Importance of Business Ethics and Corporate Social Responsibility

importanceofbusinessethicsEthics are, at their essence, moral judgements about what is right and what is wrong.  In a business sense, these ethics are decided upon and formed by each company and underpin the decisions that anyone in the business makes.  The decision to behave ethically as one individual to another is easy for any decent moral human being, but it is easy to forget the impact a large, faceless business can have on the world.  Business Ethics and Corporate Social Responsibility are all about bearing in mind the full weight of any corporate decision.

For a quick 30-minute introduction to Business Ethics for everyone, try this short course in Business Ethics and Code of Conduct.

The Importance of Business Ethics to a Company:

Working as an ethical business has many benefits, not least of which is the ability to attract and keep investors, employees and customers.  Knowing that the company they deal with has stated their morals and made a promise to work in an ethical and responsible manner allows investors peace of mind that their money is being used in a way that aligns with their own moral standing. When working for a company with strong Business Ethics, employees are comfortable in the knowledge that they are not by their own action or inaction allowing unethical practices to continue.  Customers are at ease buying products or services from a company they know to source their materials and labour in an ethical and responsible way.

For example, a coffee company which states all their raw beans are picked from sustainable plants where no deforestation has occurred, by people paid a good living wage, in an area where investments have been made to ensure that producing the coffee for a foreign market has not damaged the local way of life, will find that all these elements of their buying strategy become themselves a selling point for their final product.

A company which sets out to work within its own ethical guidelines is also less at risk of being fined for poor behaviour, and less likely to find themselves in breach of one of the multitude of laws concerning required behaviour – for example, laws around payments to corrupt regimes, or environmental practice policies. The whole company can be fined, the directors can be fined, and individual employees can be fined if the responsibility for an infraction falls on their shoulders.

Reputation is one of a company’s most important assets, and one of the most difficult to rebuild should it be lost.  Upholding the promises it has made is crucial to maintaining that reputation.  If you’re looking to start up a company that is ethically sound right from the ground up, here’s a short course on How to Create an Ethical Organization which will put you on the right path.

The Importance of Business Ethics to the Wider World:

Businesses not following any kind of ethical code or carrying out their social responsibility leads to wider consequences.

The natural world can be affected by a lack of Business Ethics.  For example, a business which does not show due care for where it disposes its waste products, or fails to take a long term view when buying up land for development, or neglects its obligations towards minimizing its carbon footprint and driving progress towards green renewable energy, is damaging the world in which every human being lives, and damaging the future prospects of all companies.

Developing countries can be damaged by poor business ethics.  Large companies neglecting to set a good example of Corporate Social Responsibility actively hinder the progression of all business in developing countries.  Outside businesses taking advantage of cheap labour or dominating local markets from an unfair position may make a profit in the short term, however in the long term this is a false economy.  The world as a whole is held back by companies operating without business ethics.

This also applies to other companies which may work together.  A robust code of Business Ethics should forbid dealing with a company whose commitment to Corporate Social Responsibility is lesser, so as to avoid condoning or appearing to condone poor ethical behaviour.  In this manner of boycotting unethical companies, individuals and companies can positively influence the whole business world.  When an unethical company finds itself with no customers, no investors and no suppliers, it will be forced to change its ways or go out of business; constant striving for better and more ethical dealings in this way produces a cycle of continuous improvement.

Where individuals, such as fishermen, cannot afford to be ethical about some of their work – for example overfishing or taking due care for coral or other species – and are unable to take into account the bigger picture during their day to day operation, it falls to the government or other officials to introduce laws and regulations and enforce them. Without this long view approach, sustainability will fail and future generations will suffer.

Ethical practices can go beyond just making sure your business does not have a negative impact on people and the environment.  It can also mean dedicating a portion of your company’s time and resources to actively improving these areas – for example investing in building in developing countries, investing in community programs, lobbying for political change, encouraging employees to donate their time and expertise to other projects (at your company’s expense) and so on.  This level of Business Ethics is the most commendable and should be something all companies strive for in this day and age, so that higher standards can be achieved for all in the future.

For more information about Ethics at work, there are further courses and workshops available:

CFA Level 1 Ethics Module

CFA Workshop 1: Ethics and Quantitative Methods

to round out your knowledge of how Ethics are applied in specific work situations.