A:

Business ethics is the study of business policies and practices, such as corporate governance, insider trading, bribery, discrimination, corporate social responsibility and fiduciary responsibilities. Business ethics are often shaped and guided by the law, while in other cases they provide bare minimums, similar to the minimum wage. The main purpose of business ethics is to make sure trust is established between businesses and consumers. Whether a business is dealing with a partner or a new customer, business ethics indicate that the same level of service should be offered.

Business ethics are an important subject when a business decides to expand internationally. Business ethics can differ in many ways between countries and industries. Some companies strive to be the gold standard for business ethics in their industry, while others do the bare minimum that is legally required. With the globalization of business, it is important for companies to establish policies and practices both domestically and internationally with respect to business ethics.

In many foreign countries, business practices that would be frowned upon and illegal domestically are often a normal part of doing business. In many Latin American countries, bribery and kickbacks are a regular part of doing business. A business needs to decide whether to engage in this questionable behavior or stick to its business ethics established at home.

There are two approaches that can be taken when doing business in foreign countries. A business can operate internationally with the policies and procedures it has developed at home, or it can adopt its own practices in each foreign country where it operates. Establishing the same standards in offices worldwide can be advantageous to ensure compliance throughout the entire organization. Management and workers are less likely to engage in risky and illegal behavior if it is explicitly forbidden in a company’s written policies and procedures. Companies can ensure compliance by mandating that its workers read and sign its policies and procedures and successfully complete an annual quiz.

The second approach is for a company to establish different policies and procedures for business ethics in foreign countries. Different countries have different country risks. In some countries, child labor is acceptable and normal, but is frowned upon in the United States. If a multinational company is discovered to have used child labor, it could end up being a public relations nightmare and lead to a decline in domestic sales.

It is important for a company to establish its management philosophy. Although many people often use management style and philosophy interchangeably, they are both different terms. Your management style is how you manage your workforce, while your philosophy is why you manage your workforce that way. For example, your management style may be authoritative, while your philosophy may be intended to ensure that each individual follows the rules in a highly regulated industry, such as financial services.

RELATED FAQS
  1. Why is business ethics important?

    No matter the size, industry or level of profitability of an organization, business ethics are one of the most important ... Read Answer >>
  2. How Are Global and International Funds Different?

    In English, 'global' and 'international' tend to be used interchangeably—hence the confusion. Read Answer >>
  3. What are the advantages of foreign portfolio investment?

    Learn the advantages that businesses can derive from foreign portfolio investment in an increasingly globalized business ... Read Answer >>
  4. Where do most fund managers get their market information?

    Professional fund managers have access to resources that the "average Joe" investor does not. Read Answer >>
Related Articles
  1. Personal Finance

    Standards and Ethics for Financial Professionals

    Scandals and fraud have hurt the reputation of financial professionals over the years. Learn how to avoid these ethical dilemmas while being in compliance.
  2. Financial Advisor

    Ethical Issues For Financial Advisors

    Financial advisors may face ethical issues as part of their work. Knowing the legislative, regulatory, and legal landscape – as context for interactions with clients – is key.
  3. Small Business

    8 Ethical Guidelines for Brokers

    Examine the less obvious ethical dangers faced by a broker or financial advisor to help avoid trouble in ethical gray zones while managing client's money.
  4. Tech

    Robo-Advisor Grow Targets SRI Niche

    Recently launched robo-advisor Grow focuses on sustainable investments.
  5. Small Business

    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.
  6. Financial Advisor

    Asset Manager Ethics: Risk Management and Compliance

    Managers should create a compliance and risk function that is integral to the investment function in order to plan for the increasingly more common market dislocations that occur in the global ...
RELATED TERMS
  1. Code of Ethics

    A code of ethics is a guide of principles designed to help professionals ...
  2. Compliance Officer

    An employee whose responsibilities include ensuring that the ...
  3. Best Practices

    A set of guidelines, ethics or ideas that represent the most ...
  4. Corporate Accountability

    Corporate accountability is the performance of a publicly traded ...
  5. Multinational Corporation - MNC

    A multinational corporation has its facilities and other assets ...
  6. Investment Philosophy

    An investment philosophy is a set of guiding principles that ...
Hot Definitions
  1. Investment Advisor

    An investment advisor is any person or group that makes investment recommendations or conducts securities analysis in return ...
  2. Gross Margin

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

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  4. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  5. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  6. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
Trading Center