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Business Ethics

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Business Ethics

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:

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.

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.

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.

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

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.

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.

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:

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.

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.

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.

Business ethics, Four pillars of corporate social responsibility, StudySmarterFig. 1 - The four pillars of corporate social responsibility

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.

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.

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:

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.

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.

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.

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.

Business Ethics - Key Takeaways

  • The term business ethics refers to the morals, practices, and policies that guide decision-making and managing controversies or other issues in a business.
  • Business ethics are important for operations, attracting new talent, building positive relationships with customers, and attracting new investors.
  • There are seven principles of business ethics including accountability, care and respect, honesty, healthy competition, loyalty, transparency, and respect for the rule of law.
  • 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.
  • The benefits of business ethics include gaining a competitive advantage, improving the brand image, motivating employees, and saving businesses from future legal action.
  • The drawbacks of business ethics include the trade-off between profit maximisation and ethics, and the time it may take to develop or adjust business ethics.

Frequently Asked Questions about Business Ethics

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

Examples of business ethics:

  1. Diversity in the workplace 
  2. Prioritising customer needs 
  3. Customer data protection
  4. Community empowerment 

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. 

Different forms of business ethics are:

  1. Personal responsibility
  2. Corporate responsibility
  3. Social responsibility 
  4. Technology ethics 
  5. Trust and transparency
  6. Fairness 

There are seven principles of business ethics including accountability, care and respect, honesty, healthy competition, loyalty, transparency, and respect for the rule of law.

Final Business Ethics Quiz

Question

Define business ethics

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Answer

Business ethics refers to business practices and policies on managing controversies or issues about a business. These issues include unfair practices such as bribery or insider trading involving business and social responsibilities. 

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Question

Business ethics emphasizes generally accepted principles laid down by the ………..

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The governing body

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Give two importance of business ethics


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Businesses with great employee welfare attract the best talents. Business ethics lays the foundation for proper employee care. Also, providing a great welfare for employees improves employees productivity, and convinces them to stay loyal to a business vision in the long term.


Business ethics is also important in building a relationship between a business and its customers. A business with a defined and transparent operational system who treats its customers well develops a relationship with the customers, and makes it easier for the customers to trust.

Show question

Question

 Business ethics helps businesses do all except


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Build a negative image

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Name are the seven principles of business ethics


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The seven business ethics principles are accountability, care and respect, honesty, healthy competition, loyalty and respect for commitment, information, respect for rule of law.

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Explain the business principle “Accountability"


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This talks about business taking responsibility for its actions or practices. It is about business employees and owners taking responsibility for any bad decision that might have been made in the course of a business operation or when an unethical business practice has been indulged in

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According to business ethics principles, disagreements between businesses and its employees should be resolved 


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Internally

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Healthy competition and conflict of interest should be encouraged within business employees, true or false?


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False

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Businesses are allowed to disregard a law or business rule its owner has a bias toward, true or false?


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False

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Explain the need of sharing relevant information to customers and employees by businesses


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Important information that is to be known by the business customers, employees or partners are to be provided comprehensively. This includes both negative or positive information, terms and conditions or any relevant information as it is against business ethics to with-hold or hide relevant information.

Show question

Question

Business ethics can shown shown in the following except 


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Answer

None of the above

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Question

Explain customer data protection as an example of business ethics


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Answer

During online transactions or for delivery services, customers’ information is usually collected by businesses for various reasons. This could be personal information, email address, home address, date of birth, financial information, health information depending on the services being rendered. Business ethics requires that this information are kept confidential and not shared with a third party except permission was granted by the customer. This also applies to business employees too.

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Name the types of business ethics


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The types of business ethics are corporate responsibility, social responsibility, personal responsibility, technological responsibility, trust and transparency, fairness.

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Prioritizing customers’ needs involves prioritizing customers based on social class, true or false?


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False 

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Question

Explain the social responsibility of businesses


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Answer

Businesses owe a responsibility to the environment where their operations are sited. Therefore, businesses are to work towards ensuring environmental protection, giving back to the community through empowerment or investments. A way businesses have been able to achieve this is through a practice called the corporate social responsibility (CSR) which has geared corporations towards environment protection, damage control, and public enlightenment.

Show question

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Business ethics are the foundation upon which a business success is built on, true or false?


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Answer

True



Show question

Question

___ refer to business morals, practices and policies that guide decision-making and managing controversies or issues regarding a business. 

Show answer

Answer

Business ethics  

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___ refer to unfair practices such as bribery or insider trading, for example.


Show answer

Answer

Business issues 

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___ means businesses taking full responsibility for their actions or practices. 


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Answer

Accountability 

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Which statement is true?

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All disagreements between businesses and their employees should be resolved internally.

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Question

Businesses should honor their responsibilities to their employees, partners, and customers. This is called...

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Answer

corporate responsibility.

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Question

What does CSR stand for?

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Answer

Corporate social responsibility

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Question

___ 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. 


Show answer

Answer

Corporate social responsibility (CSR)

Show question

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Businesses with great ___ attract the best talent. 


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Answer

employee welfare 

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Question

Businesses unreasonably interpreting agreements or not respecting commitments is considered ___ in business practice.


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Answer

unethical 

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Environment, human resources, community development and workplace are the four pillars of...

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Answer

corporate social responsibility.

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Question

Though complying with ethical practices is mostly voluntary, some ethical business practices are mandatory, such as obeying the ___.


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Answer

rule of law 

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Question

A business can display its unbiased view and drive for ___ by employing workers of different backgrounds, genders, social groups, and races.


Show answer

Answer

equality 

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Question

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


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Answer

image 

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Customer data protection, customer privacy, customer personal information protection and fair intellectual property practices are examples of...


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Answer

technology ethics.

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