Importance of Business Ethics to Organizations

Importance of Business Ethics to Organizations

The importance of business ethics to organizations cannot be underestimated. In the recent years, ethical conduct of employees in organizations have occupied center stage as organizations come under increasing pressure from various stakeholders to act in ethical ways. Various scandals that have rocked organizations in the past such as Enron, WorldCom, Lehman Brothers, AIG, and others have generated more interest in the role of proper business ethics in organizations. In particular, the fundamental question among various stakeholders’ concerns ways in which business organizations can employ business ethics to shape employee behavior. Just like individuals, organizations can be held to account for their actions. However, it is the choices made by individuals that forms the basis for organizational ethics. It is important to establish whether business ethics help organizations in any particular manner. This paper will examine the role played by ethical policies and training programs and general impact of ethical leadership to modern organizations.

The term organizational ethics is broadly employed to define the culture, processes, outcomes, values, character, and code of principles held by the organization (Salehi, Saeidinia, & Aghaei, 2012). Organizational ethics hold the organization in place by instilling a sense of unity among employees. It defines the manner in which employees should conduct themselves. Organizational ethics is closely linked to the mission and values held by the organization. Their main role is to help in addressing issues concerning key aspects such as management decisions, financial decisions, and relationship issues in the organization. Business ethics specifically helps organizations in enhancing employee relationships, maintaining profitability, safety from legal issues, enhance goodwill, overcome competition, and for sustainability purposes. According to Trevino, Weaver, & Reynolds (2006), common ethical issues in organizations involve unauthorized payments, sexual harassment, inappropriate language, environmental issues, affirmative action policy, inappropriate gifts received by staff, employee privacy, and employee conflict of interest.

Maintaining organizational reputation

Organizational reputation concerns the manner in which consumers perceive the business in terms of trustworthiness, reliability, quality of products, maintenance of standards, and general image (Ferrell, 2016). Organizational reputation is involved with how people feel about the organization. People judge organization based on the activities they engage, their behaviors, and corporate citizenship. A good reputation can increase the organization’s competitive advantage as it is more appealing to customers. A good reputation is not only important in attracting customers but also in attracting and retaining highly skilled and qualified employees. Employees are attracted to companies with strong ethical values. Organizations with poor reputation resulting from unethical practices such as rampant corruption, environmental pollution, and poor quality products may find it difficult attracting and retaining a pool of skilled employees.

Business ethics helps in gaining legitimacy

Business ethics helps organizations in conforming to external expectations. Different regulatory bodies including the local and state government puts pressure on organizations to adopt ethical behavior. This is reflected in the code of ethics of the companies as they respond to the outside pressure. Currently, there is high pressure for organizations to show transparency in their operations from such regulatory bodies as U.S. Securities and Exchange Commission and other government agencies. Business ethics enables organizations to conform to requirements of these bodies. In the modern business environment, investors are also keen about the ethical performance of companies. Investors prefer companies that have high ethical standards since to them they are more sustainable. Conformity with external regulatory bodies shows an openness towards conducting business with others in an easy way (Albrecht, Albrecht, & Dolan, 2007).

Fraud prevention

Business ethics plays a critical role in fraud prevention in organizations. Implementing a fraud policy in organizations is the first step deterring fraud (Giles, 2012). Organizations which do not have effective ethics program are at higher risk of fraud perpetrated by their own employees. There are many forms of fraud which can occur in organizations such as asset misappropriation, corruption, financial misstatement, computer crimes, and other forms of fraud. Fraud is an inherent risk in organizations. However, particular factors in the control environment determine the likelihood of occurrence of fraud in organizations. The management can put several measures in place to minimize the risk of fraud in organizations. The HR department is tasked with putting up fraud control measures in the organization including training programs. The HR department codifies ethics, values, and the generally expected conduct of all persons in the organization (Rezaee, 2008). Effective communication of the values and codes of ethics to employees encourages them to be transparent and accountable in their dealings.

Ethics define the corporate culture of an organization

Business ethics are important in shaping the corporate culture in organizations. A code of ethics encourages development of coherent corporate culture through establishment of common operating principles and practices (Werf, 2010). Shared values and principles in organizations are important in developing a corporate culture. This is very important especially to organizations that have undergone mergers or acquisitions. In such organizations, employees share different values. A code of ethics can help unify employee values and principles and work towards achieving a common objective. When employees share different work values and principles, it is difficult for the management to develop teamwork and reach set objectives. Organizations must clearly communicate the codes of ethics to all employees to ensure that they share the same work culture. An organization that maintains strong codes of ethic also help new employees too quickly adapt to the organization’s culture.

Decision making process

Business ethics form the basis of ethical decision making to organizations (Butts, 2008). When faced by complex situations, the management and employees rely on the business codes of ethics to make the right decisions. In certain circumstances, employees face situations where they have to make decisions with certain ethical implications. These are decisions that have some negative implications on one or more of the stakeholders in the organization. Although the code of ethics may not be a panacea to complex decision making, it provides employees and the management with a framework for analyzing complex issues and coming up with the best possible solution to a particular problem. Business ethics enables employees to judge their actions based on their consequences. Employees are able to anticipate the kind of problems that may arise when they take or fail to take certain actions.

Ethics promotes good governance in organizations

One of the possible outcomes of adopting and implementing a code of ethics is good governance in organizations. Business ethics ensure that everyone in the organization is responsible for their actions, from the employees to the management. Corporate governance is based on four ethical principles which include fairness, accountability, transparency and responsibility. Fairness requires that organizations ensure the decisions they make take into consideration the interests of others. Accountability involves justifying decisions and performance results. The management should be able to assume responsibility for actions taken in the organization. Transparency involves disclosing important information to the relevant stakeholders. Code of ethics also ensures that employees maintain positive relationships. Code of ethics defines how relationships among employees, customers, suppliers, and management should be. This avoids conflicts in the organization.

Well-being of society

Business ethics help organizations in developing corporate social responsibility strategies for the well-being of the society. Organizations which do not follow any ethical codes of conduct may be socially irresponsible and lead to wider consequences among local community members (Hiironen, 2004). For instance, businesses which disregard business ethics may dispose hazardous waste materials in ways which threaten community health. Organizations lacking business ethics are more likely to neglect their obligations towards general environmental care and stewardship expected. For example, they are likely to pollute the environment and disregard their obligations to minimizing greenhouse gas emissions. It is important for organizations to put their business interests aside for the well-being of the society. Consumers are increasingly becoming aware of corporate social responsibility. This means that in future they will most likely opt for products from companies that recognize corporate responsibility (Kott, 2012). Business should make decisions based on sound moral principles.

In conclusion, business ethics are of great importance to the business as well as various stakeholders. Organizations cannot operate without a code of ethics that guide employee behavior. The code of ethics is instrumental in shaping the organizational culture that in turn determines the behavior of employees. Business ethics guide the actions of employees and management. They form the platform for which decision making process occurs. The management as well as the employees evaluate the moral rightness of their decisions based on the code of ethics established by the organization.


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