Business Ethics: Definition, Types and Why Ethics Matter
By Indeed Editorial Team
Updated May 31, 2022 | Published November 5, 2020
Updated May 31, 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.
A business owner looks over a tablet as customers are seen in the background browsing the shop.
Every company has a code of conduct that applies to the business and its employees. Business ethics is what drives that code of conduct. Companies often voluntarily adopt principles of corporate ethics, but sometimes those principles can be imposed by legislation. A company's business ethics can shape the way it's seen by the world, its business partners and customers, so it can be key to success.
In this article, we examine business ethics, what it is and why it's important, plus take a look at seven common types of business ethics in the business world.
What is Business Ethics?
Business ethics refers to the set of moral principles that guides a company's conduct. These principles govern every aspect of the company's life, including its interaction with government and other businesses, its treatment of its employees, and its relationship with its customers. Whenever any ethical dilemmas or controversies arise, a business will look to these foundational principles to help resolve those situations.
Why Is Business Ethics Important?
First, it makes sure the company operates according to all applicable laws. Operating lawfully, whether on a local or national level, maintains the company's respect among its peers and potential clients or customers, and enables it to continue running.
A company's business ethics also help it attract quality employees. Businesses that care for their employees at every level and treat them according to the highest ethical standards are attractive to job seekers. Also, if you work for a company that respects its employees, you are more likely to perform well and stay with the business for a long time.
Finally, a business that treats its customers or clients ethically builds trust with them, as well as an ongoing relationship. These customers will be return customers, and they will likely recommend that business to people within their sphere of influence. Also, a business known for its high ethical principles can gain respect and elevate the quality of its brand.
Types of Business Ethics
There are various types of business ethics. Both the nature of the company's business and where the company is located can affect which ethics it emphasizes. The following are some of the more common business ethics.
1. Personal responsibility
Each person who works for a business, whether on the executive level or the entry-level, will be expected to show personal responsibility. This could mean completing tasks your manager has assigned to you, 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.
2. Corporate responsibility
Businesses have responsibilities to their employees, their clients or customers, and, in some cases, to their board of directors. Some of these may be contractual or legal obligations, others may be promises, for example, to conduct business fairly and to treat people with dignity and respect. Whatever those obligations are, the business has a responsibility to keep them.
Both businesses and their employees are expected to show loyalty. Employees should be loyal to their co-workers, 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 through a good reputation.
Respect is an important business ethic, both in the way the business treats its clients, customers and employees, and also in the way its employees treat one another. When you show respect to someone, that person feels like a valued member of the team or an important customer. You care about their opinions, you keep your promises to them, and you work quickly to resolve any issues they may have.
A business cultivates trustworthiness with its clients, customers and employees through honesty, transparency and reliability. Employees should feel they can trust the business 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 do business with you and helps you maintain a positive reputation.
When a business exercises fairness, it applies the same standards for all employees regardless of rank. The same expectations with regard to honesty, integrity and responsibility placed upon the entry-level employee also apply to the CEO. The business will treat its customers with equal respect, offering the same goods and services to all based on the same terms.
7. Community and Environmental Responsibility
Not only will businesses act ethically toward their clients, customers and employees, but also with regard to the community and the environment. Many companies look for ways to give back to their communities through volunteer work or financial investments. They will also adopt measures to reduce waste and promote a safe and healthy environment.
Examples of Business Ethics
There are many ways businesses express their ethics. Commonly, a business will have a code of conduct document that informs employees 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 normally promise to secure that information and not share it without the customer's permission. The same applies to employee information. Business ethics usually protect employees' personnel records and allow access only to those with a valid need to know.
2. Customer Prioritization
One way a business shows respect for its customers is by prioritizing the customer's 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 will do what it must to recompense the customer. If it is a faulty product, the business will offer a replacement or a refund. If the customer experienced bad service, the company will usually apologize and offer a discount or some other form of compensation.
3. Workplace Diversity
A business might express fairness is 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 is 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.
4. Whistleblower Protection
As a business grows, it becomes harder to verify that employees are keeping to the ethical standards set by the company. Sometimes the business will rely upon a whistleblower to draw attention to unethical practices within the company. To encourage employees to come forward to report unethical practices, businesses will often put in place protections against negative consequences. With these protections, employees don't need to fear losing their jobs or facing disciplinary action for pointing out unethical behavior.
5. Corporate Transparency
A business that practices transparency will be clear in its communications both with employees and to clients or customers. The language used will be unambiguous so there is no doubt about the policies or priorities that guide business decisions. Transparent corporate communications will also be honest and truthful. Everyone working for or engaging with the company should be able to trust what it says.
6. Community Outreach
Companies often feel an ethical obligation to give back to the communities in which they do business. This can take the form of volunteer programs to which employees are encouraged to donate time, perhaps even at the company's expense. Such programs might include serving at 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 build respect and trust within the community.
7. Environmental Awareness
Many companies take concerns for the environment seriously, whether cutting down on waste or cleaning up the 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 and arranging for them to be emptied regularly.
8. Employee Compensation
Companies adhering to principles of fairness and respect will pay their employees a fair wage for the work they do based on their experience, education and the nature of the work. They will also regularly review employee compensation and adjust it to make sure it continues to be a fair representation of the employee's position and experience. Businesses will often reward outstanding performance with employee bonuses. These are a good incentive for employees to work hard and remain with the company. They are also a way for the business to express gratitude for the employees' efforts.
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