Creating an Ethical Culture

Superimposed on the responsibilities to stakeholders is the need to act ethically in whatever the firm does. This need transcends everything else, and it influences how the firm’s managers view their responsibilities to their various stakeholders.

Why a Business Focus on Ethics?

There are many reasons why businesses emphasize the practice of ethical behavior. For many managers, it is simply the right thing to do and it reflects their personal values. But there are 3 additional reasons business ethics is important, reasons that are key ingredients in the formula of business success and competitiveness.

          Customers demand ethical behavior

          Good ethics improves the work climate

          Newly empowered workers need clear guidelines.

Business must understand and meet the ethical expectations of their customers. Customers demand ethnical action and increasingly support businesses’ efforts to be good corporate citizens. Many customers are repulsed by businesses that fail to meet ethical standards. They are disgusted by the visible examples of poor ethical practice, from companies that pollute to those that practice discrimination to those that cut corners on safety. Whenever possible, these customers are likely to turn from such businesses.

High ethical standards and public trust are the essence of some businesses. When public trust is lost, the firm’s competitive strength is also lost. This is the case with certified public accounting (CPA) firms, which must adhere to the highest levels of ethics. Reputations for ethical behavior are essential for the confidence clients place in these firms. The same is true for many independent consulting businesses.

Consider the case of Healthy Buildings International (HBI), an independent building inspection business. HBI provides a service to other businesses by inspecting their facilities and gauging the quality of the quality of the physical environment. For years, it has assured the public that smoking in well-ventilated buildings posed minimal health risk to the people working or living there. Recent findings posed minimal health risk to the people working or living there. Recent findings may affect HBI’s reputation. Apparently some of its research was funded by the Tobacco Institute, a trade group of the tobacco industry. Even though such an arrangement may be lawful, it calls into question HBI’s independence. If this reduces the perceived credibility of its service, customers may stop relying on HBI for information and assessment.

Clear ethical standards and direction foster more favorable and promising work climates. People know what to expectant; they know what will and what will not be tolerated. They know that success is not secured at any cost. Often this knowledge makes them feel better about their employers and more committed to their work situations.

Another reason and quite significant reason why contemporary business emphasizes ethical behaviour so strongly. As businesses become leaner and more streamlined, more and more discretion is being given to employees. The new, empowered workforce has been granted expanded decision-making authority. At the same time, there are fewer managers around to act as checks and balances. Increasingly, companies must trust employees to behave ethically on their own. In this environment, clear and consistent ethical standards and practices are fundamental. Empowered workers use these standards and practices as the basis for their actions and decisions.

Its unclear whether attention to ethical behaviour does, in fact, result in higher profits. However, there is clear evidence that businesses that are exposed for corporate crimes such as bribery, tax evasion, and violation of government contracts see a negative impact on their stock prices. This effect is even stronger if the business was earlier accused of illegal actions.