From artificial intelligence to facial recognition technology, organizations face an increasing number of ethical dilemmas. While innovation can aid business growth, it can also create opportunities for potential abuse.
“The long-term impacts of a new technology—both positive and negative—may not become apparent until years after it’s introduced,” says Harvard Business School Professor Nien-hê Hsieh in the online course Leadership, Ethics, and Corporate Accountability. “For example, the impact of social media on children and teenagers didn’t become evident until we watched it play out over time.”
If you’re a current or prospective leader concerned about navigating difficult situations, here's an overview of business ethics, why they're important, and how to ensure ethical behavior in your organization.
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DOWNLOAD NOWWhat Are Business Ethics?
Business ethics are principles that guide decision-making. As a leader, you’ll face many challenges in the workplace because of different interpretations of what's ethical. Situations often require navigating the “gray area,” where it’s unclear what’s right and wrong.
When making decisions, your experiences, opinions, and perspectives can influence what you believe to be ethical, making it vital to:
- Be transparent.
- Invite feedback.
- Consider impacts on employees, stakeholders, and society.
- Reflect on past experiences to learn what you could have done better.
“The way to think about ethics, in my view, is: What are the externalities that your business creates, both positive and negative?” says Harvard Business School Professor Vikram Gandhi in Leadership, Ethics, and Corporate Accountability. “And, therefore, how do you actually increase the positive element of externalities? And how do you decrease the negative?”
Related: Why Managers Should Involve Their Team in the Decision-Making Process
Ethical Responsibilities to Society
Promoting ethical conduct can benefit both your company and society long term.
“I'm a strong believer that a long-term focus is what creates long-term value,” Gandhi says in Leadership, Ethics, and Corporate Accountability. “So you should get shareholders in your company that have that same perspective.”
Prioritizing the triple bottom line is an effective way for your business to fulfill its environmental responsibilities and create long-term value. It focuses on three factors:
- Profit: The financial return your company generates for shareholders
- People: How your company affects customers, employees, and stakeholders
- Planet: Your company’s impact on the planet and environment
Check out the video below to learn more about the triple bottom line, and subscribe to our YouTube channel for more explainer content!
Ethical and corporate social responsibility (CSR) considerations can go a long way toward creating value, especially since an increasing number of customers, employees, and investors expect organizations to prioritize CSR. According to the Conscious Consumer Spending Index, 67 percent of customers prefer buying from socially responsible companies.
To prevent costly employee turnover and satisfy customers, strive to fulfill your ethical responsibilities to society.
Ethical Responsibilities to Customers
As a leader, you must ensure you don’t mislead your customers. Doing so can backfire, negatively impacting your organization’s credibility and profits.
Actions to avoid include:
- Greenwashing: Taking advantage of customers’ CSR preferences by claiming your business practices are sustainable when they aren't.
- False advertising: Making unverified or untrue claims in advertisements or promotional material.
- Making false promises: Lying to make a sale.
These unethical practices can result in multi-million dollar lawsuits, as well as highly dissatisfied customers.
Ethical Responsibilities to Employees
You also have ethical responsibilities to your employees—from the beginning to the end of their employment.
One area of business ethics that receives a lot of attention is employee termination. According to Leadership, Ethics, and Corporate Accountability, letting an employee go requires an individualized approach that ensures fairness.
Not only can wrongful termination cost your company upwards of $100,000 in legal expenses, it can also negatively impact other employees’ morale and how they perceive your leadership.
Ethical business practices have additional benefits, such as attracting and retaining talented employees willing to take a pay cut to work for a socially responsible company. Approximately 40 percent of millennials say they would switch jobs to work for a company that emphasizes sustainability.
Ultimately, it's critical to do your best to treat employees fairly.
“Fairness is not only an ethical response to power asymmetries in the work environment,” Hsieh says in the course. “Fairness—and having a successful organizational culture–can benefit the organization economically and legally.”
Why Are Business Ethics Important?
Failure to understand and apply business ethics can result in moral disengagement.
“Moral disengagement refers to ways in which we convince ourselves that what we’re doing is not wrong,” Hsieh says in Leadership, Ethics, and Corporate Accountability. “It can upset the balance of judgment—causing us to prioritize our personal commitments over shared beliefs, rules, and principles—or it can skew our logic to make unethical behaviors appear less harmful or not wrong.”
Moral disengagement can also lead to questionable decisions, such as insider trading.
“In the U.S., insider trading is defined in common, federal, and state laws regulating the opportunity for insiders to benefit from material, non-public information, or MNPI,” Hsieh explains.
This type of unethical behavior can carry severe legal consequences and negatively impact your company's bottom line.
“If you create a certain amount of harm to a society, your customers, or employees over a period of time, that’s going to have a negative impact on your economic value,” Gandhi says in the course.
This is reflected in over half of the top 10 largest bankruptcies between 1980 and 2013 that resulted from unethical behavior. As a business leader, strive to make ethical decisions and fulfill your responsibilities to stakeholders.
How to Implement Business Ethics
To become a more ethical leader, it's crucial to have a balanced, long-term focus.
“It's very important to balance the fact that, even if you're focused on the long term, you have to perform in the short term as well and have a very clear, articulated strategy around that,” Gandhi says in Leadership, Ethics, and Corporate Accountability.
Making ethical decisions requires reflective leadership.
“Reflecting on complex, gray-area decisions is a key part of what it means to be human, as well as an effective leader,” Hsieh says. “You have agency. You must choose how to act. And with that agency comes responsibility.”
Related: Why Are Ethics Important in Engineering?
Hsieh advises asking the following questions:
- Are you using the “greater good” to justify unethical behavior?
- Are you downplaying your actions to feel better?
“Asking these and similar questions at regular intervals can help you notice when you or others may be approaching the line between making a tough but ethical call and justifying problematic actions,” Hsieh says.
Become a More Ethical Leader
Learning from past successes and mistakes can enable you to improve your ethical decision-making.
“As a leader, when trying to determine what to do, it can be helpful to start by simply asking in any given situation, ‘What can we do?’ and ‘What would be wrong to do?’” Hsieh says.
Many times, the answers come from experience.
Gain insights from others’ ethical decisions, too. One way to do so is by taking an online course, such as Leadership, Ethics, and Corporate Accountability, which includes case studies that immerse you in real-world business situations, as well as a reflective leadership model to inform your decision-making.
Ready to become a better leader? Enroll in Leadership, Ethics, and Corporate Accountability—one of our online leadership and management courses—and download our free e-book on how to be a more effective leader.
