What are the three sets of factors that influence the level of ethical behaviour in an organization?

Business leaders today are well aware of the ethical issues and hence they want to improve the ethical standards of the business. Self-regulation is, of course, better and produce impressive results. Besides, there are also a number of factors, which significantly influence the managers to take ethical decisions.

Image: Factors influencing business ethics

Some of them are

1. Personal Code of Ethics

A man’s personal code of ethics that is what one considers moral is the foremost responsible factor influencing his behavior.

2. Legislation

It is already stated that the Government will intervene and enact laws only when the businessmen become too unethical and selfish and totally ignore their responsibility to the society. No society can tolerate such misbehavior continuously. It will certainly exert pressure on the Government and the Government consequently has no other alternative to prohibit such unhealthy behavior of the businessmen.

3. Government Rules and Regulations

Laws support Government regulations regarding the working conditions, product safety, statutory warning etc. These provide some guidelines to the business managers in determining what are acceptable or recognized standards and practices.

4. Ethical Code of the Company

When a company grows larger, its standard of ethical conduct tends to rise. Any unethical behavior or conduct on the part of the company shall endanger its established reputation, public image and goodwill. Hence, most companies are very cautious in this respect. They issue specific guidelines to their subordinates regarding the dealings of the company.

5. Social Pressures

Social forces and pressures have considerable influence on ethics in business. If a company supplies sub-standard products and get involved in unethical conducts, the consumers will become indifferent towards the company. Such refusals shall exert a pressure on the company to act honestly and adhere strictly to the business ethics. Sometimes, the society itself may turn against a company.

6. Ethical Climate of the Industry

Modern industry today is working in a more and more competitive atmosphere. Hence only those firms, which strictly adhere to the ethical code, can retain its position unaffected in its line of business. When other firms, in the same industry are strictly adhering to the ethical standards, the firm in question should also perform up to the level of others. If the company’s performance is below than other companies, in the same industry, it cannot survive in the field in the long run.

Factors affecting business ethics

The business executive working as a professional manager has to decide what is ethical or unethical. Many factors influence this decision. In part, what is ethical is based on:

Image: What affects business ethics?

1. The individual’s personal code of behavior: The personal Code of Behavior is the result of the complex environment that influences one’s life.

2. The ethical standards imposed on a manager by his superiors also influence him in his decisions as to the morality of behavior. If the superior condones unethical activities such as padding expenses accounts, the subordinate is encouraged to look upon this activity as an acceptable practice.

3. The policies of the company also influence the determination of ethical conduct. Standards of behavior in an industry are often influenced greatly by the dominant firms in that industry. The authors of the company policy obviously have an effect that is decisive.

Garrett puts this idea when he says:

The best protection is the example presented by the conduct of top management and the atmosphere it creates, when leaders are scrupulous, the employees know what is considered right. When example is supported by explicit policy, the followers have a clear idea of how to translate the example of leaders into action. When policy is enforced and enforcement reinforced, the employees know that honesty is the best policy in this company.

4. The ethical climate of a country. If, it is poor, then only giant corporations and large undertakings can stand competition and be viable; a small concern is apt to go bankrupt, since business is concerned with employment of a large number of persons, it has the obligation to see that it adheres to an ethical atmosphere. However, considerable differences occur among managers as to what is ethical or unethical; and business truly lacks a Code of Ethics.

The ethical standards of a business are a key factor in how that business is defined. A business's reputation impacts its customers, employees, potential for growth and overall success. A business organization that exemplifies integrity in its products, services and actions holds itself up to high ethical standards on all three levels.

Law

1. The U.S. is a society bound by laws. These laws define the difference between right and wrong, and what is considered acceptable behavior by the majority of people. A business organization must abide by these laws to uphold its ethical standards. Wage and hour laws that protect employees are one example, while guidelines overseeing environmental protection are another. Businesses must adhere to laws instituted by the federal government, the state and the local municipality. There are situations where the actions of a business organization are legal, yet they may not be particularly ethical. This is a fine line and the organization has a responsibility to self-police if it wants to be held to a high ethical standard.

Policies

1. The second level of ethical standards for a business organization concerns its internal policies and procedures. The business creates these as a guideline for its managers and employees to follow. A set of clearly stated, highly ethical policies takes the guesswork out of decisions made on a daily basis. These policies should include hiring practices, termination procedures, sexual harassment issues, vendor relationships and gift-giving limits. When staff members of an organization are trained in a company's policies, actions and reactions become second nature. Ensuring those policies are ethically sound removes the possibility for improper actions or decisions.

Individuals

1. Though a business organization may be bound by applicable laws and internal policies, adherence by individuals determines the true integrity of the company. When an employee joins a business organization, he comes equipped with his own moral values based on heritage and upbringing. It is the responsibility of the business organization to foster a corporate climate that supports ethical behavior by all employees. This is achieved by continual training in the ethical policies and guidelines of the company, positive reinforcement of ethical actions and leadership leading by example.

Consequences

1. There are notable consequences for a business organization when it ignores or breaks the ethical standards at each level. If a business does not adhere to the law, ramifications may include fines, penalties or even jail sentences for business owners. Infractions might include polluting the environment, breaking labor laws or fraudulent financial reporting.

   Infractions at the company policy level can result in the need for internal audits, legal investigations and the institution of corrective actions. These consequences will most certainly have a financial impact due to time and costs involved, and may also negatively impact employee morale as business operations are strained under the pressure.

   Noncompliance with ethical standards at the individual level may be the most costly. If the actions damage the business's reputation, the consequences may include loss of customers, employee turnover and damage to staff loyalty.