level managers for unethical behavior.

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. Corporate Accountability

    The performance of a publicly traded company in non-financial ...
  4. Corporate Governance

    The system of rules, practices and processes by which a company ...
  5. CFA Institute

    Formerly known as the Association for Investment Management and ...
  6. Corporate Social Responsibility

    Corporate initiative to assess and take responsibility for the ...
Related Articles
  1. Investing

    Ethical Investing Tutorial

    Learn everything there is to know about ethical investing.
  2. Investing

    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 ...
  3. Markets

    The Ethics Of Investing

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

    What is a Code of Ethics?

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

    Asset Manager Ethics: Acting Professionally and Ethically

    To aid managers in understanding the requirements for ethical and professional behavior, we offer some basic guidelines.
  6. Investing

    Standards And Ethics For Financial Professionals

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

    Ethical Issues For Financial Advisors

    Financial advisors may face ethical issues in their work. Find out what they are.
  8. Markets

    Kellogg's Tries a New Way to Promote Cereal

    Cereal sales have suffered for Kellogg's (NYSE: K) in recent years, in part because millennials find the idea of assembling it too hard compared to already-made bars or other ready-to-eat snacks. ...
  9. Investing

    How Conscious Consumers Are Changing Business

    Thanks to the growth of conscious consumerism, corporations must evolve or lose ground to new, ethos-based entrepreneurial models.
  10. Retirement

    Ethical Wills Share Final Thoughts With Heirs

    This document allows a testator, the person making the will, to leave a personal legacy.
RELATED FAQS
  1. Why are business ethics important?

    Learn why ethics are an integral aspect of management philosophy and how sound business ethics benefit business, both large ... Read Answer >>
  2. How have business ethics evolved over time?

    Learn about the evolution of business ethics over times, from the rise of social responsibility in the 1960s to ethics in ... Read Answer >>
  3. How important are business ethics in running a profitable business?

    Learn how business ethics as a guiding philosophy within a company can have a drastic impact on long-term profitability and ... Read Answer >>
  4. 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 >>
  5. 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 >>
  6. 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 >>
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center