Towards Ethical Business Practice

Businessman drawing on virtual screen. business ethics concept.

Post By: Kamal Hossain Meahzi

Ethics in business practice is increasingly linked up with the sustainable economic, social, and environmental development. Unethical business practice is neither good for businesses nor for the stakeholders. In a corporation, stakeholders are employees, consumers, suppliers, banks, investors, local community, government, environment etc. If a company falls, the said stakeholders suffer badly. Their loss is considered irreparable compared to the loss that the company suffers, and it was evident after the fall of some large corporations like Enron and Maxwell in the USA and UK respectively. This article has tried to define and view business from ethical perspective and consider ethical business practice as sound commercial strategy. Lastly, some steps have been suggested for consideration by the authorities to incentivize the businesses so that they adopt meaningful ethical policies and build ethical cultures.

Ethical business practice requires an organization to adopt a holistic approach in all aspects. This approach must be led from the top. Employees must feel its presence and existence in practice. And a statement from an organization that it can be trusted is not enough. Business ethics requires an organization to earn this trust from consumers, suppliers, local community, and others who are considered stakeholders in corporate governance perspective.

The empirical evidence suggests that the ethics in business practice is not inconsistent with making profit. It does not require the businesses to do charity. Ethics requires the businesses to earn the profit respecting and protecting interests of the stakeholders.

Ethical behavior involves deciding a right course of action in business. It is not just deciding right or wrong by expressing one’s own feelings. This is a pattern of behavior which comes from proper education, training, honesty, character and integrity.

It may be clarified by referring to a remark that Warren Buffet made while explaining how he maintains ethics in business practice. As he said, a ‘newspaper exercise’ helps him. Buffet clarified his remark saying he takes no decision if he sees he will feel uncomfortable for such decision if the same becomes public knowledge by newspaper reporting in future. His remark is simple but meaningful. It has a precise answer to the question what ethical business means.

Now, ethical considerations in business dealing have become a global concern. Ethics in business practice, to a large extent, is associated with the concept of Corporate Social Responsibility (CSR). To this end, The United Nations Global Compact has adopted Ten Principles calling upon the corporations to align their business policies, strategies, and operations with the said Principles which contain provisions on human rights, labor, environment, and anti-corruption. The other guidance recognized globally for businesses is ISO 26000:2010. An organization can adopt and set the said guidance as its objectives to improve its social responsibility and contribute to the sustainability.

In addition to CSR, it is also expected that an organization will behave ethically to promote competition in market. It will not do anything that can restrict, prevent, or distort competition. Data protection of consumers is another important topic in business ethics which requires separate analysis in detail. Simply put, the businesses face many situations every day. Every situation demands doing a right thing, even if it is not required by law. Because doing the right thing is consistent with the sustainability and good governance.

It is heartening to note that many large companies around the world have already adopted and implemented the UN Global Compact and ISO 26000:2010 guidelines to introduce compliance and ethics in their business practices. There exists ample evidence to show that ethics in business practice results in efficiency and it is increasingly seen as good practice for sustainable business. On the other hand, an organization which fails to behave ethically runs the risk of receiving serious reputational, operational, and commercial damages.

Given the above discussion, government, regulatory bodies, banks, and financial institutions can use their leverage to contribute to ethical business practices. They can adopt necessary policies to support and encourage the businesses so that they voluntarily follow and adopt ethics in their day-to-day business practices. Regulatory bodies and government should take steps periodically for rewarding those who demonstrate a clear and ongoing adherence to ethical business practice and compliance. Banks and financial institutions may require their clients to have a compliance program in place. They can set it as a condition precedent before granting any financial assistance to the companies. As such, by taking on necessary measures, the government, or regulators in charge of supervising, regulating, and auditing the companies should let the businesses feel that the ethical business practice is imperative.

About the Author: Kamal Hossain Meahzi is an LLM Candidate, University of Fribourg, Switzerland, and a practicing lawyer of the Supreme Court of Bangladesh.