Select the three reasons why a code of ethics is important for a business to have in place.

What makes for good business ethics? We give you a few examples and their payoffs, plus proven ways to ensure that ethical conduct holds sway at your company.

OVERVIEW [top]

Good ethics make good business sense. Your company stands to profit from a reputation for acting with honesty and integrity.

Environics International recently surveyed 25,000 people in 23 countries; 50% said they "pay attention" to the social behavior of companies. One in five said they'd protested poor social performance by speaking out against the companies or refusing to buy their products.

Bottom line: Your policies and actions are under constant scrutiny and assessment by those who can make or break your business. Can you afford not to do the right thing?

In this Quick-Read you will find:

• How to choose an ethical course of action.
• Ways to do right by your employees.
• Tips for treating customers ethically.

SOLUTION [top]

Having a code of ethics helps your company define and maintain standards of acceptable behavior. A good ethical framework can help guide your company through times of increased stress, such as rapid growth or organizational change, and decreases your firm's susceptibility to misconduct. Ensuring ethical practices in the workplace, such as with personnel policies, can stave off expensive litigation or fines in the future. Last but not least, it can translate to great PR for your business.

What makes for good business ethics? A few examples:

• Treat your employees well. Pay fair wages, and keep your promises. Act quickly to put an end to any kind of harassment, and show the same high level of respect for all your employees. Payoff: Low turnover, high employee motivation and productivity. Commitment to growing your company.

• Be honest in all business dealings. Pay suppliers the amount agreed upon, and on time. Be fair with customers, not over-charging and not inflating the quality or potential of your products or services. Payoff: A sterling reputation that will help sustain your company even when times are tough.

• Be socially responsible. Don't pollute the environment; recycle when possible. Heed protests of company policy or actions. Give back to the community through charity fund-raising or other worthy causes. Payoff: Goodwill that enhances your reputation as a positive force in the community.

• Back up your products and services. Provide what you promise on your service contracts and in your advertising. Example: A Canadian roofing company won't accept payment on roof replacement or repair until after a rainfall proves the roof doesn't leak. Payoff: Repeat business as customers learn they can trust you not to cheat them — and these people tell their friends.

Here are two proven ways to ensure that ethical conduct holds sway at your company:

1. Adopt a code of ethics. This is a formal statement that sets standards of behavior for everyone in the company. Your code can range widely, from confidentiality (keeping trade secrets) to dealing with sexual harassment. Specify any penalties for violations. If the company goals in your long-range plan are respected and referred to frequently, add following the ethics code to them.

2. Do a quick "ethics check" when necessary. If you're not sure whether a decision or action would be ethical, ask yourself:

• Is it legal? Would I be violating federal, state or municipal law?

• Is it in accordance with company policy?

• Is it fair? Would anyone lose out?

• Would I be proud of my action? How would I feel if my family and friends read about it on the front page of the newspaper?

• How would our customers react? Would they be more inclined to trust us, or feel cheated or betrayed?

"Honesty in dealing with our customers" is paramount at RMI, wholesale distributors of gas equipment in Lee, Mass., says Jim Creer, manager of operations and materials. "We'll honor the price we've negotiated with a customer — even if we've mistakenly given a price that cuts the profit margin for us," says Creer. The goodwill generated by such a policy is priceless.

RMI also "fesses up" when orders are messed up somehow. "The wrong item might be shipped to a customer and then we discover someone here made an error putting the order into the system," says Creer. Denial of responsibility — often the first reaction when a company errs — doesn't wash at RMI.

"We'll admit our mistake right away," says Creer, "and take responsibility for getting back the wrong item and making sure the customer gets the right product at no extra charge."

Though they may never say it outright, "customers fully appreciate being treated with integrity. They prove it by their long-term loyalty to a company that doesn't dodge responsibility — and quickly rectifies its mistakes."

DO IT [top]

1. Model the ethical behavior you expect of your employees. Treat them with honesty and respect if you want them to give one another — and your customers — the same treatment.

2. Provide employees with opportunities for personal and professional growth. Tailor incentives to individual needs.

3. Educate employees about ethics. Use hypothetical situations: "What would you do if a valued customer kept making suggestive remarks to a junior staffer?"

4. Empower employees to treat customers right. Don't criticize good ethical decisions made on the front line, such as taking returns from loyal customers who don't have receipts.

5. Make sure employees are aware of your code of ethics. Encourage them to discuss ethical concerns with you or another designated individual. Take those concerns seriously, and ensure confidentiality. Consider an anonymous survey of the entire staff asking them to define the organization's ethical strengths and weaknesses.

6. Share your code of ethics with customers. Invite them to be open regarding any doubts they have about the integrity of your company and employees. Don't react defensively.

7. Reward ethical behavior. This can be done through raises, bonuses and employee recognition awards.

Books

Good, the Bad, and Your Business: Choosing Right When Ethical Dilemmas Pull You Apart by Jeff Seglin (John Wiley & Sons, 2000). Seglin, a popular writer for Inc, provides ethical perspective through a series of anecdotes.

A Better Way to Think about Business: How Personal Integrity Leads to Corporate Success by Robert C. Solomon (Oxford University Press, 1999). Solomon does not prescribe action so much as ruminate on integrity in the business setting.

Eighty Exemplary Ethics Statements compiled by Patrick E. Murphy (Notre Dame Press, 1998).

Managing Business Ethics: Straight Talk About How to Do It Right, 2nd ed. by Linda K Trevino and Katherine A. Nelson (Wiley, 1999). Managing Business Ethics is a textbook that offers more prescriptive advice than most books on business ethics.

Article

"The Values That Sustain Entrepreneurs" by Ray Smilor

Internet Sites

Fast Company: Social Justice

Ethics and Conflict of Interest

Resolving Real-Life Ethical Dilemmas

Ethics Today

Article Contributors

Writer: Kathleen Conroy

Ethical people are those who recognize the difference between right and wrong and consistently strive to set an example of good conduct. In a business setting, ethical behavior is behavior that means applies the principles of honesty and fairness to relationships with coworkers and customers. Ethical individuals make an effort to treat everyone with whom they come in contact as they would want to be treated themselves.

The advantages of ethical behavior in business include helping your business to build customer loyalty, avoid legal problems and attract and retain talented employees.

Consumers may let a company take advantage of them once, but if they believe they have been treated unfairly, such as by being overcharged, they will not be repeat customers. Having a loyal customer base is one of the keys to long-range business success, since serving an existing customer does not involve marketing costs, whereas acquiring a new one does.

A company’s reputation for ethical behavior can help it create a more positive image in the marketplace, which can bring in new customers through word-of-mouth referrals. Conversely, a reputation for unethical dealings hurts the company’s chances to obtain new customers, particularly in this age of social networking when dissatisfied customers can quickly disseminate information about the negative experience they had.

Talented individuals at all levels of an organization want to be compensated fairly for their work and dedication. They want career advancement within the organization to be based on the quality of the work they do and not on favoritism. They want to be part of a company whose management team tells them the truth about what is going on, such as when layoffs or reorganizations are being contemplated.

Companies that are fair and open in their dealings with employees have a better chance of retaining the most talented people. For instance, employees who do not believe the compensation methodology is fair are often not as dedicated to their jobs as they could be.

Employees have a responsibility to be ethical from the moment they have their first job interview. They must be honest about their capabilities and experience. Ethical employees are perceived as team players rather than as individuals just out for themselves. They develop positive relationships with coworkers. Their supervisors trust them with confidential information, and they are often given more autonomy as a result.

Employees who are caught in lies by their supervisors damage their chances of advancement within the organization and may risk being fired. An extreme case of poor ethics is employee theft. In some industries, this can cost the business a significant amount of money, such as restaurants whose employees steal food from the storage locker or freezer. One approach ethical companies take to avoid this type of behavior is to take the time to train every member of the organization about the conduct that is expected of them.

At times, a company’s management may be tempted to cut corners in pursuit of profit, such as by not fully complying with environmental regulations or labor laws, ignoring worker safety hazards or using substandard materials in their products. The penalties for being caught can be severe, including legal fees and fines or sanctions by governmental agencies. The resulting negative publicity can cause long-range damage to the company’s reputation that is even more costly than legal fees or fines.

The advantages of business ethics become crystal clear in these situations since companies that maintain the highest ethical standards are very unlikely to find themselves in such situations.