Business Ethics

Updated on March 20, 2024
Article byWallstreetmojo Team
Edited byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

What are Business Ethics?

Business Ethics studies how to deal with corporate governance, whistleblowing, corporate culture, and corporate social responsibility. It emphasizes standard principles prescribed by governing bodies. Non-compliance with business ethics leads to unnecessary legal actions.   

The discipline also emphasizes a code of conduct; a set of unwritten rules which are not legally enforceable. There is a lot of fine print when it comes to ever-changing corporate regulations. Business ethics, therefore, educates businessmen and employees about ethical procedures and penalties for non-compliance.

Key Takeaways

  • Business ethics is the prescribed code of conduct for businesses. It is a set of guidelines for dealing with various procedures ethically.
  • The discipline comprises corporate responsibility, personal responsibility, social responsibility, loyalty, fairness, respect, trustworthiness, and technology ethics. It emphasizes sustainability, customer loyalty, brand image, and employee retention.
  • The motive is to prevent unethical business practices, both deliberate and inadvertent. Some unethical practices circumvent law enforcement. Even then, businesses risk paying a hidden cost—the loss of reputation.

Business Ethics Explained

Business ethics ascertain social, cultural, legal, and other economic limitations and safeguard the interest of parties involved. Further, it emphasizes moral and social values like consumer protection, welfare, fair business practices, and service to society.

Business Ethics Explained

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Businesses are expected to be fair and honest in all their dealings. If businesses fail to do so, they face dire consequences. The statutory laws govern ethics. But ethics go beyond enforcement; they are to be self-imposed and followed diligently. To uphold ethics, businesses must conduct internal auditsInternal AuditsInternal audit refers to the inspection conducted to assess and enhance the company's risk management efficacy, evaluate the different internal controls, and ensure that the company adheres to all the regulations. It helps the management and board of directors to identify and rectify the loopholes before the external audit.read more and quality control checks at regular intervals. Also, ethics vary from company to company.  

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Factors Influencing Business Ethics

The application of ethics depends on the personal values of the business owners. At the end of the day, what is right and wrong within a firm boils down to individual ethics. Therefore, when managements choose leaders, ethics play a huge role. These individuals represent the firm. The management is ultimately liable for any unethical practice conducted by an executive or employee.

More importantly, there are industry-specific government guidelines for working conditions, product safety, statutory warning, and social responsibilities. The guidelines need to be followed for the smooth functioning of the firm. The social culture impacts ethics; businesses are expected to adopt certain social and moral practices. If businesses fail to comply with societal norms, they risk ruining brand image, reputation, and credibility.

Business Ethics Example

A simple example of being ethical is avoiding plastic bags. Currently, corporate ethics strongly emphasize sustainability—resources for future generations are at risk.

On December 9, 2021, Wintrust Financial Corporation won the Better Business Bureau’s (BBB) Torch Award for Ethics. Wintrust is a Chicago-based financial service. The company is known for its ethical standards and fair business practices.

Wintrust flared out as a value-driven organization. Every employee tries to provide a relationship-centric banking solution. BBB is popular for its contribution to community service and financial care. 

Principles of Business Ethics

The fundamental principles of business ethics are as follows:

Principles of Business Ethics

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  1. Accountability: Ethics is all about taking individual responsibility. It goes both ways. Individuals are responsible for unethical practices of the firm because they did not come forward to become whistle-blowers. Similarly, when an employee indulges in unethical business practices, the firm is responsible. 
  2. Care and Respect: Professional interactions between co-workers should be responsible and respectful. Firms should make sure that the workplace is safe and harmonious.
  3. Honesty: The best way to gain the trust of the employees is to have transparent communication with them.
  4. Avoid Conflicts: Firms need to minimize conflicts of interest in the workplace. Excessive competition within the workforce can end disastrously.
  5. Compliance: Firms need to comply with all the rules and regulations.
  6. Loyalty: The employees should be faithful to the organization and uphold the brand image. Grievances, if any, should be dealt internally.
  7. Relevant Information: It is necessary to provide information that is comprehensible. All the relevant facts, whether positive or negative, must be disclosed. It is unethical to hide unreasonable terms and conditions in the fine print.
  8. Law Abiding: Corporate laws protect the rights of every section of society. Any kind of discrimination is unethical. Personal biases of individuals should not affect the decision-making of leaders.
  9. Fulfilling Commitments: It is unethical to justify non-compliance by interpreting agreements unreasonably.   

Types of Business Ethics

Given below are the standard ethical practices that a business should adopt:

Types of Business Ethics

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  1. Corporate Responsibility: The organization works as a separate legal entity with certain moral and ethical obligations. Such ethics safeguard the interest of all the internal and external parties associated with the firm. This includes the employees, customers, and shareholdersShareholdersA shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. The ownership percentage depends on the number of shares they hold against the company's total shares.read more.  
  2. Social Responsibility: Making profits should not be at the cost of society. Therefore, corporate social responsibilities (CSR) have been a common practice where businesses work towards environmental protection, social causes, and spreading awareness.
  3. Personal Responsibility: Employees are expected to act responsibly with honesty, diligence, punctuality, and willingness to perform excepted duties. Individuals should settle dues in time and avoid criminal acts.
  4. Technology Ethics: In the 21st century, companies have adopted e-commerce practices. Technology ethics includes customer-privacy, personal information, and intellectual property fair practices.
  5. Fairness: Favouritism is highly unethical. Every individual possesses certain personal bias. But at the workplace, personal beliefs and biases should not affect decision-making. The firm has to ensure fair chances of growth and promotion for all.
  6. Trustworthiness and Transparency: Businesses should maintain transparency in business practices and financial reportsFinancial ReportsFinancial reporting is a systematic process of recording and representing a company’s financial data. The reports reflect a firm’s financial health and performance in a given period. Management, investors, shareholders, financiers, government, and regulatory agencies rely on financial reports for decision-making.read more.


Educating employees on their ethical code of conduct is a huge challenge. Unlike personal ethics, corporate rules and regulations are complex. Non-compliance may not affect an employee much, but the firm could suffer huge losses. In large firms, it is a tedious task; there is less direct communication. Emails do not succeed in conveying the intended message accurately. If the corporate ideology is not well-communicated to the workers, there are chances of non-compliance. One simple mistake by one employee could tarnish the brand image of a huge entity.

Moral compliance, bribes, sexual harassment, and a toxic atmosphere are the common challenges faced by firms. But, there is the other extreme too. Stringent rules drafted in the name of ethics interfere with the growth and profitability of businesses.  On top of all the philanthropy and welfare, firms need to turn a profit. Without profits, businesses can’t pay their employees.

Frequently Asked Question (FAQs)

Why is business ethics important?

Non-compliance with ethics can result in hefty fines and legal actions. Firms are liable for the illegal activities of their employees. Even if laws can be circumvented, businesses risk paying a hidden cost—loss of reputation. A small mistake made by one employee can tarnish the brand image of a large firm.

How to make ethical decisions in business?

For making ethical decisions, the management should go through the ethical guidelines. They must first ascertain what is right and what is wrong. Next, the firm must evaluate the impact of decisions. These decisions impact customers, employees, and shareholders. Finally, the management must communicate the conclusion with the stakeholders.

What are the different types of ethical issues?

Common ethical issues include workplace discrimination, inaccurate financial reporting, inappropriate safety measures, poor working conditions, employee harassment, and misleading product information. Unfortunately, large firms struggle to communicate ethics. Lack of direct communication hampers the enforcement of ethical policies.

Recommended Articles

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