Well-written, well-disseminated ethics policies are essential aspects of modern business. Ethics are, in fact, the foundation of all policymaking decisions. This holds true whether a company has implemented a formal ethics policy or whether they've neglected this important corporate duty. Ethics that are not communicated in writing will, nonetheless, be communicated by implication, and they will carry the same weight with employees, investors, management and regulators.

Since business ethics and corporate culture drive outcomes, it’s critical that they are purposefully developed and that ethics best practices are enforced in accordance with company goals and organizational culture.

What Are Business Ethics?

Ethics, as they pertain to business enterprises, relate to the prevailing ideas, customs and behavior of an organization, its people and those it affiliates with. In practice, they are a set of rules (or policies) that define what are acceptable procedures and behavior and what are not.

Business ethics will pertain to corporate governance, employee and management behavior, business practices, marketing, communications, employment practices, and many more aspects of running a for-profit or not-for-profit enterprise.

Why Are Ethics Best Practices Important?

Ethics procedures are guides that direct decision-making on critical matters such as finance, deal-making, corporate citizenship, social obligations, human resources (employee relations) and much more. In addition, adherence to ethical best practices might also keep an organization out of trouble with the law. An organization perceived as one that strives to “do the right thing” will be seen as reliable by investors, existing and potential employees, and federal and state regulators.

In simple terms, a firm with sound ethics is a trusted firm. That trust will pay off by building confidence and goodwill. Conversely, a company with loose or ill-defined ethics will be avoided by the people and institutions that most contribute to success.

Ethics are quite different than laws put in place by government authorities. Laws are imposed on organizations. Ethics are just as important as laws, but ethics are different in that they are voluntarily followed out of a sincere desire to do what’s right rather than by fear of being punished.

Ethics and Reputation

That valuable but somewhat vague asset called “goodwill” is directly affected by ethics procedures. Reputational risks are a key — perhaps the key — element of ethics risks.

Modern consumers have a close relationship with the brands to which they’ve become dedicated. Perhaps it’s due to the influence of ever-present social media and instant communication, but it can’t be denied that customers today feel like they have an ownership stake in the brands they patronize. The result is that people take brand erosion personally when it occurs. Indications are that over 40% of customers will end their relationship with a company if it acts (what they believe to be) unethically. Further, some 60% consider “ethics” when deciding who to do business with.

What all this means is that guarding organizational reputation by following established ethical best practices is more important than ever.

Ethics and Profit

There are probably a hundred ways good ethics contribute to good earnings. Let’s take a look at three of them:

• Attracting and Retaining Customers
• Cost Containment
• Productivity

Attracting and Retaining Customers: Customer Loyalty

As stated above, modern consumers of products and services place much more emphasis on ethics and corporate citizenship than they ever have before. People have choices today, and they're choosing to do business with organizations that align with their values. The same goes for investors and banking institutions.

Firms that develop and implement sound ethics procedures and communicate them inside and outside of the company will find it easier to attract and retain dedicated customers and reliable funding sources. This can not help but contribute to the bottom line.

Cost Containment

Very often, ethical behavior costs less than unethical behavior.

To take one fairly obvious example, companies that are committed to sustainability and environmental stewardship will naturally waste less energy and materials than those that don’t. By extension, they will waste less money by saving the costs they’d otherwise be spending on unnecessary things (i.e., packaging material, heating and cooling, electricity and air travel). The bigger the company is, the bigger the savings.

Beyond standard business expenses, legal and regulatory costs (including fines and penalties) are bound to be lower in more ethical firms.

Productivity

Happy workers who are generally satisfied with their pay and working conditions and who are proud to be associated with their employers are simply more productive than disgruntled, miserable workers. They are also more engaged and more willing to actively contribute to company success.

Employee turnover tends to be lower at more ethical companies as well. This can save large amounts of money in recruiting, onboarding, and training costs.

The same ethical dynamics that foster client trust and retention foster productivity in employees and management.

Establishing or Updating an Ethics Policy

The importance and profitability of implementing a high-quality, professional ethics policy and strictly adhering to ethics best practices are well established. Also, firms that already have a written ethics policy, are encouraged to update and modernize it today. Fortunately, the process is easy for audit, risk and accounting professionals that have the right tools.

At KnowledgeLeader, we offer our subscribers several very helpful ethics templates and policy guides. Two of the most popular are The KnowledgeLeader Business Ethics Questionnaire and The KnowledgeLeader Ethics Program Guide.

Start With the Right Questions

Our Business Ethics Questionnaire was designed to be the starting point for risk professionals who are looking to design a new ethics policy, as well as a helpful evaluation tool for those who want to review an existing program.

It begins with mission statements and then goes on to cover many other relevant topics, including the following.

• Code of Conduct
• Ethics Training
• Reporting
• Needs Assessments
• Ethical Employee Evaluation
• Ethical Department Review
• More

A Comprehensive Guide

The KnowledgeLeader Ethics Program Guide is a comprehensive, step-by-step ethics program directory that contains two complete ethics program guides in one document. Our subscribers are free to use the information that pertains to their company and to mix and match items from both guides.

Some of the topics covered are:

• Identification of Values
• Obtaining Management Commitment (Buy-In)
• Board of Directors Involvement
• Inserting Ethics Into Mission
• Ethical Communications
• Ethical Employee Autonomy
• Training and Continuing Education
• Rewards and Punishments
• Social Responsibility