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 legislation, which may, in some cases, provide a base point (such as a minimum wage) and in others, set fuller responsibilities and requirements. The main purpose of business ethics is to make sure trust is established between companies 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 company 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, companies need to establish policies and practices both domestically and internationally with respect to business ethics.
When a company goes abroad, it often discovers that business practices that would be illegal, or at least frowned upon, at home are often allowed or unofficially tolerated. In many Latin American countries, for example, bribery and kickbacks are a regular part of doing business. Many developing nations have lax insider trading laws.
An Ethical Dilemma
Two approaches 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 to the norms of 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.
A company needs to establish its management philosophy. Although many people often use management style and philosophy interchangeably, they are 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.