Business Ethics
The ethical decisions made in your organization affects your employees, customers, reputation, and profitability.
Key Takeaways
1 in 7 large corporations commit some sort of fraud.
When employees can work in a way that is based on honesty and integrity the whole company benefits.
Business ethics doesn't only improve employee morale, loyalty and culture, it directly impacts the company's short-term and long-term profitability.
We are faced with ethical dilemmas almost on a daily basis. Unfortunately, some people don't always follow the moral code of doing what is right. They don't consider the cause and effect of their actions, putting their own benefits before anyone else.
What would you do if you're in a store paying for an item and the cashier gives you back more money than you were supposed to receive? Would you walk away happy that you got a better deal than you're supposed to? Or would you correct the cashier and give the money back?
If you walked away with the extra cash thinking “well, they should do their job better” or “it's fine, the company factors in for human errors.”
But what if that wasn't the case? What if the cashier had to personally pay back any differences when cashing out at the end of the day? Or worse, What if they lost their job as a result?
Let's do another classic example.
Let's say that you control the switch on a set of train tracks. The train is currently going to hit and kill five people on that track. If you switch it, it'll only kill one person.
But here's the dilemma: You are now responsible for the death of that person. What do you choose? Not an easy choice is it? Likely, most of you would save the five over the one. But let me add another factor to the train dilemma: What if that one person on the other track was someone that you knew? If that person was your mother, your spouse, or your child? Is your answer is still the same?
1 in 7 Large Companies Commit Fraud
Each year 1 in 7 large corporations commit some sort of fraud where they put their personal gains before those who will be impacted by the unethical action taken:
We've seen this in the banking industry with Wells Fargo where employees created millions of savings accounts for people without their permission.1
Car companies like Volkswagen lying about their cars emission results2,
Oil and gas companies such as Enron that had billions of dollars in debt from their financial statements3
Facebook who provided users personal data to Cambridge analytics without their users consent4.
So why is it there are some companies putting the cart before the horse when it comes to ethical behavior? Is it ego they don't want to show weakness? Was it the pressure from shareholders to meet or exceed quarterly or annual results?
Despite the ever growing regulations to stop unethical decisions from being made, these type of unethical business decisions are still happening today. Consider the impact of a lack of ethics within all levels of an organization not only at the executive level:
Poorr Performance
A lack of ethics has a negative effect on employee performance. There are cases when employees are so concerned about getting ahead and making money, they ignore protocols of their work, which can lead to errors that impact various departments in the organization because the work has to be done again the right way. There are also times when employees have the mindset that acting ethically and following the rules will not get them ahead. So they're demotivated, which also leads to a decrease in performance.
Tension
A lack of ethical behavior can also cause tension among employees. If some employees are breaking the rules to get ahead, it creates a culture where you can't trust anyone out of the fear that they'll take advantage of you to satisfy their own desires. This is incredibly damaging to a business since most businesses rely on teams or departments collaborating to make the company successful. Worse yet, if a manager shows a lack of ethical behavior, he'll likely lose the respect from his staff.
Lack of Respect
It's difficult to run a successful business without leaders who are well respected within the organization. It's far too common when managers and supervisors use their position and power to mistreat and disrespect others. There's little protection against abusive behavior in the workplace, unless the situation you're in involves: race, gender, or ethnic origin. And even this will vary depending on the country you're working in.
Dishonesty
The quickest way to lose trust with your employees is to lie to them. But employers do this all the time. One out of every five employees reported that their manager or supervisor has lied to them within the past year. Some consider white lies as being acceptable in cases where you're protecting someone's feelings. But in the end, lies always reveal themselves and at some point, the employee will still lose trust with you for not being honest and straightforward with them.
Poor Reputation
If a lack of business ethics becomes known by the public, the business will lose credibility and trust. This is very difficult to overcome, because the brand will be associated with that negative action for years into the future. Especially today, when there's an increased focus on corporate social responsibility and their impact on labor practices, the environment discrimination, etc.
Costly
Some businesses are able to overcome a negative public image, however, it comes at a price. That’s the time and money spent on advertising campaigns to rebuild the image in a positive way. Most companies still lose a large amount of their customers and in many cases never win back the customers that they lost. For example:
Nike was faced with a negative public backlash about child labor in developing countries5.
Starbucks was hit with a negative headline for violating fair trade agreements on coffee beans6.
This kind of media can have detrimental consequences for a brand because even if they rectify the problem, the brand has still been associated with the unethical action which remains in the minds of consumers.
Protected Values
Despite the several cases of unethical business practices there’s still hope. According to economist Alexander Wagner, the driving force of ethical behavior of individuals is what he calls protected values. Where these values are so deeply rooted in the individual, they can resist the temptation to giving into unethical behavior, and do what's morally right.
The reason for this is because your protected values holds more meaning intrinsically, if you find ways to earn money that's consistent with your protected values, rather than finding shortcuts or taking some sort of unethical actions.
Wagner conducted an experiment where individuals would flip a coin four times in a private room. Participants were instructed that they would receive $5 for every coin flip that landed on tails. Since the experiment was anonymous, the participants could provide any answers they wanted. Although the probability of flipping tails four times in a row is very low, 40% of participants reported flipping tails four times (which is still higher than the probability).
However, what was interesting was the other 60% of participants who didn't report flipping tails four times, could have. No one was watching them and there was no penalty or disciplinary action for falsely reporting. Wagner concluded that these individuals hold much stronger regard for their ethical values than other 40%.
Employees Making Better Decisions
Although, 1 in 7 companies commit some sort of fraud, there are 6 companies that follow ethical business practices because they're protective values is a part of their organization's culture. When management is leading an organization ethically, employees will follow accordingly. That’s because they're holding those protective values.
Employees make better decisions in less time with business ethics as their guiding principles. This results in an increase in productivity and a much higher employee morale and pride in the company they work for. When employees can work in a way that is based on honesty and integrity the whole company benefits.
Higher Standards Equals Loyalty
Employees who work for a corporation that demands high standards of business ethics in all areas of operation, they're more likely to perform tasks at a higher level, and are more likely to have loyalty to an organization.
Profitability
Business ethics doesn't only improve employee morale, loyalty and culture, it directly impacts the company's short-term and long-term profitability. A company's reputation in the public also plays a major role when looking for investors. If a company is perceived as operating unethically, investors are less likely to purchase stocks because the reputation damage associated with them as well.
https://www.reuters.com/article/us-wells-fargo-scandal-deal/wells-fargo-to-pay-3-billion-to-u-s-admits-pressuring-workers-in-fake-accounts-scandal-idUSKBN20F2KN
https://www.corporatecomplianceinsights.com/lessons-volkswagen-scandal-ethical-failings/
https://www.wgu.edu/blog/ethical-dilemmas-how-scandals-damage-companies1909.html#:~:text=Enron,much%20higher%20than%20it%20was.
https://en.wikipedia.org/wiki/Facebook%E2%80%93Cambridge_Analytica_data_scandal
https://en.wikipedia.org/wiki/Nike_sweatshops
https://fairworldproject.org/starbucks-has-a-slave-labor-problem/