Factors Influencing Business Ethics In An Organization

Factors Influencing Business Ethics In An Organization

Business ethics involves policies guiding acceptable behavior aligned with societal values. Ethical conduct addresses gender, diversity, discrimination, governance, bribery, responsibilities, trading, and social contributions.

Entities wield influence, necessitating ethical responsibility to prevent harm to individuals, communities, and the environment. Further, business ethics helps organizations think about the pros and cons of their rules and actions at work.

Here are seven key factors that affect business ethics everywhere:

1. Culture

  • Refers to the customs, social norms, and beliefs of a society or group.
  • Has a direct impact on business ethics as it affects how people perceive and do things.
  • People’s background becomes a part of their personality and identity.
  • Certain elements like religion, family, and education are key  aspects of one’s culture.
  • People’s rules, norms and actions largely depend on the culture they belong to.
  • Business managers and promoters navigate cultural differences for ethical decisions.

Example: A good example of this is the concept of gift-giving in business. In some cultures, offering gifts is a common and accepted practice in business interactions. It’s a way to build relationships, express gratitude, and show respect. However, in other cultures, elaborate gift-giving might be seen as a form of bribery or corruption, and it could be considered unethical.

So, the cultural perspective on gift-giving directly influences the ethical standards within a business context. What might be considered a thoughtful gesture in one culture could be viewed as an ethical violation in another.

2. Personal Code of Ethics

  • The second important factor after culture.
  • Each individual has morals that drive their behavior, decision-making and their response in a particular situation.
  • People might not write it down, but each person has a personal code deeply rooted in them, shaping how they live each day.
  • Personal code of ethics differ for each employee in any organization, which may lead to clashes and issues in overall business ethics. This is why personal code of ethics is an important factor impacting the ethical functioning of an organization .

Example: Let’s say honesty and transparency play a crucial role in an employee’s personal code of ethics. In a business context, this could mean being honest with customers about product features or potential issues, transparent with employees about company decisions, and straightforward in business transactions.

Their personal commitment to honesty might lead them to advocate for clear and truthful advertising, fair pricing strategies, and ethical decision-making within the organization.

In this way, their personal code of ethics directly influences and shapes the ethical practices within the business. It’s a great example of how individual values can impact broader business ethics.

3. Legislation

  • It means that the government can make rules to stop companies from doing things that are not right or fair.
  • These measures  shall only be taken when things get out of control and companies are doing things we can’t handle.
  • People and the society won’t put up with a company’s bad actions for too long—they’ll speak out against it eventually.
  • When things get really bad, governments have to make rules to fix the problem. They do it only when it’s necessary and there’s no other choice.


Legislation mandating transparent financial reporting compels businesses to uphold ethical financial practices. This fosters a culture of integrity, discourages fraud, and ensures accountability, aligning business behavior with ethical standards set by the law.

4. Ethical Code of the Company

  • The ethics code created, shared, and applied by a company shapes its ethical atmosphere.
  • The company’s code of conduct, typically shared with all employees through publications like the website, guides the behavior of staff and shapes their actions within the organization.
  • Employees may follow diverse ethical standards, leading to potential chaos if everyone acts based on their own principles.
  • Hence, the company implements a code of conduct to unify the ethical behavior of all employees.
  • From this point onwards, every employee must follow the same rules and policies to guarantee ethical behavior.

Example: A company’s ethical code focusing on transparency and employee well-being cultivates a culture of integrity. This, in turn, fosters trust with customers and stakeholders, promoting ethical business practices that align with societal expectations and legal standards.

5. Government Rules and Regulations

  • Set of rules and regulations imposed on the employees is another important factor driving business ethics.
  • Every country has numerous laws covering business functions like working conditions, insurance, pensions, minimum wages, and the rights of employees and laborers.
  • These act as a guide to companies in the formulation of their ethical code of conduct.
  • They specify what’s  acceptable and the acknowledged benchmarks for various business aspects.
  • These laws help organizations follow ethical standards, making government regulations crucial for a business’s ethical operations.

6. Social Pressures

  • External or societal pressures impact business ethics.
  • In the rise of “cancel” culture, businesses face consequences, getting “canceled” for their beliefs and policies, just like individuals do.
  • If a business sells bad products, offers poor services, or engages in unethical practices, society quickly forms a negative opinion about the company in today’s world.
  • This mindset turns into a decision not to buy from the company.
  •  In a time where a single tweet can impact a business, being extremely ethical in practices is crucial.

Example: Growing public demand for sustainable products may lead companies to adopt eco-friendly policies, aligning business practices with societal values to maintain a positive public image and consumer trust.

7. Ethical Climate of the Industry

  • Refers to the norms and practices followed by other organizations in the same industry as that of the company in question.
  • In a growingly competitive landscape, companies must follow industry standards to stay competitive in the long term and keep up with other businesses.
  • If other companies in the industry follow strict rules, the company in question should also make sure to stick to the same high standards.
  • If the organization’s performance doesn’t match the level of other companies in the same industry, it will be kicked out.

Example: If an industry prioritizes transparency and accountability, businesses within it are more likely to adopt ethical practices. Conversely, in an industry where cut-throat competition is the norm, businesses may compromise ethics to gain a competitive edge.

For more such key MBA or business management topics, keep visiting Easy Management Notes.

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