Importance of Ethics in Business Management Practice

To put in simple words, ethics is the principle of moral values which helps you to take actions that are considered as the right thing to do. However, doing what is ‘right’ is not that straightforward. Since everyone has different backgrounds and cultures, we therefore possess different conceptions and perceptions. This causes complication in the process of understanding the meaning of ethics as each person’s point of view on what is ethical varies significantly.

Importance of Ethics in Business Management Practice

Ethics is not a set of rules that should be followed inevitably but is a guideline to lead you to behave with integrity. It includes values such as equity, responsibility, honesty, and fairness. The importance of ethics can be seen from the fact that many of what were considered as ethical behaviors in the past has developed into law today. For example, stealing is known as an unethical act and is against the law as it is an infringement of human rights and justice.

Ethics in our daily life and in business management practice is slightly different. The ethics which apply in the business world are not just simply a matter of the fact that lying and stealing is wrong. It helps the organizations to act responsibly to all their stakeholders, including the environment surrounding them. It contributes to the process of decision making, giving a sense of ethical reasoning to the managers and employees how they should act in a situation of dilemma. Being ethical in a business activity may not seem so relevant to the prosperity of the business in the short term however, it brings great long-run benefits to the organization in the end and this is the reason why successful businesses try to act ethically even when the process may turn out to be costly.

Ethics cannot be practiced when one seeks for his advantages only despite the fact that there are other problems that should be concerned as well. Today, different industries are facing various ethical pressures as many businesses only regard increasing profit as their priority interest hence, don’t perform ethically as it will increase their cost. These problems should be overcome through the compromises and efforts of different stakeholders in the industries for the benefits of everyone.

Importance of Ethics in Business Management Practice

The most important part about ethics in business is that the activity of the business should comply with the law, meeting the standards while it also follows its own clear aims and objectives of the organization and satisfying generally everyone who is involved in the business at the same time. Businesses should always take consideration of the interests and demands of all their employees, customers, suppliers, environment, and the public as they are the mainstay and the reason of their existence. Different stakeholders often have different interests which collide. However, those conflicts must be solved by making concessions and finding a common interest for the benefit and success of the business. Moreover, there is always a possibility where the business itself and the environment and the society find it hard to find an agreement, which is sometimes hard to solve. Therefore, it is important to find a midpoint where it is fair to both sides. Then is it possible for businesses to behave fully ethical?

The emergence of business activities started within the society. Therefore, it can be said that in order for the business to develop, the environment including the society in which it operates must develop too. Corporate social responsibility (CSR) is defined as the accommodation of corporate behavior to society’s values and expectations. Milton Friedman has argued that “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as engage in open and free competition without deception or fraud.” The consumer awareness towards social responsibility is increasing. Accordingly, company’s attitudes toward society influence the consumers purchasing decisions. Corporate social responsibility will contribute in businesses to gain productivity, competitiveness and sustainability, distinguishing itself from other businesses that don’t consider corporate social responsibility.

Public opinion towards environmental problems is also becoming continually favorable. The trend in ‘well-being’ caused more consumers to prefer organic food. The reason for this is based on both economic and health reasons. Consumers are now willing to buy more environmentally friendly goods. Those kinds of goods are now described as ‘green’, meaning that it is not harmful to the environment and is considered healthy. The reason why businesses should perform environmentally is because to make sustainable development possible. Sustainable development is described as meets the needs of the present without compromising the ability of future generations to meet their own needs. This is important as it allows the nature to keep itself fresh and providing us resources that we need at the same time.

By being green, the business can benefit in many different ways. Businesses must follow the environmental legislation. Some of the main environmental problems are related to waste disposal, recycling, replanting, and the consumption of scarce resources. If a business produce, transport, dispose, treat waste, they are likely to be affected by waste regulation. Also, if a business use substances that harm the ozone, they are likely to be affected by legislation’s that control or ban the use of these substances, and if they produce, import or export packaging waste in the public, they are going to be affected by the Producer Responsibility Obligations (packaging waste) Regulations. They will gain so much more by taking their commitment. By doing the environmental practices, businesses will gain improved reputation not only from the community but also all their stakeholders. Businesses can also save money by reducing the amount of waste they dispose of and resources and energy they use.

One of the main ethical issues in the business world is multinational companies misuse of their power. Multinational companies often seek for opportunities and often go and operate in developing countries. However, there have been a lot of arguments about this. Multinational companies would bring the expert employees from their country and mostly hire low wage labors in order to reduce cost. It is also argued that they would come and extract the resources in the host country and gain the most out of it then leave the country afterwards, when they should actually try to be more helpful to the host country and help them to develop by such as reducing unemployment by providing jobs with appropriate wages. Nike has been sued in the past for using child labor in the process of making football. This have affected greatly on their public image and their brand. However, we cannot just judge them for being unethical because by using the child labor, the company can actually reduce their cost, which will satisfy their stakeholders as it will increase their profit. Customers will be satisfied with the products as well because the price might have decreased too due to the reduced cost. The only stakeholders who suffer from this case are the children labors. This is why it is very difficult to clearly state whether a business is acting ethically or not.

Another problem is providing consumers misinformation about certain products or services. Due to today’s modern technology, consumers now have greater means to collect information about the market. However, many businesses still provide misinformation or false information that is lucrative to them in order to deceive the consumers so that they would purchase their products. This misinformation can harm the consumers, both physically and mentally, which then can affect the businesses negatively, which will definitely cause decrease in their profit as it will affect their reputation and at the same time, goes against the public law.

The emergence of black market is also a big issue that is concerned. Black market is a type of unofficial market that appears for example when the prices of inelastic goods rise or when the goods are banned. The black market gain profit by setting the price of the goods above the equilibrium price. These kinds of activities should be stopped as they are illegal, disrupting the balance of the economic order. The legal markets which sell those goods will be affected greatly as their profits will decrease.

There are different points of views on which how businesses can act ethically. In the consumers’ perspective, businesses should guarantee the safety of the consumers by executing product testing before actually launching the products in the market so that the outcomes are fully known. Also, setting the right price level of the products, balancing its quality, providing after services, and investing the business’s profit into research and development of their products so that the consumers will get improved products and services in the future is important. In the employees’ perspective, treating the employees well with respect and providing them with an adequate payment is also an ethical behavior that should be performed as well. For the suppliers, it is important for the businesses to set the right price on their goods so that the suppliers will receive the right payment. And for the society, businesses can provide specific training’s to the public which the society needs, funding or sponsoring charities and non-profit organizations and also participating in, or hosting volunteer campaigns. Moreover, businesses should develop ethics awareness training programs to their employees and perhaps to the community as well so that everyone can get involved. Overall, it is essential for businesses to maintain good relationship with all their stakeholders, as they are part of their assets, affecting their business.

Some of the advantages which can result from being ethical in business management practice are improved public image, relationships, reputation and increase in the range of customers which will lead the business to gain greater profit. This will accordingly allow the business to benefit from economies of scale, reducing their cost due to their increased market power, which will increase their profit even further. Moreover, the ambiance of the workplace can improve and the business can prosper more rapidly through employee growth as the employee motivation will also increase due to having pride in their work for being ethical.

However, most of businesses’ prior goal is to maximize their profit, so there will be cases where businesses might not be able to make concession with their stakeholders and the environment. How well the business response to their stakeholders in a way that satisfies everyone, while legally achieving their goal without harming the third parties shows whether the business is acting ethically or not. A business cannot be fully ethical as it is almost impossible to always satisfy every stakeholders involved in the business at a same level. Also businesses will benefit in the long term if they perform ethically however, it doesn’t mean that they must always sacrifice their priority interest, which is increasing their profit, just in order to satisfy all of their stakeholders. Being ethical involves being fair and equal however, if this is the case, then this wouldn’t be fair for the business itself.