Business Ethics (Leaving Cert Business): Revision Notes

Business Ethics

What is business ethics?

Business ethics refers to the moral principles and standards that guide proper and honest behaviour in business situations involving all stakeholders. These principles focus on concepts like fairness, honesty, and respect within a business context.

Sometimes businesses act unethically, whether they're chasing larger profits, trying to expand, meeting investor demands, or simply attempting to survive in competitive markets. Ethics scandals appear regularly in the news - for example, when US pharmaceutical company Mylan increased the price of its life-saving EpiPen auto-injector by over 400% in 2016.

Reasons for unethical behaviour in business

Understanding why businesses sometimes act unethically helps us recognise and prevent such behaviour. There are four main reasons that contribute to ethical lapses in business environments:

1. Business culture When employees regularly witness colleagues engaging in unethical behaviour, they become more likely to participate in similar activities themselves. This is particularly problematic when unethical behaviour comes "from the top down" - meaning senior staff set a poor example. Lower-ranking staff who would normally behave ethically may feel pressured to compromise their values to keep their jobs.

2. Business goals When management puts employees under intense pressure to meet targets and deadlines, these business goals can overshadow ethical considerations. The urgency to achieve results can lead people to take shortcuts in their ethical behaviour, prioritising outcomes over proper conduct.

3. Lack of rewards for ethical behaviour Sometimes employee performance gets measured only by end results, without considering how those results were achieved. When doing the right and ethical thing doesn't produce the required outcomes, employees may not receive recognition from their employers. This consistent failure by management to acknowledge and reward ethical behaviour can foster poor ethics throughout the organisation.

4. Lack of penalties When industry inspections are rare, minor unethical behaviour can gradually become normalised and escalate over time without fear of consequences. Managers sometimes ignore unethical behaviour if it generates profit. However, when unethical behaviour proves costly to the organisation - like Volkswagen losing almost a quarter of its market value after falsifying carbon emissions reports - managers become much more likely to penalise such conduct.

Encouraging ethical behaviour in business

Managers who emphasise good ethical behaviour create a business culture that values doing the right thing over simply increasing profit. Establishing ethical standards requires a comprehensive approach that addresses multiple aspects of business operations.

Here are five key methods businesses can use to encourage ethical behaviour:

1. Establish a code of ethics A code of ethics provides written guidelines that clearly outline how the business and its staff should behave. It defines which behaviours are ethically unacceptable and guides work relationships with stakeholders. This code often becomes part of a broader code of conduct document for employees.

2. Provide staff training The code of conduct should be presented to staff during their induction training. Regular reminder training can be scheduled to cover different aspects of ethical behaviour and maintain awareness throughout the organisation.

3. Encourage whistleblowing Creating a workplace climate where whistleblowing is explicitly respected encourages staff to report unethical behaviour or bad practices. This helps identify and address problems before they become serious issues.

4. Model ethical behaviour When senior staff lead by example and consistently demonstrate ethical behaviour, it encourages subordinates to behave similarly and helps maintain high standards across the organisation.

5. Offer rewards or take disciplinary action Ethical behaviour should receive recognition through bonuses or promotions. For staff guilty of behaving unethically, disciplinary action might include fines, demotion, or dismissal, depending on the severity of the breach.

Code of ethics example

The Central Bank of Ireland's code of ethics demonstrates how these principles work in practice, providing a real-world framework for ethical business conduct.

Benefits and challenges of a code of ethics

Implementing a code of ethics brings significant advantages to organisations, but also presents certain challenges that must be carefully managed. Understanding both aspects helps businesses prepare for successful implementation.

Benefits

Decision making: A code of ethics guides decisions that affect stakeholders and helps businesses navigate growth challenges with clear moral guidelines.

Customer satisfaction: The code provides guidelines for handling customer complaints fairly, ensuring customers receive appropriate treatment and building trust.

Good reputation and brand image: Displaying the code of ethics publicly and consistently following it creates a positive image for the business and demonstrates commitment to ethical standards.

Encourages whistleblowing: A well-implemented code creates an environment where staff feel comfortable reporting wrongdoing confidentially to management.

Encourages ethical behaviour: The code promotes ethical conduct among both senior management and employees at all levels, which reduces losses from theft and fraud.

Challenges

Culture: A newly implemented code of ethics may not immediately gain employee or management support, as people might view it as criticism of their personal morals or past actions.

Regular updates: The code requires regular updates to address new types of unethical behaviour, such as misuse of company social media accounts or email systems.

Enforcement: Implementing sanctions can damage workplace relationships. Enforcing the code can be particularly difficult when staff work off-site or in remote locations.

Staff training: Ongoing employee training about the code creates financial costs, but it's essential to ensure the code is fully understood and properly applied.