What Is Business Ethics?

Business ethics is the study of appropriate business policies and practices regarding potentially controversial subjects including corporate governance, insider trading, bribery, discrimination, corporate social responsibility, and fiduciary responsibilities. The law often guides business ethics, but at other times business ethics provide a basic guideline that businesses can choose to follow to gain public approval.

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Business Ethics

Understanding Business Ethics

Business ethics ensure that a certain basic 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. These kinds of practices ensure the public receives fair treatment.

The concept of business ethics began in the 1960s as corporations became more aware of a rising consumer-based society that showed concerns regarding the environment, social causes, and corporate responsibility. The increased focus on so-called social issues was a hallmark of the decade.

Since that time period, the concept of business ethics has evolved. 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.

[Important: Business ethics are meant to ensure a certain level of trust between consumers and corporations, guaranteeing the public fair and equal treatment.]

Examples of Business Ethics

Here are a few examples of business ethics at work as corporations attempt to balance marketing and social responsibility. For example, Company XYZ sells cereals with all-natural ingredients. The marketing department wants to use the all-natural ingredients as a selling point, but it must temper enthusiasm for the product versus the laws that 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 without the risk of litigation and fines. Even though competitors with larger market shares of the cereal industry use shady labeling practices, that doesn't mean every manufacturer should engage in unethical behavior.

For another example, consider the matter of 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, which could delay the customer's product release. The quality-control department can ship the parts, hoping that not all of them are defective, or 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 the customer to seek a more reliable supplier.

Special Considerations

In a recent National Business Ethics Survey, 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 24% of employees blamed senior-level managers for unethical behavior.

Key Takeaways

  • Business ethics refers to implementing appropriate business policies and practices with regard to arguably controversial subjects.
  • Some issues that come up in a discussion of ethics include corporate governance, insider trading, bribery, discrimination, social responsibility, and fiduciary responsibilities.
  • The law usually sets the tone for business ethics, providing a basic guideline that businesses can choose to follow to gain public approval.