The application of ethical principles in business situations is known as?

An organisation's approach to business ethics is the foundation upon which its brands are built. This approach can shape business investors' and customers’ perceptions of a business. Therefore, developing the right set of business ethics is essential for business growth and can only be achieved by understanding the fundamentals of the concept.

Business Ethics Definition

Our morals and character play a huge role in how we are perceived by others, and the same thing applies to businesses. Business ethics can create a unique perception in the mind of a company's customers, employees, investors, and the general public.

The term business ethics refers to business morals, practices and policies that guide decision-making and managing controversies or issues regarding a business.

The term "business issues" for the purposes of this explanation refers to unfair practices such as bribery or insider trading, for example.

You can see the practice of business ethics in all departments of a company. A company's ethics reflect generally accepted principles laid down by the founders of the business and its governing body. It encompasses the business's morals in relation to the policies and practices that guide the business's decisions and actions. It also comprises the business's interaction with the customers, the treatment of its employees, how it interacts with other businesses and the government, and how it deals with negative publicity.

Business ethics help businesses make sound and ethical decisions, and also help them to build trust with their customers.

Importance of Business Ethics

The importance of business ethics is apparent in business operations. Business ethics guide an organisation in these operations and keep them in line with laws and regulations. This guidance helps the business maintain a positive public image and reputation of respectability.

Businesses with great employee welfare attract the best talent. Business ethics lay the foundation for proper employee care. In addition, providing great welfare for employees improves employee productivity and encourages them to stay loyal to a business's vision in the long term.

Business ethics are also important in building relationships between a business and its customers. A business with a defined and transparent operational system that treats its customers well usually develops a long-standing relationship with customers. This makes it easier for customers to trust the business and its products or services.

Business ethics also help to maintain a business's reputation among investors, who look for transparency in a company's dealings. In other words, they like to know exactly what their money is being used for.

Principles of Business Ethics

There are seven principles of business ethics that guide the code of conduct of businesses. These business ethics principles include:

1. Accountability

Accountability means businesses taking full responsibility for their actions or practices. This includes any bad decisions taken or unethical business practices followed during the course of business operations.

2. Care and respect

Mutual respect must be maintained between business owners, employees, and customers. Businesses need to ensure a safe working space for the employees and encourage a respectful relationship between all stakeholders.

3. Honesty

Transparent communication between business owners and employees is much desired. This characteristic helps build trust and establish a relationship between employees and the business. Transparency is also applicable to business relationships with its customers.

4. Healthy competition

Businesses should encourage healthy competition in their workforce and reduce conflicts of interest to a minimum among employees.

5. Loyalty and respect for commitments

All disagreements between businesses and their employees should be resolved internally away from the eyes of the public. Employees are to stay faithful to upholding the business vision and promoting business brands. Businesses are also to stay faithful to agreements with employees. Businesses unreasonably interpreting agreements or not respecting commitments is considered unethical in business practice.

6. Information

Important information disseminated among a business's customers, employees, or partners is to be provided comprehensively. This includes both positive and negative information, terms and conditions, or any other crucial information, as it is against business ethics to withhold or hide relevant facts.

7. Respect for the rule of law

Corporate laws, rules, and regulations guiding business practices are to be respected and abided by, as any flouting of such law is considered unethical.

Types of Business Ethics

There are various types of business ethics adopted by businesses depending on the nature or location of the business. Here are some standard ethics practices adopted by different businesses:

1. Personal responsibility

A level of personal responsibility is expected from business employees. This responsibility may be in completing an assigned task, reporting to work at the expected time, or being honest in the workplace. Employees are also expected to own up to their mistakes and work towards correcting them.

2. Corporate responsibility

Businesses should honor their responsibilities to their employees, partners, and customers. They need to respect the interests of all parties involved with the business. These interests may take the form of written contracts, verbal agreements, or legal obligations.

3. Social responsibility

Businesses have a responsibility to the environment where their operations are sited. Therefore, businesses are to work towards ensuring environmental protection and giving back to the community through empowerment or investments.

One way businesses have been able to achieve this is through a practice called corporate social responsibility (CSR) which has geared corporations towards environmental protection, community development, and improving the working environment by focusing on people. Figure 1 below outlines the four pillars of CSR.

Corporate social responsibility (CSR) refers to a management concept whereby businesses factor economic, social, and environmental concerns into their business activities while simultaneously looking to achieve their aims and objectives.

Fig. 1 - The four pillars of corporate social responsibility

4. Technology ethics

With businesses now moving their operations to the digital space through the adoption of e-commerce practices, technology business ethics are necessary. These ethics include customer data protection, customer privacy, customer personal information protection, fair intellectual properties practices, etc.

5. Trust and transparency

Trust and transparency need to be maintained with stakeholders, including customers, investors, and employees. Businesses must maintain transparency in financial reports to partners and not conceal relevant information from customers.

6. Fairness

Biases and personal beliefs are to be avoided in business decision-making processes. The business must ensure a fair chance for everyone and boost their growth and empowerment.

Examples of Business Ethics

Business ethics are shown in different ways by different businesses. Some businesses show ethics through their code of conduct, while others are seen in the business value statement. Here are some examples of business ethics practices:

1. Diversity in the workplace

A business can display its unbiased view and drive for equality by employing workers of different backgrounds, genders, social groups, and races. This also provides a diversity of thinking and a varied pool of knowledge.

2. Prioritising customer needs

One way businesses establish trust and relationships with customers is by prioritising customers’ needs and offering the best services to them. This may be done by, for example, offering a replacement or a refund for a faulty product purchased by a customer.

3. Customer data protection

During online transactions or services, customer information is usually collected by businesses for various reasons. Among these could be personal information, email address, home address, date of birth, financial information, or health status, depending on the services being rendered.

Business ethics requires that this information be kept confidential and not shared with a third party unless permission is granted by the customer. Data protection also applies to a business's employees.

4. Community empowerment

Volunteer programmes organised by businesses are a way of giving back to the community. These volunteer programs may include skills teaching, financial assistance, environmental clean-up, etc. Such programs help businesses gain respect from the community and also aid in the community's growth.

Benefits of Ethics in Business

The benefits of business ethics include:

1. Ethics in business provide competitive advantages for companies, as customers and investors would rather associate with businesses that are transparent.

2. Being compliant with set business ethics improves a business's image, making it more attractive to talent, customers, and investors.

3. Ethics in business help create a motivating work environment where employees love to be, since their morals are aligned with company's morals.

4. Though complying with ethical practices is mostly voluntary, some ethical business practices are mandatory, such as obeying the rule of law. Early compliance saves businesses from future legal action such as large fines or business failure resulting from non-compliance with rules and regulations.

Drawbacks of Ethics in Business

The drawbacks of business ethics include:

1. Developing, implementing, adjusting, and maintaining ethics in business takes time, especially when a business is just recovering from a reputation scandal due to poor ethics. Ethics also need to be regularly updated by businesses due to changes in business laws and regulations.

2. The possible trade-off between ethics and profit is another issue. Ethics in business can affect a business's ability to fully maximise profit-making opportunities. For example, an ethical business with a production factory in a developing country would not try to cut down on labour costs by unethical means. Such means could include increasing profits by paying low wages, or making employees work overtime without compensation. Instead, an ethical business would make sure to create a nurturing work environment even if this leads to lower profits.

In conclusion, ethics in business requires businesses to act in a way that stakeholders consider fair and honest. These ethics also guide owners, managers, and employees in making morally satisfying decisions and building trust with customers.

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