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Importance of Ethics in Business

by Henry Posters - August 2003

Why are ethics important?

Recent events in corporate America have demonstrated the destructive effects that occur when the leadership of a company does not behave ethically. One might wonder why highly educated, successful, and business savvy corporate professionals at Enron, Tyco, WorldCom, and Adelphia got themselves into such a big mess. The answer lies in a profound lack of ethics.

Running a business ethically is good for business. However, "business ethics" if properly interpreted means the standards of conduct of individual business people, not necessarily the standards of business as a whole.

Business leader are expected to run their business as profitably as they can. A successful and profitable business in itself can be a tremendous contributor toward the common good of society. But if business leaders or department managers spend their time worrying about “doing good” for society, they will divert attention from their real objective which is profitability and running an efficient and effective organization.

Applying ethics in business makes good sense. A business that behaves ethically induces other business associates to behave ethically as well. If a company (or a manager) exercises particular care in meeting all responsibilities to employees, customers and suppliers it usually is awarded with a high degree of loyalty, honesty, quality and productivity. For examples, employees who are treated ethically will more likely behave ethically themselves in dealing with customers and business associates. A supplier who refuses to exploit its advantage during a seller's market retains the loyalty and continued business of its customers when conditions change to those of a buyer's market. A company that refuses to discriminate against older or handicapped employees often discovers that they are fiercely loyal, hard working and productive.

It is my firm belief that a “good man or woman” who steadfastly tries to be ethical (i.e. to do the “right thing", to make appropriate ethical decisions, etc.) somehow always overtakes his immoral or amoral counterpart in the long run. A plausible explanation of this view on ethical behavior is that when individuals operate with a sense of confidence regarding the ethical soundness of their position, their mind and energies are freed for maximum productivity and creativity. On the other hand, when practicing unethical behavior, the individual finds it necessary to engage in exhausting subterfuge, resulting in diminished effectiveness and reduced success.

The best way to promote ethical behavior is by setting a good personal example. Teaching an employee ethics is not always effective. One can explain and define ethics to an adult, but understanding ethics does not necessarily result in behaving ethically. Personal values and ethical behavior is taught at an early age by parents and educators.

I am quite certain that well-educated business professional like Kenneth Lay, Martha Stewart, Dennis Kozlowski or the former CEO of General Motors who received a multi-million dollar salary and bonus package in 1987 at a time when the company was closing plants and was laying off thousands of people know and understand ethics. They either were too far removed from the “nitty gritty” that ethical standards did not resonate with them or they simply did not care.

People at the top of an organization are expected to share the burden of cost reductions and belt-tightening during difficult times. Senior executives of companies who freeze their salaries or take a personal pay cut in a problematic year rather than lay off employees to cut costs deserve our utmost respect. However, this does not mean that a company should lose flexibility in adjusting its cost structure during bad economical times, replace old factories by new ones, or change technology in ways that would require fewer people to do the work. Decisions like that should be made with empathy and support (financially) to those who will be affected by it.

Conclusion

Ethics are important not only in business but in all aspects of life because it is an essential part of the foundation on which of a civilized society is build. A business or society that lacks ethical principles is bound to fail sooner or later.