The application of ethical ideals in organizational behavior is referred to as ethics in practice. It applies to all areas of organizational behavior, such as corporate governance, employment procedures, sales strategies, stakeholder interactions, accounting processes, and product and corporate responsibility concerns. It is about the discretionary decisions that organizations and their employees make, as well as the openness of those decisions with all stakeholders. Are your coworkers handled with decency and respect? Customers are they handled fairly? Is the organization aware of its responsibility to society as a whole?
Ethical ideals serve as a moral compass by which we conduct our lives and make decisions — ‘doing the right thing’ because it is the right thing to do.
Organizations care about how we make decisions because bad decisions – or terrible decisions performed poorly – may have a substantial impact on people’s lives and the reputation of organizations. So, by making judgments based on good ideas and living by good values, we may enhance the lives of people and their work experiences.
How prevalent is ethical misconduct in the workplace? The Ethics Resource Center’s National Business Ethics Survey (NBES) in 2020 found that nearly half of U.S. employees (49%) reported observing misconduct.
The Ethics Resource Center’s NBES also looked at the prevalence of “red flags” of material misstatement of financial condition or financial fraud. Among these “red flags” are: falsifying or manipulating financial information; overriding routine procedures (altering cut-off revenue, holding books open, misdating revenue); ignoring unusual activities happening at higher levels (for example, side agreements, unusual business deals); creating fictitious vendors or invoices; stealing or misappropriating assets; and, submitting false or misleading invoices to customers.
The NBES surveyed employees in areas of high risk for financial fraud (executives, finance/accounting, internal audit, legal, procurement/contracts and sales) and found some 86% had not seen any “red flag” activity. Some 14% had seen behavior that constituted at least one of these red flags (although most observed only one behavior that constituted a red flag.) It should be noted, however, that of the 14% observing some type of red flag, 30% did not report their observation.
Unethical Conduct: A Losing Proposition
An unethical workplace is bad for business. According to the Josephson Institute Center for Business Ethics, unethical behavior on the part of a company’s leadership or rank-and-file employees can:
- Harm sales
- Damage the stock price
- Worsen employee fraud
- Diminish productivity
- Increase absenteeism
- Make employee retention and recruiting more difficult
Ethical Conduct as a Competitive Edge
One presumed motivation for unethical conduct by businesses is that it puts them at a competitive advantage. But the facts don’t appear to support this presumption. Quite the opposite. According to Denis Collins in Essentials of Business Ethics, ethical companies actually outperform their unethical counterparts financially over the long term.
Collins asserts that ethical and trustworthy organizations enjoy the following competitive advantages versus unethical organizations: Ethical companies attract and keep higher quality employees, customers, suppliers, and investors; earn goodwill with the community and government officials; achieve better quality; and are more efficient.
Ethicist Robert C. Solomon has concluded: “Ethical businesses tend to be more trusted and better treated, and to suffer less resentment, inefficiency, litigation and government interference. Ethics is just good business.
1. If ethical organizations actually outperform their unethical counterparts financially over the long term, why isn’t there less unethical behavior? What are two possible explanations for this phenomenon?
Two explanations are:
1. Ignorance. Many managers are not aware that ethical organizations outperform unethical ones. They may believe that highly successful organizations have to cut corners to succeed.
2. Short-term horizons. The pressure for short-term earnings and for rapid success can cause many managers and leaders to lose their ethical footing. They become focused on short-term gain and accept unethical behavior if it allows them to achieve their goals, even if it means long-term problems for the organization.
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