What Are Business Ethics? Definition, Types and Examples

By Indeed Editorial Team

Updated December 19, 2022

Published November 5, 2020

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

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Many companies have a code of conduct that governs their public relations and operational policies. Enterprises refer to these codes as business ethics, and they're an important part of several current corporate environments. If you work in a business setting, it might be helpful to learn more about what business ethics are and why they matter.

In this article, we define business ethics, explain why they matter, list some elements of business ethics and provide examples.

Key takeaways:

  • Business ethics are policies that guide the behavior of corporate entities, especially regarding controversial subjects.

  • Business ethics protect companies from legal liability and ensure that they treat their customers and team members with respect.

  • Corporate ethics codes often include subjects like social responsibility, insider trading, discrimination, corporate governance and bribery.

What is business ethics?

The term business ethics refers to the set of moral principles that guides a company's conduct. These principles govern every aspect of the company's operations, including its interaction with the government and other businesses, its treatment of its employees and its relationship with its customers. Whenever any ethical dilemmas or controversies arise, a business references these foundational principles to help resolve those situations.

Related: Business Ethics: Definition and 11 Workplace Examples

Why is business ethics important?

Business ethics ensure that companies operate according to all applicable laws. This maintains the company's respect among its peers and customers and protects it from legal liability. A company's ethics also help it attract quality team members. Businesses that care for their teams according to the highest ethical standards are often attractive to job seekers. Ethical treatment can also increase employee retention and reduce hiring and training costs.

A business that treats its customers or clients ethically can build trust and create longstanding relationships. These customers are likely to return and may recommend the business to people within their sphere of influence. Also, a business known for its effective ethical principles can gain respect and elevate the quality of its brand.

Related: Business Ethics: Definition, Types and Why Ethics Matter

7 types of business ethics

There are various types of business ethics. Both the nature of the company's business and its location can affect its code of ethics. The following are some common business ethics:

1. Personal responsibility

Personal responsibility is a vital attribute for employees in both entry-level and senior positions. This could entail completing tasks your manager has assigned or simply fulfilling the duties of your job description. If you make a mistake, you acknowledge your fault and do whatever you need to do to fix it.

Related: Responsibility vs. Accountability: What's the Difference?

2. Corporate responsibility

Businesses have responsibilities to their employees, their clients or customers and their board of directors. Some of these may be contractual or legal obligations, others may be promises. For example, a commitment to conduct business fairly and to treat people with dignity and respect. Whatever those obligations are, the business has a responsibility to keep them.

Related: What Are Key Responsibility Areas and Why Are They Important?

3. Loyalty

Loyalty is a valuable quality for both corporate leaders and team members. It's important for team members to be loyal to their coworkers, managers and the company. This might involve speaking positively about the business in public and only addressing personnel or corporate issues in private. Customer or client loyalty is important to a company not only to maintain good business relations but also to attract business by cultivating a positive reputation.

Related: Personal Ethics and Business Ethics Compared

4. Respect

Respect is an important business ethic, both in the way the business treats its clients, customers and employees and in the way its team members treat one another. When you show respect to someone, that person feels like a valued member of the team or an important customer. It indicates that you care about their opinions, you keep your promises to them and you work quickly to resolve any issues they may have.

Related: Respect in the Workplace: How To Show Respect and Promote It

5. Trustworthiness

A business cultivates trustworthiness with its clients, customers and employees through honesty, transparency and reliability. Team members should feel they can trust their companies to keep to the terms of their employment. Clients and customers should be able to trust the business with their money, data, contractual obligations and confidential information. Being trustworthy encourages people to conduct business with you and helps you maintain a positive reputation.

6. Fairness

When a business exercises fairness, it applies the same standards for all team members, regardless of rank. The same expectations of honesty, integrity and responsibility placed upon the entry-level employee also apply to the chief executive officer (CEO). Fairness means that a business strives to treat its customers with equal respect, offering the same goods and services to all based on the same terms.

7. Social and environmental responsibility

Corporate social and environmental responsibility means that a company recognizes its impact outside of the marketplace. Many companies look for ways to help their communities through volunteer work or financial investments. They may also adopt measures to reduce waste and promote a safe and healthy environment.

Related: How To Improve Ethical Leadership Skills (With Examples)

8 examples of business ethics

There are many ways businesses express their ethics. Companies often have a code of conduct document that informs team members of their ethical responsibilities. Businesses may also publish a values statement that advertises the ethical standards to which they hold themselves. These are some examples of ways a business might practice its ethics:

1. Data protection

Businesses often collect information about their customers. This may only be an email address, but it could also be their physical address or health or financial information, depending on the nature of the business. Companies that collect customer data usually promise to secure that information and not share it without the customer's permission. The same applies to employee information. Business ethics protect employees' personnel records and allow access only to those with a valid need to know.

Related: Social Responsibilities and Ethics: 8 Best Business Practices

2. Customer prioritization

One way a business shows respect for its customers is by prioritizing their needs, even at the expense of the company. For example, if a customer purchases goods or services that turn out to be unsatisfactory, the business does whatever is necessary to provide recompense. If it's a faulty product, the business may offer a replacement or a refund. If the customer experienced poor service, the company usually apologizes and offers a discount or some other form of compensation.

3. Workplace diversity

A business might express fairness by placing a high importance on having a diverse workplace. Achieving a diverse workplace means using recruiting practices that give equal opportunity to people from different ethnic, gender and social groups. This can add time and effort to the hiring process, but it's often worthwhile. Employing a diverse range of people gives the business the benefit of different perspectives. It also demonstrates that the company is serious about equality and treating all people with respect.

Related: 7 Types of Diversity in the Workplace

4. Whistleblower protection

As a business grows, it becomes harder to verify that employees are adhering to the ethical standards set by the company. Sometimes, the business relies on whistleblowers, or a person who informs authority figures about illicit activity, to garner attention regarding unethical practices within the company. To encourage employees to come forward to report unethical practices, businesses often put in place protections against negative consequences. With these protections, employees don't need to fear losing their jobs or encountering disciplinary action for notifying the company about unethical behavior.

5. Corporate transparency

A business that practices transparency is clear in its communication both with employees and customers. This means that communication is unambiguous, so there's no confusion about the policies or priorities that guide business decisions. Transparent corporate communications are also honest and truthful.

6. Community outreach

Companies often feel an ethical obligation to help the communities in which they conduct business. This can take the form of volunteer programs for employees, sometimes at the company's expense. Such programs might include serving in a soup kitchen, helping with home repairs, cleaning up after a natural disaster, or teaching skills at the local community center. These programs not only help those in need but also help develop respect and trust within the community.

Related: What Are Outreach Initiatives? A Definitive Guide

7. Environmental awareness

Many companies take environmental concerns seriously, whether that means reducing waste or cleaning local land, water and air. There are various ways businesses act on this, such as reducing air travel and using teleconferencing technology as much as possible. Businesses might also promote recycling in their offices by providing receptacles to collect recyclable waste.

8. Employee compensation

Companies adhering to principles of fairness and respect strive to pay their team members a fair wage for the work they do based on their experience, education and job duties. They also regularly review compensation and adjust it to make sure it continues to reflect the positions and experiences of employees. Businesses often reward outstanding performance with employee bonuses. These are good incentives for team members to work hard and remain with the company. They're also a way for the business to express gratitude for their efforts.

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