Why Are Ethics Important in Business?

Business ethics can be defined in several ways. The Corporate Finance Institute says business ethics are the moral principles that a business uses to conduct itself and its transactions. Indeed says business ethics determine what’s right, what’s wrong, and what’s appropriate in a workplace.

At its heart, business ethics drives three things about a company:

• Public perception
• Employee perception
• Bottom line

Ilene Ringler, business faculty member at Purdue Global, says ethics must be ingrained in a business to be a success.

“Ethics is not a trainable thing,” she says. “Instead, many companies are educating their employees on the company values, which becomes the foundation for all decision making in the workplace.”

Read on to find out more about business ethics, why studying business ethics is important, and how strong ethics are a mark of a vital, successful business.

Proof That Ethical Behavior Breeds Success

Companies that take ethics seriously are conducting business in a new way, and, therefore, seeing success. This commitment is focused both on employees and the public, which helps a business attract and retain talent and allows a business to pursue its purpose without distraction.

Among the things some ethically successful businesses are doing:

• A big-box warehouse company raised its minimum wage to provide a better living salary for employees and to remain competitive.
• A cosmetic retailer prohibits animal testing on its products and encourages customers to recycle by offering free products for returning empty containers.
• A footwear and apparel company makes sustainable products and donates a pair of shoes to children in a developing country for each pair purchased.
• An outdoor clothing company is fighting environmental pollution and disposable fashion by encouraging customers to buy less and be more conscientious.
• A pharmacy chain ended sales of tobacco products as part of its commitment to better health for its customers and employees.

Many such companies draw praise for their practices, which attracts customers and workers who view ethics as a major consideration in their daily interactions.

According to a NielsenIQ study, 60% of consumers say they have been concentrating on environmentally friendly, sustainable, or ethical purchases since the start of the global health pandemic.

Setting an Ethical Tone Starts at the Top

Expectations of ethical behavior start at the C-suite, with buy-in from management. As employees see this ethical behavior, they then hold themselves and each other to those standards. They also hold the C-suite and management accountable.

Ethical companies tend to have more success, according to Ringler.

“As you look at the companies that have high retention rates, low turnover, and high customer satisfaction, you see that many of those businesses are more profitable,” she says. “They are promoting ethical behavior because employees understand what the expectations are and how decisions get made.”

A lack of ethical behavior can affect not only profits but also the workforce, Ringler says.

“One of the costs that doesn't get tracked as much as it should is the cost of employee turnover and employee retention,” she says. “Employees may be leaving you or not coming to you because they perceive you are not acting in accordance with who you say you are, what your purpose is, and what your values are. Top talent is not going to come to you.”

How Ethics Drive Change

When ethics are at the forefront, organizational change can succeed. According to the Project Management Institute, ethical leadership involves leading with commitment, integrity, and transparency. NOBL Collective, a change management consulting firm, says change is successful when an organization affirms that:

• Change is encouraged — Company support encourages individuals to try new things and processes
• Change is a group effort — Workers who help decide and shape change are more likely to follow through
• Change is a new normal — Adapting constantly to new external forces becomes a habit and easier to implement

Ethical leadership stands at the front of change. Ringler teaches an ethics course and a capstone based upon the principles of conscious capitalism.

Making the changes that need to be made, driven by ethics, is noticed by customers and potential customers.

“People are going to look deeper into the way that you're treating your employees and into the way that you're working with your suppliers,” Ringler says. “The web has played such a huge role in that because you didn't use to be able to find that kind of information as quickly as you do now.”

An Ethical Culture Is Deliberately Different

Studying business ethics is an important part of achieving an ethical workplace. Employees, especially those in senior positions, must take a role in both learning a company’s ethical principles and implementing them. That means keeping up with the evolution of business ethics.

Customers and employees are coming to expect more from businesses, Ringler says.

“The expectations of the people who are coming into the workplace and who are buying products are changing around what they want out of their workplace experience,” she says.

“Right now, with the Great Resignation, employees want what they want. And they want sustainability; they want good, honest people interactions; they want no discrimination in the workplace; they want no discrimination of customers.”

Ringler says commitment to ethics isn’t just a passing fad or something to make a company feel good about itself.

“These are business decisions,” she says. “Businesses have to support the environmental, social, and governance (ESG) movement and corporate social responsibility.”

Why You Should Study Business at Purdue Global

Ethics are a growing part of doing business well. Purdue Global offers the opportunity to study ethics and other relevant business issues in our online Business Degree and Certificate Programs.

Reach out today to learn more about our online business degrees and how you can be equipped for the future of business.