The Importance of Ethics in Organizations

 Ethics are the principles and values an individual uses to govern his activities and decisions. In an organization, a
code of ethics is a set of principles that guide the organization in its programs, policies and decisions for the business.
The ethical philosophy an organization uses to conduct business can affect the reputation, productivity and bottom line of
the business.

Leadership Ethics

The ethics that leaders in an organization use to manage em ployees may have an effect on the morale and
loyalty of workers. The code of ethics leaders use determines discipline procedures and the acceptable behavior for all
workers in an organization. When leaders have high ethical standards, it encourages workers in the organization to meet
that same level. Ethical leadership also enhances the company’s reputation in the financial market and community. A solid
reputation for ethics and integrity in the community may improve the company’s business.

Employee Ethics

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Ethical behavior among workers in an organization ensures that employees complete work with honesty and integrity.

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Employees who use ethics to guide their behavior adhere to employee policies and rules while striving to meet the goals

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of the organization. Ethical employees also meet standards for quality in their work, which can enhance the company’s

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reputation for quality products and service.
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Ethical Organizational Culture

Leaders and employees adhering to a code of ethics create an ethical organizational culture. The leaders of a business
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may create an ethical culture by exhibiting the type of behavior they'd like to see in employees. The organization can
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reinforce ethical behavior by rewarding employees who exhibit the values and integrity that coincides with the company
code of ethics and disciplining those who make the wrong choices.
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Benefits to the Organization

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A positive and healthy corporate culture improves the morale among workers in the organization, which may increase
productivity and employee retention; this, in turn, has financial benefits for the organization. Higher levels of productivity
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improve the efficiency in the company, while increasing employee retention reduces the cost of replacing employees.
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Effects of a Lack of Ethics on a Business Environment

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 In light of Ponzi schemes and company scandals, the business industry has developed a reputation for its lack of
ethics. In an industry where getting ahead and making money appear to take precedence over ethical decision making, it
can seem difficult to understand the importance of ethical behavior in business. A lack of ethics leads to a wealth of
problems for a business.

Legal Issues
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In the United States, federal and state governments establish rules and procedures for how a business should be run.
Businesses that fail to follow federal and state guidelines often face large fines and other penalties. Larger companies
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 sometimes decide that breaking laws and paying the fines involves lower costs than the financial gain made from
breaking those laws. However, consistently breaking laws can lead to costly legal battles that outweigh the initial gain.
Additionally, executives at companies who break laws and engage in unethical behavior that leads to harmful practices
for employees and customers could find themselves facing criminal charges.

Employee Performance

A lack of ethics has a negative effect on employee performance. In some cases, employees are so concerned with getting
ahead and making money that they ignore procedures and protocol. This can lead to additional paperwork and careless
errors that result in the task having to be completed again. Additionally, employees who feel acting ethically and
following the rules will not get them ahead in the business sometimes feel a lack of motivation, which often leads to a
decrease in performance.

Employee Relations

When a manager or head of a business exhibits a lack of ethical behavior, he faces losing the respect of his employees. It
is difficult to have a successful business without well-respected leaders. A lack of ethical behavior can also cause tension

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among employees, with some employees resenting those who do not play by the rules and still manage to get ahead.

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Unethical behavior in the workplace also has the potential to lead to a lack of trust among employees, which is
detrimental to a business that relies on collaboration and a sense of community.

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Company Credibility

If a lack of ethics in a business becomes public knowledge, that business loses credibility. While some businesses survive
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public knowledge of a lack of ethics through reimaging and advertising campaigns, many lose a key customer base. Even
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if a business recovers from news about its lack of ethics, it takes a lot of time and money to restore its image and
consumer confidence.
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Preventing Unethical Behavior

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Often a lack of ethics appears because of poor planning and faults elsewhere in the business. To prevent unethical
behavior, set realistic goals for employees. If employees are expected to meet unreachable quotas and goals, they could
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engage in unethical behavior to attempt to reach those goals. Consistently monitor employee performance. Employees left
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unmonitored sometimes slack in their performance and take credit for completing tasks that were left uncompleted.
Properly train all employees. Untrained employees often cut corners and make excuses for not completing work up to the
standards the business requires.
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How Do Ethics Make You a Better Person in the Workplace?

 Ethical employees are those who make decisions in the best interest of their employers, co-workers and
outside stakeholders in addition to themselves. Workplace ethics center on such diverse issues as
discrimination, fraud, theft and personal politics. Although all people are intrinsically valuable, ethical
employees can actually be more financially valuable to their employers, and more valued by co-workers and
peers. Understanding how ethics can make you a better person in the workplace is a solid starting point for a
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commitment to always doing the right thing.

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Trusting Relationships

Ethical employees build trust in their workplace relationships, allowing people to open up to them, share
private information and feel more at ease communicating with them. Areas of ethics that affect trust include
honesty, fairness and avoiding rumors. Gaining the trust of your co-workers can enhance your productivity by
making it easier for you to communicate and work with others in the workplace. Employees who spread
distrust can meet resistance when seeking help from others, but trusted co-workers can always find a helping
hand. Gaining the trust of your managers can open doors for new responsibilities at work, possibly leading to
promotions and pay raises.

Team Cohesiveness

The ethical commitments of individual employees has an effect on team and department performance in
addition to individual performance. Being an ethical employee makes you a better team player, always making
positive contributions in group settings and never hindering group progress. An employee who is stealing from
company funds, for example, can cause divisions, rumors and resentment among accounting employees as
co-workers begin to suspect others of participating. An employee with a solid commitment to ethics can

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identify and expose issues of theft early.

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Value to Employers

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Companies live or die on the trust they place in their employees. An unethical employee in the ranks can land

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an entire company in legal trouble, or can destroy a company's hard-earned reputation in the marketplace.
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Ethical employees are better people to have working for any company, as top managers and business owners
can rest assured that their employees adhere to ethics policies and use ethical reasoning when making
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company decisions.
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Personal Wellness
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Being an ethical employee can make you a better person on the inside in addition to increasing your value to
others. Unethical acts such as theft and fraud, for example, can weigh people down with guilt and paranoia,
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resulting in hostile and fearful attitudes at work and at home. Employees who spread nasty rumors or lies
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about others can live in a constant state of paranoia, as another example, as they try to remember which lies
they told to whom and when. Using ethics to guide all of your decisions at work can grant you peace of mind,
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emotional stability and the ability to cultivate lasting friendships. This can increase your job satisfaction, in
addition to giving you more serenity for life in general.
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The Advantages of Ethical Behavior in Business

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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, being ethical means applying 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.
Build Customer Loyalty

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

Retain Good Employees

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

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Positive Work Environment

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Employees have a responsibility to be ethical from the moment they have their first job interview. They must

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be honest about their capabilities and experience. Ethical employees are perceived as team players rather

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than as individuals just out for themselves. They develop positive relationships with coworkers. Their
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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
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organization and may risk being fired. An extreme case of poor ethics is employee theft. In some industries,
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this can cost the business a significant amount of money, such as restaurants whose employees steal food
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from the storage locker or freezer.

Avoid Legal Problems

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At times, a company’s management may be tempted to cut corners in pursuit of profit, such as not fully
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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
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company’s reputation that is even more costly than the legal fees or fines. Companies that maintain the
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highest ethical standards take the time to train every member of the organization about the conduct that is
expected of them.
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Importance of Creating a Code of Ethics for a Business



A code of ethics is a vital document for any business, as breaches of ethics can land companies in serious
trouble with consumers, other organizations or government authorities. Creating a code of ethics makes
decision-making easier at all levels of an organization by reducing ambiguity and considerations of individual
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perspectives in ethical standards.
Purpose
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 A code of ethics guides all managerial decisions, creating a common framework upon which all decisions are
founded. This can help to create a cohesive understanding of the boundaries within an organization and the
standards set for interacting with external stakeholders. A formal, well-communicated code of ethics can also
help to protect a company's reputation and legal standing in the event of a breach of ethics by an individual
employee.

Scope

Codes of ethics can cover any scope, from the corporate level to the workgroup level. Corporate level ethics
standards speak in grand, idealistic terms, communicating the entire ethical vision of the organization in a
single document. Ethical standards for business units or geographical divisions can be a bit more specific,
applying to the particular industry or region in question. Codes of ethics at the departmental level often deal
with highly specific issues, which are often related to experiences and trends within the department.

Process

Codes of ethics are simple for an executive to create in the privacy of his own office, but an individually
dictated set of standards can often fail to achieve its purpose. Involving a wide range of employees from all

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levels of an organization in the process of drafting and formalizing a code of ethics can help to ensure that all

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employees are on board with and committed to the standards. Revising your code of ethics from time to time

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in response to changes in the industry or legal environment can help to ensure that your company's ethical

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reputation remains impeccable.
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Training And Incentives

Ethical considerations are vital in today's business environment, and smart companies do all they can to make
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their code of ethics relevant and important to their workers. Implement ethics training programs for new hires
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and existing employees to increase the effectiveness of your code. Tie compensation incentives to ethical
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behavior to further increase the code's relevance to individual employees.

Considerations
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Codes of ethics take on additional importance and complexity in the international arena. Ethical standards
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differ between countries and regions; international businesspeople must have an understanding of each
culture's ethical standards to be most effective, and the company's code of ethics either be written to
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compromise with foreign ethical standards or to uphold a single code in all countries.
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