Advantages and Disadvantages of Business Ethics

Advantages and Disadvantages of Business Ethics

Ethics as a concept has driven the functionality of our society for centuries. So, it is no surprise that business ethics has been a topic of interest for many companies lately. Here is a look at the importance as well as some drawbacks of ethics in business.

WHAT IS BUSINESS ETHICS?

Business ethics or corporate ethics is a form of professional ethics that studies appropriate business policies and practices. This topic is relevant and important to everyone because each one of us is involved in some type of business transaction or activity. It shapes the way the world functions.

Business ethics examines controversial subjects like bribery, insider trading, corporate social responsibility (CSR), white-collar crimes, discrimination, etc. It studies the ethical questions and dimensions of a company. They are guided by certain ethical principles involved in any business. These include integrity, loyalty, honesty, fairness, leadership, and respect. Ethics is a highly complex subject with endless possibilities and companies have only just begun to scratch its surface. 

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Advantages and Disadvantages of Business Ethics

ADVANTAGES OF BUSINESS ETHICS

Customer Loyalty

Business ethics sets a benchmark that should be followed to increase approval from the public. So, one of the biggest advantages of business ethics is customer loyalty. Customers prefer trusting ethical and sustainable brands and tend to remain loyal to them throughout. In the 2019 US Consumer Sustainability Survey, two-thirds of over 1000 consumers who were surveyed consider sustainability when making a purchase and would even pay more for sustainable products. Clearly customers are voting with their money against unsustainable choices. As a result, large corporations have had to shift their focus to encouraging sustainable and ethical business. A socially responsible company will not only have a loyal customer base but also lead to an increase in new customers. Hence, this is key to the long-standing success of a business. 

Employee Satisfaction

Employees are an important resource and asset of a business or company. Employees will work to their fullest potential only when they are happy and satisfied. In order to improve employee engagement, one should know how to maximize their abilities. This can be achieved through ethics and making better choices in business. For instance, better working conditions, comfortable living wages, adequate health, and safety standards in the workplace are all ways that help in achieving employee motivation. Apart from this, it can also be cost-effective for the company in the longer run. A good business ethos can also help in recruiting a better pool of employees, especially from the younger generation. 

According to Unilever, more than 40,000 of their employees have a say in the working of the company. These employees also set out their views on what Unilever as a company should focus on. Unilever also revealed that its most sustainable brands have delivered seventy percent of their turnover growth. This is a great example of how engaging employees in the core functioning of the business can yield positive results. 

More Investors

A good business model and a loyal customer base attract more investors. The main goal of an investor is to commit capital to a business with a promise of receiving financial gains. So when it comes to an ethical business, investors know with certainty that this company works with high moral values and will operate ethically. In other words, the invested money will be in good hands and will be used in a responsible way. As a result, they are more likely to continue funding the ethical company. Additionally, this is a great incentive to attract more investors to fund the company as well. Hence, an ethical business means a profitable business that benefits the shareholders as well as the stakeholders.

Social Benefits

Business ethics are not only beneficial for the company but also to the society at large. Society benefits from the ethics of business because these companies recognize social responsibilities. For instance, a company that looks into the patterns of its impact, environmental footprint, ethical sourcing for raw materials, etc is better for society than a company that is only profit-driven. Therefore, consumers have the option of living in a better environment. It is important that companies measure their success not only by profitability but also by looking at the potential of benefitting a wider society.

Improves Corporate Culture

Another advantage of business ethics is that it helps in improving corporate culture. Generally, the image of corporations is that of only making profits without being mindful of the impact. This leads to a lot of distrust in the minds of the society against large corporations. Business ethics includes the ethical analysis of production, distribution, sale, and consumption of goods and services of a business and whether it has a positive or negative impact on the world we live in. So, this analysis helps a business understand the problem areas and be better at fulfilling their social responsibility. Better customer service, fair price, quality products are some ways to help a company in creating a better brand image for themselves. As a result, the corporate culture can grow to be not just about profits but also society-oriented. 

DISADVANTAGES OF BUSINESS ETHICS

Loss of Profits

One of the major disadvantages and business ethics is that it reduces a company’s profits. A business model runs on the goal of maximizing their profits. But running an ethical business is not cheap. Sourcing raw material ethically is far more expensive. Improving working conditions and increasing workers’ wages results in reducing the overall profits of the company. In other words, an ethical company would have to forego extra profits which could be detrimental to its growth.

Not Feasible for Small Companies

Small businesses and companies run on smaller profit margins as compared to big corporations. As the practice of business ethics can result in reducing profits, this can be a problem for these small companies, especially upcoming and evolving businesses. Large companies can afford to cut down a little on the profits but it is just not a feasible option for small companies. With an increase in competition in the market, small companies are especially vulnerable. In other words, these companies have to worry more about their survival than the ethics of doing their business.

Advantages and Disadvantages of Business Ethics

Needs Lots of Time and Effort

Business ethics requires a company to set certain organizational standards, values, and principles in place for everyone involved in the said business. Therefore, maintenance of business ethics can be time-consuming and may require a lot of time and effort. There are higher overheads for training and communication of the business ethics policy. It is a long term process with no fixed period. Hence, the efficacy of business ethics is clouded with uncertainty. Additionally, business ethics can also create a sense of false expectations as there are no guarantees that the ethical functioning of the company will give conclusive profitable returns.

To sum up, the advantages of business ethics far outweigh the disadvantages. Therefore, a company can become successful if they attempt to follow ethical practices while also ensuring that they make profits. Above all, the company has to decide what its ethos is. 

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Pros and Cons

PROS

CONS

Customer Loyalty

Loss of Profits

Employee Satisfaction

Not Feasible for Small Companies

More Investors

Needs Lots of Time and Effort

Social Benefits

Improves Corporate Culture

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Anchita Nair