Ethical Practices

Updated on April 12, 2024
Article byKhalid Ahmed
Edited byKhalid Ahmed
Reviewed byDheeraj Vaidya, CFA, FRM

Ethical Practices Definition

Ethical Practices refer to the implementation of ethical values into all dimensions of organizational conduct, impacting its daily operations, revenue, and public perception. It aims at creating strong business relations with customers, vendors, and stakeholders, leading to repeat buys and numerous sources of funding and growth. 

Ethical Practices

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It basically comprises business principles, standards, and expectations concerning the moral and ethical behavior of all in relation to the organization. It can be established by proper communication, continual assessment, and critical evaluations. It tries to bring to life the ethical values in an organization’s everyday business operations.

Key Takeaways

  • Ethical practices mean applying ethical principles to every aspect of a business’s conduct, including its daily operations, revenues, and public image.
  • It aims to establish strong commercial relationships with suppliers, clients, and other stakeholders to encourage repeated buys and open various avenues of funding for growth. 
  • For businesses, it has benefits like enhanced customer loyalty & brand reputation, employee retention, and long-term cost savings.
  • It can be implemented through seven levels: survival, relationship, self-esteem, transformation, internal cohesion, making a difference, and service.

Ethical Practices In Business Explained

Ethical practices in business mean the process of integration of principles of decision-making into everyday operations to prohibit workplace misconduct. It also includes the power to choose which an organization and its members have while focusing on transparency towards stakeholders. It implies making decisions that are fair and right and communicated to all stakeholders. It acts as a safety net against legal suits and reputational hazards.

An organization can deploy multiple ways of developing and promoting ethical practices. Those ways include developing an ethics code, giving suitable exposure and training to staff on ethics making, and also incubating a culture where every employee has the comfort of speaking up and standing up for their concerns. Professional experts in the ethical field can play a crucial role in prioritizing ethical practices in institutions. These professionals help develop and execute ethics programs, offer training and instructions to employees, and deeply analyze complaints of misconduct concerning the ethical realm in the organization.

Companies are advised to assimilate their ethics framework into business operations. In this way, they can optimize the impact of the ethics program as it becomes a part of the ethical processes and workflow of employees. An impactful and well-designed ethics program must contain these elements- program mandate definition, monitoring and mitigating risk, procedures and policies establishment, supervising misconduct allegations, offering communications and training, behavioral expectations reinforcement, and behavior ethics function management.

Levels

It has been executed and promulgated through seven levels below:

Level 1: Survival

It aims to fulfill organizational, societal, and personal needs for physical welfare, financial stability, and security while eliminating unethical behavior and corruption to maintain social harmony, security, and trust.

Level 2: Relationship

It fosters a sense of belongingness in individuals, offering open culture and communication regarding values, supportive employees, mutual respect in an organization, behaving like exceptional corporate citizens, and considering families, friends, and the social life of employees at a societal level. 

Level 3: Self-esteem

It means the necessary confidence, skills, and competence of an individual in completing their work; for organizations, it is those enablers that allow people to do correct things like incentives, quality, compliance, and performance management, and for society, it means behavior of company leaders, abiding laws and environmental safety procedures to make a difference in it. 

Level 4: Transformation

From an individual level, it is related to transforming into a courageous employee by doing the right thing, being accountable for their mistakes, and learning from them. From an organizational perspective, it means creating an environment of justice and fairness and learning from an individual’s mistakes so that people become more responsible for their duties and do everything within their accountability. 

Level 5: Internal cohesion

It means finding an individual’s life purpose and personal integrity, having a shared vision, shared values, and a defined purpose for an organization and society. It means owning a purpose to serve every stakeholder.

Level 6: Making a difference

It relates to creating positive differences by individuals, making a massive difference to all stakeholders in and out of the company’s geographical regions by organizations, and supporting sustainable standards of life through ethical society achieved by community actions. 

Level 7: Service

For individuals, it means personal compassion and ethics to serve humanity. For organizations, it means contributing to global sustainability through ethical conduct, social responsibility, and a long-term perspective. 

Examples

Let us use a few examples to understand the topic.

Example #1

Suppose SustainableTech Solutions CEO Emily Martinez has instituted a set of ethical practices geared towards environmental responsibility and employee welfare. The company actively invests in renewable energy sources and implements robust waste reduction strategies to minimize its environmental impact. SustainableTech prioritizes employee well-being through flexible work schedules, mental health support, and ongoing learning opportunities. SustainableTech’s dedication to environmental sustainability and employee-centric policies positions it as a socially responsible and ethically driven organization, exemplifying a holistic approach to ethical business practices.

Example #2

Let us assume the CEO of company XYZ corporation of Ethicorp has cultivated an open culture in the company. It helps all employees to have a real sense of belongingness to the company. Its internal communication department has also ensured that it focuses on raising awareness of the company’s vision, purpose, and values amongst employees besides acting as an information updater. 

The company also conducts routine seminars on leadership cultivation and ethics-based training for the same. As a result, ethics has come to be known as the beacon of social responsibility, employee welfare, customer care, community development, adherence to rules, and zero lawsuits. 

Example #3

International Ethics Standards Board for Accountants (IESBA) has announced a new proposal on ethical practices focused on mitigating greenwashing and increasing the quality of information provided by sustainability assurance practitioners.
 
The proposal includes exposure drafts, such as the ‘International Ethics Standards for Sustainability Assurance’ (IESSA), that sets out a framework for these practitioners that will help them in evaluation, especially when companies globally have begun to report on sustainability and climate-related risks, given the emergence of new disclosure standard and regulatory requirements.

Investors looking for the credibility and transparency of information in the reports from these companies can now be assured that this proposal serves as a cornerstone for ethical practices.

Importance

For modern businesses to excel, they have to rely on embedding ethical practices into their business models to reap these benefits:

  1. Fair treatment of their customers by companies helps build customer loyalty and trust, leading to success and repeat business.
  2. It enhances a business’s reputation as a robust ethical practice creates a positive image in the market.
  3. It promotes employee retention, as companies provide fair compensation and a transparent work environment, encouraging staff to stay loyal to their employers.
  4. It also leads to a positive working environment owing to positive employee relations and trust-building exercises, which leads to more chances of career advancement.
  5. Its strict implementation avoids legal issues, lawsuits, fines, penalties, backlisting, and damage to the company’s reputation.
  6. Companies experience long-term cost savings as the highest ethical standards protect them from unnecessary legal fees, financial losses, talent drainage, and negative publicity.
  7. It makes firms more prudent in financial matters, and consequently, they become sustainable businesses. 

Frequently Asked Questions (FAQs)

1. What are the similarities between legal and ethical practices?

Both have the similarity in promoting ethical practices to regulate human behavior and prioritize the welfare of society and individuals. Neither of these has any fixed government guidelines but is dependent on society’s values and norms. However, both try to make everyone’s lives better while getting used to resolving conflicts.

2. Ethical practices and sustainability do they co-exist?

Sustainability and ethical practices are interconnected, just like the two sides of a coin. Both strive towards the well-being of existing and future generations. Moreover, sustainability ceases to exist without ethical practices like voluntary adoption, transparency, and quality.

3. How to improve ethical practices?

One can improve ethical practices by following the following:
Creating a unique code of conduct, engaging customers and employees to advance ethical conduct, integrating corporate culture and benefits, and nurturing an environment where one can learn from failures.

This article has been a guide to Ethical Practices and its definition. Here, we explain the concept along with its examples, importance, and levels. You may also find some useful articles here –

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