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 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, it is important for companies 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. In some Asian nations, insider trading is not a crime.

An Ethical Dilemma

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 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.

It is important for a company 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.

RELATED FAQS
  1. Can I still pass the CFA Level I if I do poorly in the ethics section?

    You may still pass the Chartered Financial Analysis (CFA) Level I even if you fare poorly in the ethics section, but don't ... Read Answer >>
  2. What indicators are used in exchange rate forecasting?

    Learn what economic indicators are most widely used to forecast a country’s exchange rate and how various foreign exchange ... Read Answer >>
  3. What are the advantages of foreign portfolio investment?

    Foreign portfolio investment gives investors an opportunity to engage in the international diversification of portfolio assets. Read Answer >>
  4. The risks businesses face in international finance

    When an organization engages in international financing activities, it takes on additional risk, including foreign exchange ... Read Answer >>
  5. What is foreign exchange?

    Foreign exchange is the conversion of a country's currency into another. In a free economy, a country's currency is valued ... Read Answer >>
Related Articles
  1. Investing

    Ethical Investing Tutorial

    Learn everything there is to know about ethical investing.
  2. 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 ...
  3. Financial Advisor

    Ethical Issues For Financial Advisors

    Explore some common ethical dilemmas investment professionals may face, and find help and guidance on how you can tackle them.
  4. Tech

    Robo-Advisor Grow Targets SRI Niche

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

    3 Big Ways to Assess Your Investment Manager

    Find out whether your funds are being managed according to your goals.
  6. Personal Finance

    The “F” Word of Financial Planning

    When it comes to financial planning, "fiduciary" is the only F word you should need to know.
  7. Investing

    Four Socially Responsible Stocks To Watch

    Making money in the market shouldn't prevent you from sleeping at night. Find out how to keep your conscience clean and bank account growing.
  8. Financial Advisor

    Asset Manager Ethics: Risk Management, Compliance

    A look into how compliance and risk function in the investment management world.
RELATED TERMS
  1. Business Ethics

    Business ethics is the study of proper business policies and ...
  2. Associate In Insurance Accounting And Finance - AIAF

    Associate In Insurance Accounting And Finance - AIAF - is a professional ...
  3. Best Practices

    Best practices are a set of guidelines, ethics or ideas that ...
  4. Investment Philosophy

    An investment philosophy is a set of guiding principles that ...
  5. Multinational Corporation - MNC

    A multinational corporation has its facilities and other assets ...
  6. Guilt-Edged Investment

    A guilt-edged investment is legal but perhaps not ethical. Such ...
Trading Center