Definition of Business Ethics

Business ethics can be defined as written and unwritten codes of principles and values that govern decisions and actions within a company. In the business world, the organization’s culture sets standards for determining the difference between good and bad decision making and behavior. In the most basic terms, a definition for business ethics boils down to knowing the difference between right and wrong and choosing to do what is right. The phrase 'business ethics' can be used to describe the actions of individuals within an organization, as well as the organization as a whole.

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Importance of Running Business Ethically:

Running a business ethically is good for business. However, "business ethics" if properly interpreted means the standards of conduct of individual business people, not necessarily the standards of business as a whole.

Business leader are expected to run their business as profitably as they can. A successful and profitable business in itself can be a tremendous contributor toward the common good of society. But if business leaders or department managers spend their time worrying about “doing good” for society, they will divert attention from their real objective which is profitability and running an efficient and effective organization.

Applying ethics in business makes good sense. A business that behaves ethically induces other business associates to behave ethically as well. If a company (or a manager) exercises particular care in meeting all responsibilities to employees, customers and suppliers it usually is awarded with a high degree of loyalty, honesty, quality and productivity. For examples, employees who are treated ethically will more likely behave ethically themselves in dealing with customers and business associates. A supplier who refuses to exploit its advantage during a seller's market retains the loyalty and continued business of its customers when conditions change to those of a buyer's market. A company that refuses to discriminate against older or handicapped employees often discovers that they are fiercely loyal, hard working and productive.

It is my firm belief that a “good man or woman” who steadfastly tries to be ethical (i.e. to do the “right thing", to make appropriate ethical decisions, etc.) somehow always overtakes his immoral or amoral counterpart in the long run. A plausible explanation of this view on ethical behavior is that when individuals operate with a sense of confidence regarding the ethical soundness of their position, their mind and energies are freed for maximum productivity and creativity. On the other hand, when practicing unethical behavior, the individual finds it necessary to engage in exhausting subterfuge, resulting in diminished effectiveness and reduced success.

The best way to promote ethical behavior is by setting a good personal example. Teaching an employee ethics is not always effective. One can explain and define ethics to an adult, but understanding ethics does not necessarily result in behaving ethically. Personal values and ethical behavior is taught at an early age by parents and educators.

I am quite certain that well-educated business professional like Kenneth Lay, Martha Stewart, Dennis Kozlowski or the former CEO of General Motors who received a multi-million dollar salary and bonus package in 1987 at a time when the company was closing plants and was laying off thousands of people know and understand ethics. They either were too far removed from the “nitty gritty” that ethical standards did not resonate with them or they simply did not care.

People at the top of an organization are expected to share the burden of cost reductions and belt-tightening during difficult times. Senior executives of companies who freeze their salaries or take a personal pay cut in a problematic year rather than lay off employees to cut costs deserve our utmost respect. However, this does not mean that a company should lose flexibility in adjusting its cost structure during bad economical times, replace old factories by new ones, or change technology in ways that would require fewer people to do the work. Decisions like that should be made with empathy and support (financially) to those who will be affected by it.