Why Business Ethics Are Important for Your Organization

Business ethics are moral standards that govern how your organization and the people in it conduct business and interact with others inside and outside of the company. Establishing clear ethical standards shapes your organization's culture, transmits your values, and gives employees guidance on how to behave to avoid impropriety.¹ Being transparent about your business ethics builds trust with your customers, partners, and stakeholders and protects your reputation.

This article will explore the importance of ethics to business, including how to establish and enforce ethical guidelines.

Building Trust and Reputation

 
Your company’s reputation is one of your most important business assets. Ethical guidelines let everyone in your organization know what the company values are and how they’re supposed to behave in different situations. Formal policies help you ensure that everyone who represents your company behaves consistently in situations that call for moral judgment. Much as consistent branding helps build trust with your customers, consistent and transparent ethical practices help gain stakeholder confidence.²

Sharing information about how your business operates, including how you source materials, measure your impact on society and the environment, and ensure that your vendors are treating their employees fairly, allows investors and customers to make informed choices about doing business with you. Over the long term, consistently ethical behavior will lead to a positive perception of your brand. In addition to helping you operate according to your moral conscience, this also gives you a competitive advantage.²

Legal and Regulatory Compliance

Although business ethics extend beyond following the law, ethical guidelines also help you avoid legal pitfalls by enforcing compliance with industry regulations. Many organizations are subject to multiple, overlapping regulations. Including compliance obligations in your ethical framework reduces your legal and financial risks.

For example, healthcare organizations that must comply with the Health Insurance Portability and Accountability Act (HIPAA) will include standards about how patient data is stored and transmitted.³ Companies that are publicly traded are held to high accounting standards outlined in the Sarbanes-Oxley (SOX) Act. This law was enacted in 2002 after major instances of corporate financial malfeasance in which several companies, including Enron and WorldCom, defrauded investors through fraudulent accounting. A clear ethical framework can ensure that all of your business practices are compliant, so you can protect your reputation.⁴

Employee Engagement and Retention

When your ethics are the foundation of your organizational culture, it makes it easier for you to attract and retain high-quality, like-minded employees. Your employees will be more engaged and committed when they feel they’re working for a company that values them and shares their goals and priorities.⁵

Strong ethics foster a sense of pride and loyalty among your staff, which can improve employee retention. Further, that low turnover rate will help you hire top talent in your industry. Employees who feel they will be supported by their company are more likely to report unethical behavior, which helps reinforce your cultural values.⁵

Decision-Making Frameworks

By establishing and using a decision-making framework, you’ll be in a stronger position to balance profit and principles in the pursuit of responsible outcomes. A framework for ethical decision-making starts by identifying an ethical issue and analyzing who it could harm and what choices you could make. Determining whether the issue is solely a legal issue may shape how you approach it.

The next step is to gather information about the facts surrounding the issue, including who is involved and what the top priorities are. Outline all of your possible actions and evaluate them based on factors such as which ones address the common good, which are the most honorable, and which most closely align with your organizational values. Choose an option, test it, and then reflect on your results. Consider how your decision can be implemented most effectively on a wider scale.

Creating and Enforcing Ethical Guidelines

Once you’ve established an ethical framework, put it into action and share it widely within your organization. Develop a code of conduct that governs employee behavior and train your staff on it. The framework should cover people, processes, performance, and purpose, as all of these are shaped by your ethics.

• In this context, “people” includes everyone in the company, from the board of directors to front-line employees. Attracting people who prioritize ethical behavior will strengthen your organizational integrity
• Processes are the business practices you put in place to guide ethical behavior. They can include methods to ensure transparency and accountability
• Performance is an integral part of enforcing ethical standards. It includes using your ethical principles to govern business operations
• Purpose refers to the overarching values that drive all of your ethical initiatives

Addressing all of these elements in a structured manner will help you develop ethical guidelines that increase your accountability, transparency, fairness, and responsibility.

• Accountability ensures that your organization takes responsibility for and discloses its actions and that your leaders are answerable to shareholders and the public for their actions
• Transparency gives stakeholders, including customers, investors, and shareholders, insight into how you operate
• Fairness involves treating people equally and not favoring one group over another; this extends to how you treat employees and others who are affected by your business operations
• Responsibility covers your obligation to make a positive impact beyond the returns you deliver to shareholders, including your impact on the environment, the economy, your community, and society as a whole

Take an Ethics-First Approach to Business Leadership

The Online MBA program from the Leavey School of Business at Santa Clara University will equip you to navigate today’s most challenging ethical issues. In a business environment that’s increasingly globally connected, values-based leadership is more important than ever. Located in the heart of Silicon Valley, our program has a network that includes leaders at the most innovative companies in the world. The rigorous curriculum gives you a strong foundation in the basics of business leadership, taught by industry experts. You can also tailor your degree by concentrating in areas such as Leading Innovative Organizations, Marketing, or Finance. The flexibility of this online program allows you to learn at home on your own schedule.

Schedule an appointment with an admissions outreach advisor today to learn more.