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Jamie Lawrence


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The key characteristics of ethical business culture


The business case for ethical culture and operations is clear – increased customer loyalty. There’s also evidence that employees feel a greater stake in company conformity and success when the business is run ethically. Organisational culture is key to the success of an ethically-driven organisation, but what parts of the culture, and why? HR directors need to know where to direct resources.

In this article we review the key characteristics of businesses striving for ethical operations as put forward by Alexandre Ardichvili, James A. Mitchell and Douglas Jondle (2009).

Stakeholder balance

Businesses tend to subscribe to one of two viewpoints; whether their goal delivering maximum shareholder value or balancing the needs of multiple stakeholders. Ethical businesses do the latter. Stakeholders often include employees, customers and the local community, but bear in mind the definition can be broad. In 2012 Bolivia passed a proposition to give the Earth ‘rights,’ to encourage organisations to be aware of how their actions affect the environment.

Mission and Vision Driven

Ethical businesses are commonly driven by something more concrete than profit, often in the form of a mission statement or charter of values. When these values are championed by management and valued by employees, the workforce becomes a community united by common goals rather than simply co-existing to pursue profit. This can yield significant benefits for employee engagement and a better relationship with the public. It can also help get the business through trying times.

Process Integrity

Organisational culture is the product of thousands of different processes that take place on a daily basis. These processes can be healthy or corrupt, depending on a variety of factors unique to the process. For example, ‘healthy’ competition is defined by humility, shared commitment to success, equal treatment by management and fair distribution of spoils. Unhealthy competition is completely different, defined by misaligned goals, superiority and unequal treatment of the better performers. HR directors must regularly review the integrity of internal processes and protect them with sufficient oversight and transparency.

Leadership Effectiveness

Ethical role models must be in place to solidify ethics as a cornerstone of company culture. Building an ethical business is driven by a ‘top-down’ approach – policies on, for example, eco-friendly initiatives must be introduced and reinforced by management. The success of a ‘green champions’ policy is dependent on the personality and beliefs of the people involved. Some are apprehensive to ‘tell colleagues what to do.’ Also, green champions can leave. The impetus must come from management because then it’s a codified, enforceable policy rather than passed on verbally by employees.

Long-term perspective

Companies with a long-term view are often seen as more ethical. This long-term view should not only relate to profit but also the company’s place in the community and the world. Self-reflection is a key part of this characteristic; businesses must ask questions, openly and transparently, about their overall direction. These questions must be opened to employees so they feel part of the company’s long-term vision. Thinking in the long-term also allows businesses to more effectively plan for future developments and help ensure longevity.

Not surprisingly, there’s significant overlap between these characteristics. Taking a long-term view will inevitably require balancing the needs of multiple stakeholders, while maintaining process integrity will need strong direction from management. Ultimately, HR directors must develop a harmonious policy that works to create change in all these areas.

4 Responses

  1. Richard – paying taxes, I don

    Richard – paying taxes, I don't think companies will begin to see this area differently until we abandon or at least alter the concept of 'shareholder value' so that companies have a duty to also provide benefit to the environment/society etc. But I think being a 'good citizen' forms part of the criteria for being an ethical business and paying taxes – i.e. giving back to society – seems to be inherent to this.

    Karen – research makes logical sense, seems most companies nowadays pledge some form of ethical commitment but unless it's tied in with strategy, supported by senior leaders, then in effect it's just marketing bumpf that can actually negatively affect the reputation of the company who could be accused of talking the talk without walking the walk. It seems to have fallen to HR to lead on ethics, so building a business case for aligning ethics and strategy seems to be the order of the day. 

    This also ties in with Maxwell's point – we need ethical leadership by example because unless the senior leaders do it there's no incentive or need for the employees to do it.

  2. Point to include

    What about including ‘Paying taxes’ in this list? We have seen over the past few weeks the controversial subject of tax avoidence on the news. Companies like to call it ‘tax efficiency’, in rhetorical fleur.

    Just a point to consider when discussing ethical business culture.

    Richard Lane, director at durhamlane, specialising in sales training London and sales training South East.



  3. Business Ethics

    Ethics is concerned with “doing the right thing” in terms of morals, fairness, respect, caring, sharing, no false promises, no lying, cheating, stealing, or unreasonable demands on employees and others, etc. In addition, business ethics calls for corporate social responsibility (CSR) and addressing social problems such as poverty, crime, environmental protection, equal rights, public health and improving education. We need a practical approach rather than a philosophical one, with “leadership by example.”

    Business decisions often concern complicated situations which are neither totally ethical nor totally unethical. Therefore, it is often difficult to “do the right thing,” contrary to what many case studies will have you believe!

    Leaders have to deal with potential conflicts of interest, wrongful use of resources, mismanagement of contracts, false promises and exaggerated demands on resources, which include personnel. Is it the seller’s duty to disclose all material facts regarding the product/ service in question or is it the buyer’s responsibility to find out the pros and cons of what he or she is getting into? Should the seller answer each question exactly as it was asked, and ignore some pertinent information? Or should he or she merely address the spirit of the question? Is the buyer responsible for due diligence? This is a gray area.

    Ethics training can raise ethical IQs and monitor behavior, but it is difficult to alter the basic nature of individuals such as Bernie Madoff, Conrad Black and Vincent Lacroix.

    Maxwell Pinto, Business Consultant and Author. 

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Jamie Lawrence

Insights Director

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