Ethics, from the Greek word ethos, means knowing the difference between right and wrong, and doing the right thing; it is the moral principles that govern a person’s behaviour. Corporate ethics, sometimes also referenced as business ethics, is the code of conduct which guides an organisation in its business dealings; it is a moral framework that an organisation applies when doing business. Although corporate ethics may sometimes start out as personal ethics, it can become codified over time, and be adopted by those in the organisation or profession. This corporate code of ethics then starts to gain traction and is applied to all dealings – with suppliers, shareholders and stakeholders.
The firm’s corporate governance responsibilities, fiduciary duty and transparent processes as it engages with employees, customers, special interest groups, shareholders and the community at large, also fall into the area of corporate ethics. “A business that just makes money without due consideration for ethics is a poor business” has become the mantra of many firms in recent years; hence the rise of greater attention to corporate governance and increased transparency. While an individual’s ethics guides his/her behaviour when dealing with other people, corporate ethics has to consider a host of potentially controversial matters like bribery and corruption.
There may also be employee or management misconduct, insider trading, fraud, discrimination and unacceptable workplace behaviour such as using undue influence or sexual harassment. This is where a corporate code of ethics comes in. The main objective of business used to be obtaining maximum profit; this is now tempered with the need to do so ethically. Some ethical corporate practices are now required by law, like insider trading restrictions or mandatory environmental assessment reports but corporate ethics still depends a lot on the behaviour of the people who set the standards in an organisation, i.e., the tone from the top.
Ethical decisions are based on an individual’s conscience, personal principles and beliefs. But what happens when corporate leaders have to make decisions that involve ethics? These decisions are often a reflection of personal beliefs, culture, upbringing and background. Such decisions also have a much further-reaching effect than mere personal decisions, as businesses have to take into account the benefit of employees, shareholders, customers, the community and other stakeholders. There is also the reputation of the business to consider, which may be affected by decisions that lack a proper ethical orientation.
Many companies today ensure that they have set in place an ethics programme that aligns with their vision, mission, and objectives. This may set the standard not only for company employees, but also for suppliers and contractors, to follow. What this does is signal to stakeholders and the community that the firm is serious about governance, transparency, compliance and doing the right thing. Corporate ethics are meant to encourage the development of trust between the corporation and the public, and instil confidence that the organisation is behaving in everyone’s best interests. Good values are often taken for granted in stable, undisrupted times but this can change with the circumstances.
In times of disruption, there is more emphasis on ethics and ethical behaviour. If a company has been lax about how it protects its customer data, for instance, and this results in confidential data becoming public, such an incident could indicate not just the lack of cybersecurity. It could also reflect the firm’s weaknesses in governance and oversight – matters which involve corporate ethical issues. An event like this could also adversely affect the firm’s reputation, and erode confidence in its Board and management. It may be necessary now for many firms to emphasise their corporate codes of conduct so that the organisation can make more ethical choices.
Unethical behaviour and poor ethical choices can be remedied by education, training and awareness of corporate ethics and code of conduct. Difficulties may arise in the interpretation of what is ethically acceptable, depending on the prevalent culture of the organisation and the community it operates in. For instance, employees may be hesitant to report the questionable behaviour of their manager even though there is evidence that he is committing fraud, because they fear retaliation. In cases like this, compromised corporate ethics directly conflict with the employee’s exercise of personal ethics. But reporting misconduct is beneficial to the company; whistleblowing should be incentivised.
Personal ethics and corporate ethics have much in common, although the repercussions that result when either is breached, may be vastly different. While personal ethics are generally internalised and may not manifest outwardly, corporate ethics are usually articulated in the company’s business ethics code. This may be an industry-wide code that all firms adhere to; or formal regulations that require compliance; or internal processes and procedures developed by the firm that its employees are required to follow. It is to the advantage of the organisation to have a corporate code of ethics in place; doing so makes ethical compliance the responsibility of everyone.
What implications does this have for the firm? When the ethics of the firm is upheld by everyone, the employee becomes empowered to do the right thing. This inevitably leads to greater attention to their work; closer engagement with their jobs and with others at different levels; and better overall alignment with the organisation’s objectives. Ethics are becoming a primary concern for businesses because when people are disengaged from what they do, they tend to create less value. Disengaged employees inevitably become demoralised, ultimately affecting themselves as well as the competitive advantage and sustainability of the organisation they work for.
