A:

A number of factors play a part in making a business profitable, including expert management teams, dedicated and productive employees, consistent consumer demand and careful watch over the bottom line. In addition to these well-known business practices, companies that implement a management philosophy that relies heavily on business ethics are proven to be more successful than those that operate in an unethical manner. Although it may not be the first variable considered in analyzing the profits of a company, business ethics is an equally important catalyst to the success of a company.

Business Ethics in Management

The leadership of an organization holds the key to its long-term success, and remaining consistent with a management philosophy built on a foundation of ethics creates a positive example for all workers. Ethical accounting practices, treatment of employees, interactions with the public and information disseminated to shareholders are all responsibilities of the leadership team and can have a direct impact on the overall profitability of the company. When these integral aspects of business are not performed with a resounding theme of business ethics from the top down, each facet of the business beneath the management team has a greater potential to falter in the short or long term.

Business Ethics and Employee Morale

It has been proven time and again that employees who are satisfied with the environment in which they work are more productive than workers who are unhappy. Unethical practices in the workplace can cause widespread unrest with employees, leading to a greater sense of dissatisfaction with the work they are doing and their employers. However, when business ethics are encouraged from management and company executives lead by example, the ability of employees to focus on the work they need to complete to make themselves and the organization successful increases exponentially. Productivity increases when fewer distractions are present and morale is high, and this leads to greater profit levels for the company. (For related reading, see: 5 Unique Ways to Increase Office Morale.)

Employee happiness can also have an impact on turnover and retention, as unsatisfied workers are more prone to seek out other opportunities, regardless of higher pay or benefits offered by their current employer. Continuous recruitment and training of new employees can reduce the capital a company can spend on revenue-producing activities, ultimately shrinking its long-term profits.

Business Ethics and Public Image

Companies would be nothing without shareholders and investors, and as such, operating with business ethics in mind is most important when interacting with these crucial players. It is common for the profitability of publicly traded companies to decline rapidly when they encounter situations where information regarding unethical behavior is discovered. When investor confidence is lost, it can be a struggle for a company to regain the trust of the public, its investors and its valuable shareholders; profitability may take years to build up again. Companies that lay the framework for business ethics in all facets of operation are more likely to become and remain profitable than those that conduct business in an unethical manner.

(For related reading, see: How have business ethics evolved over time?)

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 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. 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 >>
  4. Why is social responsibility important to a business?

    Socially responsible companies improve their brand, attract and retain top talent, and improve relationships with their customers ... Read Answer >>
Related Articles
  1. Investing

    The Ethics Of Investing

    The proper application of ethics to the world of investments is a highly subjective topic.
  2. Investing

    How to Use Ethical Investing to Invest in Your Beliefs

    These steps will help you invest ethically without jeopardizing your financial goals.
  3. 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.
  4. Small Business

    How Corporate Culture Affects Your Bottom Line

    Here's a look at how companies can be successful financially by promoting a positive work atmosphere for employees.
RELATED TERMS
  1. Succession Planning

    Succession planning is the strategy for passing on leadership ...
  2. Revenue Per Employee

    An important ratio that looks at a company's sales in relation ...
  3. Corporate Accountability

    Corporate accountability is the performance of a publicly traded ...
  4. Best Practices

    A set of guidelines, ethics or ideas that represent the most ...
  5. Leadership

    Leadership is the ability of a company's management to make sound ...
  6. Corporate Citizenship

    The extent to which businesses are socially responsible for meeting ...
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