Principles of Ethical Behavior in Business
Why is it important to act ethically in the workplace? Who cares? What does it cost? Is it worthwhile? These are some of the questions typically addressed by businesses that strive to live up to a set of ethical standards.
Ethical business practices include assuring that the highest legal and moral standards are observed in relationships with stakeholder groups. This includes customers, suppliers, investors and creditors and, most of all, employees. These are the groups that are affected by decisions in the workplace. Ethical standards should be directed toward acceptable behavior in all dealings with these parties. Ethical behavior also requires compliance with laws and regulations.
Oftentimes ethics in the workplace is viewed through the lens of sexual harassment and other forms of discriminatory behavior. All corporate codes of conduct today have strict policies on these issues; reporting requirements; and penalties for offensive behavior. However, those policies do not treat the symptom of the behavior, which is a lack of moral leadership by top management that filters throughout the organization making it clear that any offensive behavior will not be tolerated and met with harsh consequences by the organization. In ethics, the tone at the top is critical to establishing the kind of ethical environment that fosters ethical behavior.
A reputation for ethical behavior builds trust with the stakeholders who rely on the good faith of organizations and the commitment to act rightly in all dealings. It takes a long time to build a reputation for trust but not very long to tear it down. One instance of treating others unethically brings into question the motives and commitment to ethical behavior. In business relationships, the stakeholders are generally not very forgiving when a manager steps across the line dividing ethical and unethical behavior.
Ethical behavior and making good business decisions is based on an established credo, or values statement, or, more formally, ethical principles that are detailed in a code of ethics. Top management should establish a written code of ethics that can serve as a framework for decisions. Today, it is important to have a hot line for the stakeholders, especially the employees, to anonymously report alleged wrongdoings. This should be accompanied by guidelines on whistle-blowing to meet regulatory requirements.
Many corporate ethical standards fail because they are too vague and general and give no specific directives. Codes of ethics must be specific enough to convey the intended conduct. However, they must avoid being so prescriptive that a literal interpretation becomes an excuse for noncompliance. Also, codes must be general enough to avoid encouraging defensive management, where an employee becomes unable to act and make decisions fearing that any action will be unethical.
Here are a few things to consider when developing a code of ethics.
1. Identify your general principles that would lead to fair business practices.
2. Check with your professional associations and relevant regulatory agencies for basic standards to review.
3. Allow for the fact that ethical questions do not always have a unique, faultless answer.
4. Write out specific statements that will assist you and others in making day-to-day ethical decisions.
5. Apply your code of ethics to a written policy and procedure manual identifying the major rules for operating your business.
6. Train your employees (and family members) to make ethical decisions about the business.
The day-to-day operations of a business require everyone to make decisions all the time. The experience gained through developing a code of ethics and then applying it in a variety of situations is important to establish an ethical business image.
Consider how the decision-making process will help you improve the success of your business:
1. Define the problem requiring a decision. Often we jump to conclusions about a situation without even taking time to clarify the problem. Without clarity of purpose, ethical behavior may become a “shot in the dark.” Collect and analyze the facts when an ethical issue has arisen.
2. Identify the stakeholders affected by your intended actions. Actions have consequences and ethical decisions cannot be made without understanding those consequences for each alternative course of action.
3. Consider alternative solutions to the problem. There is always more than one solution to any problem. Practice thinking about possibilities before taking action.
4. Identify the consequences of alternative solutions. There are many different consequences possible for choosing different alternatives. Managers need to think about both the short-term and long-term consequences likely to result from their decisions.
5. Compare the alternatives to principles of behavior embedded in the code of ethics. There is no point in having a code if it doesn’t guide actions and decisions.
6. Consider other ethical values that might guide action. For example, the ethical dilemma may involve truthfulness, trust, objectivity or integrity. Clarifying the ethical values in the context of the code provides a pathway to make the ethical decision.
7. Double-check prior to finalizing the decision. Before deciding, ask yourself whether you would be proud of the decision you are about to make and intended action if it became the headline news item the next day.
Are good ethics good business? In the long run I believe this to be true because of the reputational capital an organization gains by acting ethically all of the time. We can’t pick and choose when to be ethical. Ethics is not like a spigot that you can turn on or off. It requires an ongoing commitment to act ethically in all business dealings.
Good leaders are ethical people who act in accordance with core values of ethical behavior and walk the talk of ethics. They serve as positive role models for those in the organization and stakeholders who deal with it in a variety of situations. It has been said that managers are people who do things right; leaders are people who do the right things.
Blog posted by Dr. Steven Mintz, aka Ethics Sage, on March 25, 2015. Professor Mintz is on the faculty of the Orfalea College of Business at Cal Poly San Luis Obispo. He also blogs at: www.ethicssage.com.