Consumers vote with their wallets and 91% are more likely to purchase goods or services from businesses that the consumer sees as acting ethically (KPMG “Ethical Business and Sustainable Communities” Report). Ethical business practices are an important arm of corporate social responsibility, focusing on transparency towards stakeholders, taking a long term view of the business and society rather than a short term profit centered vision and investing responsibly.
Ethical business practices can help to increase consumer confidence, improve business performance and protect the value of the business brand. In the United States, as a result of corporate collapses such as Enron, the Sarbanes-Oxley Act was passed into legislation; this act requires that companies have amongst other things, a code of ethics and mechanisms in place to address risk management and transparent disclosure of financial practices.
While Sarbanes-Oxley has resulted in improved financial reporting for public owned companies, it is not a panacea for ethical business practices. Ethical business practices require strong financial reporting together with consideration of the social and environmental impacts of business.
Production Methods and Ethical Business Practices
When applying ethical business practices to production methods, businesses should ensure that the production of a good or service is environmentally sustainable and that human beings involved in the production, either as workers or as members of the community in which production takes place are not unduly harmed.
Human Resources and Ethical Business Practices
Many businesses have codes of conduct or codes of practice to deal with ethics issues, however while codes of conduct assist employees to deal in an ethical manner when negotiating contracts or in dealings with other employees, they do not address the broader ethical issues surrounding human resources in business.
Ethical business practices in human resources include considering the impact the work of the business has on employees and their families, reviewing pay scales to ensure fairness and providing access to mechanisms that enable family support including employee assistance plans, child care, family leave provisions and health care benefits.
Ethical Business Practices and Society
Business and society exist in a mutually beneficial relationship with business providing goods and services required by society and the environment and people in the community providing resources for business, in terms of production resources and financial resources through spending. A MORI poll “Sustainability Issues in the Retail Sector” found that 77% of consumers had a preference to purchase environmentally friendly goods and 79% felt that in order to trust a company, the company needed to provide evidence that it was ethical.
In order to be successful, ethical business practices need to be supported by the culture of the business. Management should lead from the front on ethical business practices and build ethical business practices into each dimension of the business from production to follow up customer service.