Why Is Business Ethics Important? 5 Ways to Promote It

Business ethics refers to the company’s values, principles, and standards that act as a foundation for its employees’ conduct. The importance of business ethics is immense, as no customer, employee, or investor wants to engage with businesses often found guilty of misconduct.

Do you know six in ten customers prefer to shop from brands with good ethical values and high authenticity? Yes, that’s another major reason why business ethics should be an area of focus.

The need of business ethics arises as ethical companies uphold high corporate standards, maintain transparency, and adhere to the required laws. This helps them gain the trust of employees, customers, and key stakeholders. Hence, it’s essential to set higher standards and improve upon your HR processes.

Keen to dive deeper into business ethics? This blog covers the importance of business ethics, real-life examples, and ways to promote business ethics in your organization. Let’s get started!

Expert Advice

"Business Ethics are critical as they can make or break your brand image. Ensuring a set of standards and policies can enable you to create better business processes and achieve greater success."

Why Is Business Ethics Important? 

Ethics and business go hand-in-hand. The benefits of business ethics involve making the company preferable for customers, investors, and employees. Apart from that, here is a list elaborating on the importance of business ethics:

1. Ensures Compliance With Legal and Regulatory Requirements

Business ethics clearly state legal and regulatory requirements organizations need to follow. When individuals in a company are well-versed with the requirements, they follow them, ensuring compliance.

But why do legal and regulatory requirements matter?

Legal requirements, including workplace and labor welfare laws, aim to guard the rights of employees. Not teaching these can lead to high employee turnover and poor business reputation. On the other hand, regulatory compliance helps your business stay safe against any data losses, security breaches, and lawsuits that can lead to canceled licenses or loss of customers/money.

Here comes the role of business ethics. It includes policies and procedures that make companies adhere to these requirements and avoid mishaps.

Also, non-compliance can cost $4 million in revenue, leading to financial and reputational loss. Yes! That’s another reason your business ethics (related to legal/regulatory requirements) are important.

Bonus: Leverage these compliance management software to monitor your multiple compliance requirements easily.

2. Builds Trust With Customers and Stakeholders

Customers and stakeholders support businesses that adhere to business ethics because strong ethics lay the foundation for strong and transparent business relationships. Such conduct shows that the organization cares and is not just bent on promoting its product or service. In fact, 62% of customers opt for authentic companies with ethical values.

Ethical companies:

• Exercise honesty
• Communicate proactively with stakeholders and employees
• Go beyond their way to solve customer issues
• Practice a zero-tolerance policy for unethical behavior

There’s no reason not to purchase from, work with, or invest in such companies.

Ethical companies are customer-obsessed and have a high sense of corporate social responsibility. This helps them build trust and win committed customers. For instance, businesses that strive to provide highly functional products or value-packed services and quick customer support are bound to have more loyal customers.

Similarly, stakeholders trust and prefer investing in companies that uphold business ethics by producing true financial information and not concealing anything.

3. Fosters a Positive Work Environment

Companies with strong business ethics inevitably build a flexible work environment where employees are encouraged to share their views and feedback, making them feel cared for and heard.

This boosts employee satisfaction and motivates them to perform better at work. A thriving work environment reduces employee turnover by 58%. So, you see how good business ethics go a long way!

When employees are paid fairly, feel free to discuss work-related issues with their managers, and are part of the company’s decision-making process, they develop a sense of belonging to the organization. Such a positive work environment encourages them to contribute 100% effort toward the organization’s success. And that’s the role of ethics in business.

4. Enhances Reputation and Brand Image

Ethical behavior proves that a company is worthy of its employees’, customers’, and investors’ trust. Such companies are known for their integrity and moral standards, which enhances their reputation and brand image.

Ethical brands are reputed and have no problem attracting customers, investors, and top talent. That’s another major importance of business ethics.

• Customers trust brands with strong ethics, as ethical brands are socially responsible and highly transparent.
• When a brand is customer-approved, it automatically gains investors’ support.
• Such brands easily attract top talent and retain the existing skilled employees, ultimately enhancing profitability.

Aligning with unique moral philosophy or abiding by ethical practices that not many brands are considering can make your business stand apart from your competitors. Doing so is another way to make your brand known.

5. Helps Attract and Retain Employees

Attracting and retaining employees is critical for all organizations—in fact, employee turnover is a costly issue for 81% of businesses. The best way to overcome this is to follow fair business practices (as a part of business ethics). Employees will likely stay longer when they feel that the organization cares for them, is transparent, and the work environment strives to promote equality and respect.

When organizations replace rigid rules and unfair salaries with inclusive unbiased business decisions and competitive remuneration, more potential candidates wish to work and keep working with them.

3 Business ethics practices that can attract and retain employees:

• Ensure the safety of employee’s/customer’s sensitive data (Manage employee data and collaborate with employees seamlessly with these HR software)
• No discrimination based on gender/race/physical mobility
• Prioritize employee safety

That’s how having good business ethics is a boon for businesses.

6. Reduces the Risk of Financial and Legal Penalties

A clear code of conduct and ethical business practices like audits and close monitoring of the overall business processes ensure that your organization is financially and legally compliant.

For that, you must stay updated with the current trends and changes in business laws. Once you spot a regulation/law change, instantly add to or change your existing processes, avoiding financial loss or law violation.

Unethical behavior leads to loss of reputation and customer trust and even criminal prosecution. This results in loss of business and financial losses as well. And as we don’t want that, strong business ethics is your way to go.

Real Life Examples of Business Ethics 

Corporate scandals have a tremendous negative impact on a company. Understanding and incorporating the relevance of business ethics is necessary to enjoy public support and the smooth running of your business. Let’s dive deep into 3 major examples of business ethics scandals to understand how these companies violated business ethics:

1. Enron Scandal 

Enron, a merger of Huston Natural Gas and InterNorth, was a top company in the natural gas industry. Eventually, it entered different sectors–electricity, broadband, water, renewable energy, and overseas projects. It gradually became America’s most innovative company, with rising share prices and over $60 billion in capital.

But the company chose to show the positive sides and conceal the negative ones strategically. For this, they created a special purpose entity to transfer all the off-balance assets and liabilities to remain profitable in the eyes of its stakeholders. This goes against business ethics as they weren’t transparent with their processes.

In addition, Enron adopted mark-to-market accounting wherein they mentioned unrealized future gains in their current income statements to pose a higher than actual profit. Again, Enron furnished misleading information to the stakeholders, which is a highly unethical practice. Even their accounting firm, Arthur Andersen, passed Enron’s financial statements despite their malpractices.

When the scandal broke, Enron went bankrupt, stock prices dropped, investors suffered huge losses, and top executives faced legal charges for insider trading & fraud.

To avoid such scandals in the future, the Sarbanes Oxley Act was passed, wherein certain mandatory record-keeping and corporate reporting practices were introduced.

2. Volkswagen Emissions Scandal 

The Volkswagen emissions scandal started in September 2015 when US Environmental Agency found that Volkswagen had been cheating in emission tests. They were marketing their cars as less polluting than they were to attract customers. Also, about 482,000 VW diesel cars were found to be emitting 40x more toxic fumes, which surpassed the permissible limits.

VW intentionally fit devices to their cars that were programmed to sense laboratory emission testing and activated its pollution control so that the Volkswagen vehicles could pass NOx output standards set by the US.

After being caught, they stopped their modified vehicle sales and had to pay huge fines in the US, followed by criminal and civil charges.

When this scandal surfaced, Volkswagen lost its customers’ trust. Why would anyone trust a company that doesn’t adhere to ethical practices–corporate transparency, rules & regulations adherence, and environmental responsibility? So, you see how going against the ethical values in business can negatively impact the company.

3. Wells Fargo Banking Scandal 

Wells Fargo, an American financial institution, became the third largest bank in the US, with high stock prices and a company value of about $300 billion.

But in reality, the company was not as flourishing as it seemed. The scandal was that the bank’s employees opened 1.5 million+ fake bank accounts and issued credit cards under counterfeit customer names.

This happened from 2011-2015 to meet the unrealistic sales targets set by the top managers. Employees revealed that they were forced to sell different products to existing customers, and failure to do so would lead to firing the employee.

Now this is completely unfair and against ethical business norms. Setting unrealistic targets hinders employee morale and efficiency, inducing negativity in the work environment.

Going forward, Wells Fargo developed an ethics workshop wherein they restructured the compensation structure to shift the focus from the sales target, but it failed.

Eventually, in 2016, Well Fargo was penalized for paying fines of $185 million for conducting fraud and furnishing misleading sales figures. The bank then scrapped the sales quota in 2017.

How to Promote Business Ethics in Your Organization?

Promoting business ethics in your organization requires conscious efforts, but once executed, it builds a good brand image and a healthy work environment. Here are five ways to promote business ethics in your organization:

1. Establish a Code of Ethics 

A code of ethics is a series of values that lay the foundation for an organization’s and its employees’ decisions and conduct. It also outlines standard rules to follow during customer interactions.

Establishing a code of ethics defines behavioral rules for employees, ensuring their decisions do not run on unethical practices. When any diversion from set standards is spotted, it is considered misconduct, and strict action is taken against the wrongdoer. This instills a sense of accountability within the employees, driving them to act fairly.

2. Train Employees on Ethics 

When employees are trained on ethics, organizational values and principles guide their conduct and decisions. They then have the right knowledge to make the right choice in their day-to-day tasks. This lowers the chances of intentional or unintentional unethical conduct and creates a healthy work environment.

Employees trained on ethics act with integrity, which reduces the risk of legal violations, wins a good brand image and promotes overall business ethics.

Here are 20 best ethics and compliance software to seamlessly train your employees on ethics.

3. Encourage Whistleblowing 

Whistleblowing is when an insider notices and reports an unethical practice for public/organizational interest or well-being.

But how does encouraging whistleblowing promote business ethics? Transparency and accountability are automatically induced by bringing the wrongdoing to the organization’s notice. This alerts the employees of the consequences of violating the company’s policies and pushes them to follow the predefined ethical standards.

Also, 60% of misconduct in the workplace goes unnoticed, which can land the company in trouble. Whistleblowing as a business ethics practice can help you reduce that while keeping your business safe from penalties and lawsuits.

4. Lead by Example 

Leading by example refers to behaving how you want your employees to behave at work.

Leading by example facilitates the easy adoption of the right work culture. How? Because employees do not feel that managers are being restrictive; rather, they see how their managers are in the same boat and following the same standards set for the company’s success.

Also, when leaders behave ethically, the chances of misconduct on employees’ end reduce as they always follow in their manager’s footsteps. Doing so builds a positive brand image and introduces fair decisions while promoting business ethics in your organization.

5. Reward Ethical Behavior

Rewarding ethical behavior is acknowledging and appreciating employees’ ethical behavior to motivate them to always do the same. Companies have different ways of rewarding employees–additional perks, bonuses, promotions, and more.

We all seek appreciation at work, which motivates us to keep up the good work regardless of the challenges, right? That’s what happens when you reward employees for their ethical behavior. It keeps them on the right track and increases their job satisfaction, happiness, and improve productivity.

Wrapping Up

Commitment to business ethics speaks a lot about brands in general. No one wants to work for, invest in, or purchase from a business that engages in malpractices and has no work ethic.

The purpose of business ethics is to bring goodwill and facilitate transparent operations with a disciplined approach. It helps you attract and retain top talent and loyal customers, plus attract huge investors by showing that you value their time and money.

You can implement ethical practices by incorporating them into your HR policies and communicating them within the organization. You can also define a standard way of performing different functions so that employees know what is right and wrong.

So, wait no further and promote business ethics in your organization using the right tips and software.

Khyati Sagar

Khyati Sagar is a seasoned HR and payroll expert with over a decade of experience in the field. She has worked with businesses of all sizes, from small startups to large corporations, helping them optimize their HR and payroll processes. As a passionate advocate for technology-driven solutions, she is always on the lookout for the latest advancements in HR and payroll software. When she’s not working, you can find her hiking or playing basketball with her friends and family.