In recent years, modern businesses have been forced to evolve from unreachable boardroom entities into transparent personas that speak and act like members of society. Business personification comes as a result of our globally interconnected society where social media serves to connect consumers with businesses on a personal level.
As such, modern consumers have become discerning and no longer accept tired corporate slogans that only serve stakeholders. Instead, they demand transparency, accountability, and above all, moral virtue from brands in exchange for their loyalty.
Consumers now have a lot of choices when deciding which brands they support, and which they don’t. Brands have become ‘people’ and are expected to take a stance on social and ethical issues. Companies that don’t fit into the mainstream narrative are quickly cancelled, birthing a new era of public governance.
Deeply embedded in this is the concept of business ethics. Today, what a company stands for is equally as important as the product or service they provide. It is therefore an imperative business component for organisations to be ethically sound. Business ethics starts from within an organisation through ethical leadership.
Let’s take a look at how ethical leadership drives business ethics in today’s corporate landscape.
What is business ethics?
Business ethics are the guiding moral principles used by companies to inform both internal and external professional conduct. Much like how people are expected to conduct themselves in a particular way in a business environment, the same expectations are placed on companies to do the same. Business ethics employs a system of procedures and practices designed to establish and build trust with clients and employees.
Two forms of business ethics exist: those determined by law (minimum wage, proper working conditions, etc.) and others determined by company culture (environmental initiatives, corporate outreach, etc.). Both are informed by generally accepted standards of what is considered “right” and “wrong” in social and business settings.
There are generally 12 recognised principles of proper business ethics:
- Respect for others
- Respect for laws
- Environmental concern
However, while certain business practices could be considered unethical for some, they might not be for others. In simple terms, it’s about what companies should do and not necessarily what they must do, per se. Due to this grey area, determining what constitutes ethical practices is a matter of perspective, or, subjective ethical principles.
But in order for business ethics to become realised, ethical leadership is required.
What is ethical leadership?
Ethical leadership is the tangible means by which businesses are able to act out their business ethics on a daily basis through considered management and governance approaches. The responsibility for planning, coordinating, and implementing ethical leadership lies with the C-Suite, management, and Human Resources. However, it is also up to employees to act upon these principles and procedures in order for a company’s business ethics to be realised day-to-day.
There are 3 key traits of ethical leadership:
- Be the example: By practising and demonstrating honest, ethical, and transparent behaviour, ethical leaders will earn respect, inspire teams, and encourage a culture shift within the organisation.
- Champion the importance of ethics: More than acting out personal ethical behaviour, ethical leaders are willing to teach and assist peers and employees about the company-wide and societal importance of ethical practices.
- Communicate: Effective ethical leaders are able to communicate in various styles and approaches to reach different personalities. Calm, clear, and emotionally intelligent communication will allow ethical ideas to gain purchase within the overall company culture.
For some companies, business ethics is a cornerstone of their entire business model. For example, outdoor apparel brand Patagonia has taken large strides to earn the label of one of the world’s most environmentally-conscious brands. Thanks to being true to its mission statement, almost 70% of the brand’s clothing products are made from recyclable materials.
For this to work, it takes every employee to buy into and act out the brand’s eco-friendly ethical approach. Famously, Patagonia’s founder recently gave away the company to a non-profit which will see all the revenue going towards environmentalism, setting a new benchmark for ethical corporate leadership.
The 4-V model of ethical leadership
Since the first concepts of business ethics that originated in the 1970s became mainstream, a gap between academic research and real-world practice in subsequent years has continued to grow. While there has been a lot of research conducted in the field of business ethics since then, the practical realisation of which has been slow.
So far, research indicates that the best way to implement tangible business ethics into an organisation is through the 4-V model, an approach that hinges on 4 components: vision, value, voice, and virtue.
Let’s review each one in detail.
1. “Vision” and Corporate Social Responsibility (CSR)
In today’s globalised business environment, Corporate Social Responsibility (CSR) continues to be an integral component of an organisation’s vision. To be an attractive employer, business partner, or service supplier, companies are demanded to be conscious of environmental, social, and economic issues. Ethical CSR can enhance a business’s reputation and bring new business opportunities At the same time, unethical business practices can ruin an organisation as we learned from the Enron scandal.
A systematic approach to understanding the essence of CSR was outlined in Archie B. Carroll’s famous pyramid. He states that “Corporate social responsibility encompasses the economic, legal, ethical, and discretionary (philanthropic) expectations that society has of organisations at a given point in time”.
For many ethically-orientated organisations, the desire to maintain a “healthy” business goes far beyond CSR. These so-called ‘conscious businesses’ focus primarily on the working environment, business culture, and employee well-being, as well as playing their part in the ongoing social and environmental challenges facing the world. Many employees, especially the younger Gen Z, are preferring to work for companies that have strong business ethics and moral practices that mirror their own social beliefs – making CSR and ethical leadership an imperative to attract young talent.
2. “Value” and ethical climate of an organisation
Modern businesses must establish core values as a set of key principles and beliefs that determine appropriate behaviour patterns within an organisation, creating a distinctive company culture. These ethical principles are connected with the core values and can be put into practice by organisational policies and procedures. Once established, these determine the ethical climate of an organisation.
A strong ethical climate creates a collective and interdependent behavioural approach within an organisation that facilitates employee identification and encourages pro-organisational attitudes and behaviour.
With the world’s shift to remote working and the rise of outsourcing talent on a project-to-project basis, HR professionals and managers are faced with new challenges in maintaining an organisation’s strong ethical climate. Thus, HR must establish defined talent sourcing methods and robust onboarding initiatives to encourage new employees and freelancers to assimilate a company’s ethical practices. This, together with the 3 elements of ethical leadership, can help companies preserve a consistent company culture.
3. “Voice” and key organisational processes and policies
Through a clear Code of Ethics, organisations require employees to conduct themselves in a manner consistent with their ethical business policies. This is a set of guiding principles that employees must follow to meet company standards when making decisions and interacting with others.
It is the role of Human Resources to make every employee aware of the company’s Code of Ethics and monitor their compliance with it at all times. To ensure a culture of compliance within the workplace, it is important to integrate ethics into organisational processes and conduct regular business ethics training. Reward programs for employees who adhere to ethical practices galvanise support from within the workforce and encourage other team members to conduct themselves ethically in a business setting.
To prevent cases of unethical behaviour in the workplace, companies should consider various ways for employees to voice concerns and speak up. While the act of speaking out against unethical practices by peers, management, or the company as a whole is a culturally nuanced phenomenon (the act of raising concerns is predominantly considered a Western approach, whereas Eastern cultures do not feel comfortable doing so), culturally sensitive approaches must be considered by ethical leaders.
Anonymous messaging applications or open-door policies where anonymity is preserved are good ways to encourage team members to raise concerns over perceived unethical practices performed in the organisation.
4. “Virtue” and ethical leadership
An organisation’s ethical climate crucially hinges on its ability to demonstrate sound ethical leadership. Businesses with reputable ethical leadership have been shown to positively impact employees’ job satisfaction and their organisational commitment.
Ethical decision-making processes have become a crucial component of today’s most successful businesses as they result in attracting the best talent, driving business growth, and improving public opinion. Importantly, ethical leadership safeguard organisations against potentially unethical decisions that can lead to reputational damage and economic losses.
As business ethics are informed by a company’s culture, it is an organisation’s responsibility to nurture the development of ethical leaders at the management level. Continuous training and development initiatives must be created to nurture a systemic approach to business ethics and ethical leadership.
In today’s global business landscape, it is impossible for companies to survive without demonstrating strong business ethics and ethical leadership. Business ethics not only concerns clients, customers, and employees, but also society as a whole. Thus, it is crucial that every business shoulders the responsibility to develop ethical procedures and practices that guide the actions of team members in their actions to practice sound ethics every day to serve the company.
Apart from driving profits and improving public opinion, it helps to create an enjoyable working environment that builds trust with employees, clients, and business partners.