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Business ethics (also known as company ethics) is a form of applied ethics or professional ethics that examines moral principles and ethical or moral issues that arise in a business environment. It applies to all aspects of business conduct and is relevant to the behaviour of both individuals and entire organisations.
Business ethics has both normative and descriptive dimensions. As a corporate practice and a career specialization, the field is primarily normative. Academics attempting to understand business behaviour use descriptive methods. The scope and complexity of business ethical issues reflect the interaction of profit-maximizing behaviour with non-economic considerations. Interest in business ethics surged during the 1980s and 1990s, within major corporations and academia. For instance, nowadays, most leading companies promote their commitment to non-economic values under headlines like ethics codes and social responsibility charters.
How it works
“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices,” said Adam Smith. Governments use laws and regulations to guide business behaviour in what they perceive as beneficial directions. Ethics implicitly regulate areas and aspects of behaviour that lie beyond governmental control. The emergence of large companies with limited relationships and sensitivity to the communities in which they operate accelerated the development of formal ethics regimes.
Knowing that the company one manages, has expressed its ethics and made a commitment to operate in an ethical and responsible manner, allows investors to rest assured that their money is being used in a way that aligns with their own ethical standards. When working for a company with strong business ethics, employees are comfortable in the knowledge that they are not by their own actions allowing unethical practices to persist. Customers are more likely to purchase goods or services from an organization they know to source its materials and labor in an ethical and responsible manner.
For instance, a coffee company stating that all their raw beans have been harvested from sustainable plants where no deforestation has taken place, by people paid a fair wage, in an area where investments have been made to ensure that producing coffee for a foreign market has not damaged the local lifestyle, will find that every aspect of their buying strategy becomes a selling point for their final product.
A company that strives to work within its own ethical guidelines is less likely to be penalized for poor behaviour and is less likely to find themselves in breach of one of a large number of laws concerning required behaviour. Reputation is one of a company’s most critical assets, and one of the most challenging to rebuild should it be lost. Keeping promises is crucial to maintaining that reputation.
Businesses not adhering to any kind of ethical guidelines or neglecting their social responsibilities can lead to broader consequences. Unethical behaviour may tarnish a firm’s reputation and make it less appealing to stakeholders, which may result in a decrease in profits.
Business ethics can have a significant impact on nature. For example, a company that does not care about where it disposes of its waste products or fails to consider long-term impacts when buying land for development, is harming the world in which all life exists, and hampering the future prospects of all firms.
Although some managers consider ethics programs in their organisations to be very expensive activities that only offer societal rewards, businesses that are viewed as ethical by their key stakeholders (i.e., customers, employees, suppliers, and the public) enjoy several competitive advantages. These include higher levels of operational efficiency, greater employee commitment and loyalty, superior perceived product quality, increased customer loyalty and retention, and improved monetary performance. Therefore, high standards of organisational ethics can reduce the value of business transactions and build trust with vital stakeholders, leading to gain.
The lack of general ethics among small business owners, which negatively impacts client loyalty, can hinder growth opportunities, brand building, and the attraction of investment partners. This results in stereotypes and perceptions of a general lack of quality among SMEs. This, in turn, limits their ability to influence larger businesses and attract funding for development. Consequently, it is imperative for SMEs to understand the nature and importance of business ethics. This understanding will help develop strategies and solutions to address challenges, minimise business failure, increase growth and performance opportunities, and bolster their overall reputation in the business community.
According to Sraboni and Sharmistha (2011), a happy and motivated workforce is the first step towards long-term business success. Ethical practices towards employees ensure job satisfaction and increased motivation levels, leading to greater business profit. Specifically, ethical hiring practices, fair performance appraisal systems, appropriate employee replacement procedures, proactive approach towards employee grievances, work safety, and voluntary investments for employee welfare are all crucial in creating an ethical work environment.
Furthermore, encouraging employees to participate in decision-making, catering to employees’ training and development needs impartially, and maintaining a formal code of ethics in the organisation are additional ethical considerations that can lead to employee motivation.
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