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What are the Benefits of Running an Ethical Company?

by | Sep 28, 2022 | Blog | 0 comments

“Whoever is careless with the truth in small matters cannot be trusted with important matters.” – Albert Einstein.

An ethical company is an organization that has clearly defined environment, social, and governance principles. Ethical companies have policies and principles guiding how employees and managers behave at work or when publicly representing their company. Every organization aims to earn profits, but how it makes money is becoming increasingly important.

This blog discusses how ethical companies can avoid legal issues, improve their reputation, encourage customer loyalty, reduce voluntary turnover and increase profits by implementing ethically sound business practices.

“Recent reports from Bloomberg show Environment, Social, and Governance assets among businesses are set to reach a value of around 140.5 trillion by 2025.” (Bloomberg, 2021)

What are business ethics?

Business ethics are the appropriate business policies and practices that guide the decisions and actions of an organization. For instance, corporate governance, insider trading, bribery, discrimination, corporate social responsibility, legal responsibilities, etc.

The law often guides business activity, but at other times business ethics provide a path that businesses should follow to do the the right thing for the right reasons. 

What is meant by ethical values?

Ethical values provide the moral compass by which we live our lives and make decisions. Similarly, business ethics provides the moral frame work that guides the decisions and actions. 

Examples of ethical values:

  • Integrity
  • Honesty
  • Accountability
  • Responsible
  • Self-Discipline
  • Mutual respect
  • professionalism

What are ethical business practices (EBP)?

Ethical Business Practices (EBP) in an organizational context is the development of a business culture where people make decisions and act in ways that build sustainable businesses, respect the needs of stakeholders, and comply with their morale and legal obligations.

Top 10 ethical companies list in 2022 (GreenCitizen.com)

    1. Aflac Incorporated
    2. Ecolab – 16 Times Honoree
    3. International Paper
    4. Kao Corporation
    5. Milliken & Company
    6. PepsiCo
    7. Accenture
    8. Cummins
    9. Deere & Company
    10. JLL

Enhances a Company’s Reputation

Corporations establish ethical practices to promote integrity among their employees and gain trust from key stakeholders, such as consumers.

Take for example Generation Y, aka the millennials (those born between about 1980 and 2000).  As an economic group, the make up 35% of the workforce and are becoming increasingly significant as consumers.

Millennials do not put a high value on ethics in terms of their own behavior, they do however, prefer to work at organizations they perceive to be ethical and that conduct their business operations in a socially responsible manner.

Millennials are forecast to comprise half of the American workforce, and by 2025, 75% of the global workforce (Deloitte).

Ethical business practices include:

  • Sourcing ethical materials
  • Manufacturing and selling ethical products
  • Treating employees & customers with respect
  • Contributing positively to the community
  • Supporting social causes
  • Promoting environmentally policies
  • Promoting animal-friendly practices

Ethical companies work to minimize the negative impact they have on their communities or the environment. And ethical businesses inspire employees, managers, customers, and competitors to embrace corporate and individual responsibility.

Ethical Behavior Avoids Legal Issues

As mentioned earlier, the law partially shapes the conduct of business activity and corporate character. However, there is a distinction between what is considered “legal” and “ethical.”

  • 80% of employees worldwide now report misconduct when they encounter it in a business environment. (org, 2020)

The critical difference is that business ethics enhance legal protections and obligations by defining core ethics standards that go beyond the scope of the law and government policy.

Businesses that practice good business ethics can avoid fines and other legal troubles by virtue of their operational culture, decisions, and actions. 

Ethical Labor Practices

Companies that support ethical labor are motivated to meet or exceed legislated standards. This means treating employees with respect and paying fair wages, as well as providing work conditions that do not cause physical or mental harm.

Employers that support ethical cultures ensure a positive work environment. Ethical companies have learned that a happy workplace leads to loyal and satisfied employees who are engaged and enjoy coming to work rather than simply treating their job as a source of income. 

Ethical Environmental Practices

Environmentally ethical practices are intended to mitigate the negative impact on the natural environment that business activity creates. 

Ethical Treatment of Animals

Ethical companies understand that animals deserve to be treated with dignity and respect.

Examples of Successful Ethical Companies 

Starbucks and Ethical Sourcing

Starbucks strives to source coffee at fair prices and ensures that each step of the coffee planting, harvesting, and purchasing is done ethically. In addition, Starbucks uses third parties to verify that its sourcing practices are ethical. As a result, the standards set by Starbucks are now recognized as the industry standard for ethical sourcing.

Lush and Ethical Labor

Lush’s stance on child labor aligns with the International Labour Organization (ILO) standards. Lush believes the minimum employment age should not be lower than the age for completing compulsory education established by local law. In addition, suppliers must not engage in the employment of child labor as a condition of doing business with the company. 

MacDonald’s Climate Action Plan

MacDonald’s joined the United Nations Race to Zero greenhouse gas (GHG) emissions campaign, committing McDonald’s to net zero emissions by 2050. MacDonald’s also participated in COP26 roundtable discussions with other leaders in coordinating the global effort to address climate change. 

Warby Parker and Socially Responsible Products

Warby Parker is a socially responsible product-based company that supports affordable glasses. The company leadership realized that 15% of the world’s population lacked access to glasses. Thus, when customers buy a pair of glasses, a pair of glasses is distributed to someone in need.

Encourages Customer Loyalty

Socially conscious consumers can conveniently use the internet to search for ethical companies and brands. As customers use their purchasing power to send clear messages that ethical sourcing and manufacturing are a condition of customer loyalty and business success.

  • Customers will pay up to 4.55% more on average for ethical products. (Barclays Banking)

For this reason, more businesses are changing their practices, acknowledging that ethical business decisions make good financial sense. Moreover, in doing so, companies enhance corporate character, business integrity, and marketplace trust.

Reduces Voluntary Turnover

According to a study conducted by the Research Journal of Management Practices, “ethical leaders inspired employees by behavioral examples, making such employees to be engaged, committed, self-motivated, and satisfied with their jobs.”

Managers who lead their organizations ethically inspire employees to follow their example. For instance, in an ethical work environment, employees make better decisions more efficiently and are more likely to be satisfied with their work. This increases productivity and overall employee morale.

Employees who work for an ethical company that demands a high standard of business ethics in all parts of their operations are more likely to perform their job duties at a higher level. Moreover, they are more inclined to stay loyal to that organization. 

Corporate Social Responsibility

Social responsibility programs can boost employee morale in the workplace and increase productivity, which impacts financial performance and business success. In addition, businesses that implement social responsibility initiatives can increase customer retention and loyalty.

Ethical Businesses ethics are more profitable

Companies with a solid ethical foundation tend to do better financially, have higher employee retention rates, and benefit from more customer referrals and higher customer service satisfaction.

  • 20% of retailers drop suppliers due to sustainability concerns (Barclays’ 2021)

Implementing ethical business practices is not only the right thing to do but can also lead to several positive outcomes for your company. By avoiding legal issues, improving your reputation, encouraging customer loyalty, reducing voluntary turnover, and increasing profits, you are demonstrating that you are an organization that cares about more than just making money.

These outcomes are a testament to the fact that everyone benefits when businesses operate with integrity and by their values. What steps have you taken as a company to implement ethical business practices?

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