Importance of Business Ethics in Organizations

This report discusses the importance of business ethics in any organization, the ethical challenges faced by managers, and the contribution of business ethics to an individual or organization. It also provides real-world examples of business organizations that have set the right examples depicting the importance of ethics in a business.

Ethics in business
Academic report

Executive Summary
Business ethics are essentially the backbone of the business that drives the business in the right
direction. They form the very crux of how the business is going to operate. These ethics are
defined by the set of values that guide business decisions within different levels of the business.
Ethical businesses have time and again proven to have improved customer relationships and a
positive brand positioning. This is because the ethics adopted by an organization create a sense
of trust and respect among stakeholders towards the business. This report throws light on the
importance of business ethics as well as examples of their evidence within different industries.

Table of Contents
Executive Summary.........................................................................................................................1
Introduction......................................................................................................................................2
Literature Review............................................................................................................................2
Discussion and Analysis..................................................................................................................4
Conclusion.......................................................................................................................................7
Recommendation.............................................................................................................................7
References........................................................................................................................................9

Introduction
Business ethics plays a fundamental role in the success as well as growth of a business. Business
ethics are moral principles that guide the way a business functions on a day to day basis. These
ethics determine the business’s actions towards its environment. These ethics must be defined at
the inception of a business and every decision made the business must be in line with the ethical
policies of the organization.
Effective ethics of a business firm help in setting the right positioning in the minds of customers.
Since these ethics help the business take appropriate decisions and hence lead to improved
growth. Ethical organizations attract investors as well as employees. Such organizations adopt
competent strategies to ensure employee retention and even employees prefer associating with
such businesses in the longer run. Not just employees, even customers tend to get attracted
towards ethical businesses. This report highlights upon the importance of ethics in any business,
the ethical challenges faced managers as well as the contribution of business ethics to an
individual or organization. Real world examples of business organization have been discussed
who have set the right examples depicting the importance of ethics in a business.
Literature Review
There are various strategic management experts who have thrown light upon the importance of
business ethics in any organization. Being an ethical organization is a difficult road to follow but
it certainly comes with its own set of advantages. Mehta, Kurbetti & Dhankar (2014) state that
the level of employee retention is directly related to the strength of business ethics adopted by a
business. An ethical business attracts competent employees who relate to the same set of ethics.
This helps the business in recruiting manpower which is proficient. Employees tend to feel safer
and more secure in a business that is ethical in nature. An unethical firm leaves the employee at
the risk of being associated with unethical actions. Therefore before joining an organization,
employees consider the ethical values of the business to be an important criterion.
Every business requires investment from several external stakeholders. These investors evaluate
the firm on the basis of various criteria before finally investing their money. One such critical
criterion includes the ethical values adopted by the business. The ethics adopted by a business

assure investors about appropriate usage as well as the return on the funds provided by them to
the business (Crane & Matten, 2016). The ethical stance of the business will enable the
management to effectively utilize the funds provided to the business.
Every industry is getting increasingly competitive. The number of players is on a rise leading to
increased competition. Every organization is adopting several strategies in order to gain a
competitive advantage in order to sustain within the industry (Gamble et. al., 2013). In the face
of fierce competition, it is imperative that organizations remain ethical.
Several situations require businesses to take a strategically important and critical decision. It is
the ethics of the business that guide the management to take appropriate decisions leading to
long term sustainability of the business (Trevino & Nelson, 2016). The decisions made by the
business are strongly influenced by the ethical policies of the business. Various leading
organizations have adopted a strict ethical policy and ensure that all their employees also
effectively follow the same.
A strong ethical business policy creates a positive workplace environment within the business.
Ethical businesses tend to create transparency in the organization. Communication within an
organization forms the backbone of the business. A culture of open communication and
transparency creates a participative work culture which fosters creativity and enhances
transparency in the business (Cooren et. al., 2011). This builds trust and enables employees to
work together in a coordinated manner. The theory of system development ethical theories state
that organizations should be sensitive enough to develop a work culture which is sensitive and
supportive of ethical conduct.
Customers of any business are also becoming increasingly aware. There are various factors that
influence customer behavior. The ethical values of a business also play a key role in influencing
consumer behavior. Customers associate with the ethical values of a business and establish the
brand’s positioning. Hence an ethical business will always find it easier to ensure customer
loyalty or build and sustain long term relationships with customers (Mandhachitara & Poolthong,
2011). Customers believe they can trust a business based on its ethical values and policies.
Moreover, an ethical business also ensures efficiency of customer service because such a firm
believes in complete stakeholder satisfaction and delivering quality of product or service.

Business marketing and promotions are a competent way to reach out to customers and enhance
brand awareness (Malik et. al., 2013). The promotional strategies and advertising methods
espoused by a business set the positioning in the minds of customers. False advertising and over
promises made by businesses during their promotions are not uncommon. But such strategies
may attract customers towards purchasing the product but can never be sustainable. Such
strategies are unethical in nature and with the advent of internet and social media; the tactic is
bound to fail.
The growth of social media has enabled a supreme level of transparency between a business and
its customers that did not exist before. This has shifted the power dynamic and today customer
holds the ability to make or break a brand. Ethics of a business are no more the business’s
personal affairs but rather become public. Customers resort to social media platforms to express
their grievances and issues with the business (Tuten & Solomon, 2017). Hence it becomes the
responsibility of the business to address these issues in an effective manner. Business ethics
plays a critical role in the strategies adopted by the business to ensure a clear and positive image
on all of its social media platforms in the minds of its consumers.
Even within the business, the shared ethics of the manager and the employee help in creating
improved team work and leads to effective coordination among employees (Rajhans, 2012).
Owing to the ethical values shared by the business, employees are treated in a fair and polite
manner leaving room for discrepancies or any form of employee de-motivation.
An ethical organization follows the most appropriate path and is consistently guided by set
principles. This in turn reduces the risks taken by the organization and hence leads to improved
overall productivity. Sales management is an essential part of the business. This sales process
helps in bridging the gap between business offerings and its customers (Tanner et. al., 2014).
Business ethics lead to improved sales management and better employee performance owing to
improved customer relationships and honesty as well as integrity of the sales team (McClaren,
2013). Customer relationships eventually lead to creation of a loyal customer base and hence
provide the business with stability and consistent growth.
Overall the ethics of a business that guide the organization towards long term sustainability and
growth. These ethics form the backbone of a business because they not only assist the business in

making strategic decisions but also guiding the organizations in ensuring customer as well as
employee loyalty. Various facets of a business including stakeholder satisfaction, customer
buying behavior and brand positioning are all directly impacted by the ethical policies of the
organization.
Discussion and Analysis
Various literature discussed above depict the importance of ethics in any business. It is the
responsibility of every employee associated with the business to ensure the integrity of the
organization. The managers of the business play a significant role in establishing and
maintaining business ethics throughout the organization. There are several leading organizations
that are renowned for the ethical responsibility that they demonstrate through their actions as
their contribution to the world.
Organizations are often faced with critical situations where they are expected to make ethical
decisions (Weiss, 2014). A leading clothing brand H&M recently became the talk of the town
when it released an advertisement across all digital and print platforms depict the release of a
new hoodie. The hoodie had a picture of an African child with words “Coolest monkey in the
jungle”. The advert was clearly racist in nature and the brand faced the wrath for it from several
stakeholders across the globe. Owing the reach of social media platforms, the new spread like
wild fire and several of H&M’s customers took to twitter and Facebook to shame the brand for
such a move. Leading celebrities like rapper G-Eazy, Basketball legend LeBron James and
influencer Mina Mayweather actively dissed the brand on several social media platforms (The
Independent, 2018).
The theory of deontology states that people must adhere to their duties when engaged in the
process of decision making at the time when ethics are in play. This is role and power of ethics in
any business. The managers of H&M resorted to their code of conduct and decided to take down
the ad immediately. Their CEO made a public apology and assured that there was a clear
difference between the impact and the intent of the advertisement. This helps in understanding
that every communication conducted by the business must be driven by strong organizational
ethics (Collins, 2012). Without that, the brand would have to bear the brunt of it.

An active wear apparel brand Patagonia based in the UK has time and again been referred to as
a firm with strong ethics in place. Patagonia has a strong code of conduct which continues to
back the business in times of crisis. The brand has consistently put efforts in maintaining its
ethical sanctity and taking ethical decisions even in the face of severe adversity or competition.
Patagonia has established ethical sourcing policies which ensure that all their raw materials are
sourced from environment friendly sources. The brand has also been putting remarkable efforts
to reduce its carbon footprints. Their “1% for the planet” motto allows the brand to devote 1% of
the business’s total sales towards environment sustainability and growth on a year or year basis
(Stevenson, 2012).
All these strategies clearly evidence the strong ethical value set of the brand and highlight upon
the efficiency with which Patagonia consistently works towards ensuring environmental
sustainability. As a result, today Patagonia is a leading apparel brand with a positive brand image
throughout the globe. Patagonia is known for its ethical stance and hence is trusted for the
quality that it delivers. The brand’s customers are staunchly loyal and all of the business’s
stakeholders have developed a long term and sustainable relationship with the brand.
Leading software giant, Adobe is leading protagonist for business ethics. The brand is known to
be trusted and respected among customers and other stakeholders owing to its strong ethics. The
brand consistently strives to contribute to the environment and create value for all their
stakeholders. Adobe has initiated over 70 programs for conservation of energy in order to create
sustainability. Adobe’s ethics have effectively trickled down from the top management to the
bottom in an efficient manner. The code of conduct at Adobe also ensures that not just the
leadership but even employees participate towards building a sustainable environment. Over
2000 employees are engaged in recycling and composting programs of Adobe which has helped
in directing approximately 97% of the site’s solid waste from landfills (Sharma, 2017). The
business’s code of conduct guides all the stakeholders associated with Adobe and ensure
optimum utilization of resources through all business processes.
Adobe’s strong ethical values drive every significant aspect of the business including inventory
management, recruitment, recycling, working conditions and promotions. The brand has the
most number of green offices in the world and still consistently aims to reduce its carbon

footprints on the planet. The future plans of the brand include more than 2000 new projects with
the aim of development of environment and ensuring ethical decision making.
Employees of any organization play a significant role in defining and sustaining the ethical
values of a business. In fact, employees can drive businesses towards a more ethical approach.
Google’s staff has spoken largely against the Department of Defense’s maven project. The
opposition among employees against an ethically wrong project was witnessed in the form of
several resignations followed by written letters signed by thousands of employees. The appeal
ended with the non-renewal of the contract (Forbes, 2018). This is a clear example of how
employees can drive an organization towards a more ethical business strategy.
There are several aspects of ethics in business. In fact, ethics plays a critical role in everyday
business functions right from recruitment to procurement and marketing. Customer service also
falls under the large spectrum of business ethics as it involves ensuring that the business delivers
value and believes in long term association with all business stakeholders at large. Businesses
often gain perspective on their ethics after putting efforts in communicating with customers of all
sorts. This is why businesses largely focus on after sale service delivered to customers.
Similarly, while conducting recruitments and through the entire process of selecting employees
for the business from a bunch of interested candidates, ethics play a critical role in ensuring that
the most competent candidate is shortlisted for the job irrespective of their backgrounds, caste,
connections, race or gender (Holland & Jeske, 2017). This also creates a culture of equality in
the face of staunch diversity. Business’s ethical policies and strategies as adopted by the seniors
of the business largely impact every important function within the organization. These ethics
define the business and its stance in the environment of global competition.
Ethical philosophy of the business and its stakeholders also leads to increased effectiveness.
These ethics guide the business and eliminate the chance of high risks. Not only organizational
efficiency, but associating with an ethical firm also results in personal growth and development
of business stakeholders in their personal lives.

Conclusion
Business ethics form the core of any organization. These are strong values that drive the business
in several different situations that the business encounters in its lifetime (Michaelson et. al.,
2014). These ethics adopt a top down approach and trickle down from the top management to all
employees of the business. Several organizations have been known to adopt and maintain strong
ethical policies which have helped them build a strong customer base, loyal stakeholders and a
positive positioning in the market of operation. In the face of increasing competition, it is a tough
choice for organizations to make between taking the unethical road in order to make profits and
grow business or remain ethical and work hard to survive the competition with increased
innovation, improved strategy and effective management of resources.
Ethics are critical in every facet of the business. All business functions are strongly driven by the
ethical policy of the firm and these ethics are reflected in several business functions starting from
recruitment and selection to operations management or financial sourcing. This report has
highlighted upon the role played by ethics in business by understanding examples of three highly
ethical firms. These strong brands have achieved immense appreciation and acceptance within
the industry and gained a set of loyal customers through their ethical stances.
Recommendation
There are several organizations which are unable to adopt to an ethical policy. Many times these
businesses are caught up in fraudulent activities. If a business does not follow high ethical
standards then the organization may lose customer loyalty. In order to address these problems,
the following strategies are recommended.
The business founders must establish a formal policy at the time of the business’s inception and
ensure that it is circulated among all the employees. All the managerial as well as strategic
business decisions must be taken in accordance with this policy. The business must also ensure
that these ethics are not only evidenced in the firm’s actions but are also effectively
communicated to all business stakeholders. Long term business associations must be built with
stakeholders that share the same ethics as the business. These ethics will guide the business in
the right direction and ensure establishment of long term and mutually beneficial relationships.

References
Barry, N., 2016. Business ethics. Springer Publishers. United Kingdom.
Collins, D., 2012. Business ethics: How to design and manage ethical organizations. Hoboken,
NJ: Wiley.
Cooren, F., Kuhn, T., Cornelissen, J.P. and Clark, T., 2011. Communication, organizing and
organization: An overview and introduction to the special issue. Organization Studies, 32(9),
pp.1149-1170.
Crane, A. and Matten, D., 2016. Business ethics: Managing corporate citizenship and
sustainability in the age of globalization. Oxford University Press.
Forbes, 2018. ‘Can employees force a company to be more ethical?’. Available at
https://www.forbes.com/sites/enriquedans/2018/06/19/can-employees-force-a-company-to-be-
more-ethical/#38381f9d27e3. Accessed on 16 July, 2018.
Gamble, J.E., Thompson, A.A. and Peteraf, M.A., 2013. Essentials of strategic management:
The quest for competitive advantage. McGraw-Hill/Irwin.
Holland, P. and Jeske, D., 2017. Changing Role of Social Media at Work: Implications for
Recruitment and Selection. In Electronic HRM in the Smart Era (pp. 287-309). Emerald
Publishing Limited.
Malik, M.E., Ghafoor, M.M., Hafiz, K.I., Riaz, U., Hassan, N.U., Mustafa, M. and Shahbaz, S.,
2013. Importance of brand awareness and brand loyalty in assessing purchase intentions of
consumer. International Journal of Business and Social Science, 4(5).
Mandhachitara, R. and Poolthong, Y., 2011. A model of customer loyalty and corporate social
responsibility. Journal of Services Marketing, 25(2), pp.122-133.
McClaren, N., 2013. The personal selling and sales management ethics research: Managerial
implications and research directions from a comprehensive review of the empirical
literature. Journal of Business Ethics, 112(1), pp.101-125.

Mehta, M., Kurbetti, A. and Dhankhar, R., 2014. Review Paper–Study on Employee Retention
and Commitment. International journal of advance research in computer science and
management studies, 154(5).
Michaelson, C., Pratt, M.G., Grant, A.M. and Dunn, C.P., 2014. Meaningful work: Connecting
business ethics and organization studies. Journal of Business Ethics, 121(1), pp.77-90.
Rajhans, K., 2012. Effective organizational communication: A key to employee motivation and
performance. Interscience Management Review, 2(2), pp.81-85.
Sharma, S. K. (2017). A comparative study of corporate social responsibility in public and
private sector organizations in India. Sage Publishers. India.
Stevenson, S., 2012. Patagonia’s founder is America’s most unlikely business guru. The Wall
Street Journal, 26.
Tanner, J., Honeycutt, E.D., Erffmeyer, R. and Honeycutt, E.D., 2014. Sales management.
Pearson. United States.
The independent, 2018. ‘H&M faces customer boycott over racist hoodie’. Available at
https://www.independent.co.uk/life-style/fashion/hm-hoodie-racist-boycott-advertising-people-h-
m-a8149246.html. Accessed on 16 July, 2018.
Trevino, L.K. and Nelson, K.A., 2016. Managing business ethics: Straight talk about how to do
it right. John Wiley & Sons.
Tuten, T.L. and Solomon, M.R., 2017. Social media marketing. Sage. United Kingdom.
Weiss, J.W., 2014. Business ethics: A stakeholder and issues management approach. Berrett-
Koehler Publishers. United States.