Isabella Carter
Business ethics are the moral principles, policies, and values that govern how companies and individuals engage in business activity. They are similar to personal ethics but have much broader consequences. Ethical business practices have additional benefits, such as attracting and retaining talented employees and increasing revenues and profits. Ethical issues in business include corporate governance, insider trading, bribery, discrimination, social responsibility, and fiduciary responsibilities. A legitimate moral stake in a business is constituted by stakeholders, who are people with an interest in a business, such as shareholders, employees, the community a firm operates in, and the family members of employees.
| Characteristics | Values |
|---|---|
| Transparency | Making information about financials, price changes, hiring and firing practices, wages and salaries, and promotions available to stakeholders |
| Compassion | Treating employees, the community, business partners, and customers with concern for their well-being |
| Fairness | Providing equal opportunities and equal treatment to everyone |
| Loyalty | Demonstrating commitment to employees, clients, business partners, and suppliers |
| Corporate social responsibility | Meeting the needs of stakeholders while accounting for the impact on employees, the environment, society, and the community |
| Fiduciary responsibility | Acting in the best interests of clients |
| Accountability | Demonstrating a total commitment to the ethical quality of all decisions, actions, and relationships |
| Trustworthiness | Ensuring customers can trust the integrity of products and services |
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What You'll Learn
Corporate social responsibility (CSR)
CSR is about holding businesses accountable and ensuring they operate as responsible members of the communities in which they function, even if it conflicts with profits or other objectives. This includes addressing ethical issues such as fiduciary responsibilities, corporate governance, insider trading, bribery, discrimination, and social responsibility. For instance, businesses must now address their environmental impact, as ecosystems' influence on business activities becomes more imminent.
A company's moral values and ethical code guide its CSR practices, influencing its decision-making and actions. These values shape how a business treats its employees, customers, business partners, and the community. For example, a company's morals may dictate that it refuses to advertise with networks holding specific political views or that it prioritises sustainability and ethical advertising.
CSR is essential because it impacts a company's success and reputation. Consumers, employees, and investors increasingly expect organisations to prioritise CSR, with 67% of customers preferring to buy from socially responsible companies. A company's ethical behaviour and commitment to CSR can attract and retain talented employees and create a positive work environment, boosting productivity and profitability.
To implement effective CSR, businesses should prioritise stakeholders, understand their expectations, and actively gather information about their claims. This includes considering the varying weights of different stakeholder groups and managing their conflicting expectations. While it is challenging to address all stakeholders simultaneously, ethical business practices require treating all groups fairly and prioritising their satisfaction. Ultimately, CSR is about balancing the needs and interests of diverse stakeholders to create long-term value and positive externalities while minimising negative impacts.
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Transparency and trustworthiness
Transparency in business means being open, honest, and straightforward about various company operations. Transparent companies share information relating to performance, revenue, internal processes, sourcing, pricing, and business values. They do not hide issues or failures but are upfront about them. Transparency helps employees understand the current state of the business, the strategy, and how their work and decisions fit into the bigger picture. This leads to improved goal clarity, better decision-making, increased engagement, and higher productivity.
To achieve transparency, companies should adopt transparent communication practices and create a culture of transparency. This includes sharing business updates, setting standards for communication, and providing clear goals and guidance. However, it is important to strike a balance and not disclose trade secrets or sensitive information that could harm the company's competitive position.
Trustworthiness goes hand in hand with transparency. When a company is transparent, it builds trust with its employees, customers, investors, and other stakeholders. Trustworthy companies are seen as more reliable and ethical, which can lead to superior investment returns and a stronger reputation. Additionally, high-trust companies tend to have more motivated and satisfied employees who are less likely to leave.
In summary, transparency and trustworthiness are essential for a business's success and sustainability. By being transparent and trustworthy, companies can foster better relationships with their employees, customers, and stakeholders, leading to increased engagement, productivity, and long-term value creation.
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Fairness and equality
Fairness in the workplace refers to organisational justice, encompassing both process and outcome impartiality. It involves providing equal opportunities for all employees, regardless of their ethnicity, race, nationality, religion, socioeconomic status, physical or mental abilities, age, gender, or sexual orientation. This means that everyone should have the same opportunities and be treated the same. For example, it is unfair to pay one race or gender more than another or to falsely advertise products.
To promote fairness, organisations should ask themselves the following questions: Do employees have the information they need to succeed and advance their careers? Do they feel supported? Does everyone get a fair chance at internal opportunities? Providing equal opportunities for advancement is key to protecting employees' human rights. Organisations can also promote fairness by removing candidates' names from resumes to prevent bias and setting strict pay bands to ensure employees at the same level are paid the same rate.
Equality in the workplace is closely related to fairness, but it is important to note that equity functions in a more holistic manner than equality. Equity recognises that individuals may require different levels of support to succeed. For example, managing an older workforce may demand different necessities than managing a younger workforce. Organisations should not shy away from meeting these specific demands to provide individuals with the tools they need to succeed.
By promoting fairness and equality, businesses can create a positive work environment, boost employee morale and productivity, and build trust with consumers and business partners, ultimately contributing to higher revenues and profits. On the other hand, unfair treatment can lead to low morale, reduced productivity, poor job satisfaction, and high turnover rates. Therefore, fairness and equality are crucial components of a company's moral stake, impacting its success and long-term sustainability.
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Fiduciary responsibilities
Fiduciary duty is a key aspect of business ethics, and it refers to the legal and ethical responsibilities of a fiduciary, who is someone who manages money, assets, or property for someone else. This relationship is based on trust and the fiduciary's obligation to act in the best interests of their client or beneficiary. Fiduciary duties can arise in various contexts, including financial advisors, fund managers, corporate directors, attorneys, and guardians.
In the context of business, fiduciary responsibilities are particularly important for corporate directors and officers. They are responsible for making decisions that are in the best interests of the company and its shareholders, a duty of care. This involves thoroughly investigating all options and selecting the best candidate or course of action that serves the interests of the business and its shareholders. For example, when electing a new CEO, the board must investigate all viable candidates to ensure the most suitable person for the role is chosen. This duty of care helps ensure that businesses are run responsibly and in the best interests of their shareholders.
Another critical aspect of fiduciary duty is the duty of loyalty. Board members must refrain from any personal or professional dealings that may put their self-interest or that of another entity above the interests of the company and its investors. This duty ensures that fiduciaries remain impartial and act solely in the interests of those they represent. A breach of fiduciary duty occurs when a fiduciary fails to act responsibly and in the best interests of their client or beneficiary, which can result in legal consequences.
Fiduciary duties also extend to financial professionals and advisors. Financial advisors, fund managers, and investment committees have a fiduciary responsibility to manage their clients' money and assets responsibly and in their clients' best interests. This includes selecting investments, managing assets, and providing financial advice that aligns with the clients' goals and risk tolerance. A breach of fiduciary duty in this context can lead to significant financial losses for clients and legal consequences for the fiduciary.
In addition to corporate and financial contexts, fiduciary duties are also prevalent in legal and guardianship roles. Attorneys, for example, have a stringent fiduciary duty to their clients. They must act with fairness, loyalty, care, and within the law when representing their clients. Similarly, guardians of minor children have a fiduciary duty to ensure that matters related to the child's daily welfare, such as education, healthcare, and finances, are handled responsibly and in the child's best interests.
Overall, fiduciary responsibilities are an essential aspect of business ethics, ensuring that those in positions of power or trust act responsibly and in the best interests of those they represent. By upholding their fiduciary duties, businesses can promote ethical behaviour, enhance their reputation, and contribute to long-term success.
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Insider trading
In the United States, the Securities and Exchange Commission (SEC) regulates insider trading. The SEC requires insiders to file reports of their trades, which are publicly available. While insiders can legally trade their company's securities, they must not use material, nonpublic information. This "disclose or abstain" principle is foundational to insider trading regulation. Illegal insider trading carries severe penalties, including fines and prison time.
The detection and prosecution of insider trading violations are a priority for the SEC, as it undermines investor confidence in the fairness and integrity of the securities markets. To prevent insider trading, companies should establish ethical standards and practices that prioritize the interests and welfare of stakeholders, including employees, customers, and shareholders. Transparency, fairness, and loyalty are key components of ethical business practices.
The law sets the tone for business ethics, but companies should strive to do more than the bare minimum. Developing ethical models and practices can boost a company's reputation, revenues, and share price. It also helps build trust with consumers, investors, and business partners. Ethical business practices, such as corporate social responsibility (CSR), can attract and retain talented employees and satisfy customers, ultimately contributing to long-term success.
Overall, insider trading is a complex issue that requires a strong ethical framework to prevent illegal activity and maintain trust in the financial markets. By prioritizing ethical decision-making and considering the impact on stakeholders, businesses can operate within legal boundaries and promote positive outcomes for all involved parties.
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Frequently asked questions
A moral stake in a business is legitimate when it is ethical. This means that the business's actions and decisions should be primarily ethical and that the company owes allegiance to its customer stakeholders.
Stakeholders are people with an interest in a business, such as shareholders, employees, the community a firm operates in, and the family members of the employees. Other stakeholders include customers, clients, suppliers, distributors, the media, the government, and the environment.
Examples of ethical business practices include not falsely advertising your product, not paying one race or gender more than another, and not engaging in insider trading. Other practices include transparency, fairness, and corporate social responsibility.
Ethical business practices can boost a company's revenues, profits, and share price. They can also help to attract and retain talented employees and increase customer loyalty.
