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A Culture of Ethical Behavior Is Essential to Business Success

Sean Peek
Sean Peek
Business News Daily Contributing Writer
Updated Aug 03, 2022

Research from the University of Notre Dame finds that ethical business operations are highly important to success, while unethical behavior can negatively impact a business's prospects.

  • Unethical behavior has consequences for future business.
  • Ethical behavior includes honesty, fairness, integrity and understanding.
  • There are several ways to encourage an ethical workplace culture, including establishing a company-wide code of ethics.
  • This article is for entrepreneurs and business owners who want to establish a culture of ethical behavior among their employees.

Stories of corporate malfeasance often end with civil settlements paid to the U.S. Department of Justice. But how is potential future business impacted when a company is caught with its hand in the cookie jar? Research from the University of Notre Dame suggests what you might already expect: Unethical behavior is immensely damaging to a business’s prospects.

The study, published in the Journal of Applied Psychology, examined the intersection between the quality of service a business offers and its adherence to ethical mores by looking into conditions at nearly 200 movie theaters. The findings reveal that quality service and an ethical business plan are essential to long-term business success.

“Both high-quality service and low unethical behaviors are important to predicting business unit performance,” Kaifeng Jiang, the lead author of the study and an assistant professor of management at the University of Notre Dame’s Mendoza College of Business at the time of the study, told Business News Daily. “This is especially so when the market is very competitive, because then the customers have a lot of options and could … switch to another product or service provider.”

Through their analysis of the theaters, the researchers determined that a higher quality of service positively impacted operations when ethical adherence was also high. Conversely, when unethical behavior was commonplace, high quality of service had a much-diminished impact on the success of business operations.

“While carmakers and banks strive to provide superior customer service, their unethical conduct and the resultant fines inevitably jeopardize customer trust and diminish long-run financial returns,” said co-author Jasmine Hu, an assistant professor of management at the University of Notre Dame’s Mendoza College of Business at the time of the study, in a statement.

The authors cited several key takeaways from their research that could help business owners and managers achieve both high-quality service and a company culture of consistently ethical behavior:

  • Service excellence is a necessary, but insufficient, condition for success.
  • Build service and ethical climates that operate in tandem to guide service and ethical behaviors among employees without supervision.
  • Business owners should take corrective actions before unethical behaviors occur by periodically measuring employees’ perceptions of the company’s ethical climate.
  • Service and ethical behaviors are most essential within turbulent or competitive markets, with competitive intensity being the most important.

Jiang said business owners could promote an ethical culture by hiring or promoting executives and managers who are genuinely dedicated to upholding high ethical standards, as well as by establishing a specific code of ethics for employees to follow. He also noted that the context of the industry determines how significantly the company is affected by combining quality service and a high level of ethics.

Jiang and Hu’s co-authors were Hui Liao, from the University of Maryland; Ying Hong, from Fordham University; and Songbo Liu, from Renmin University of China.

What is ethical behavior?

A person who demonstrates ethical behavior has evidence of a strong moral code and a consistent set of values. Ethics can be rooted in belief or the pursuit of making the world better. Those who exemplify ethical behavior do the right thing regardless of whether they get credit for it. This sort of behavior is not limited to the workplace; it can be present in every facet of life.

In a business setting, ethical behavior applies to any employee, team lead or supervisor. They should display behavior that is honest and fair in their relationships with coworkers and their clients. Displaying good ethical behavior has an effect on company morale and client relations. It’s easier for a business to retain employees when they work for a company that they believe in. Employees want to work for companies that treat everyone and their clients fairly and have good and ethical business practices.

A high ethical standard extends to customers as well. A reputation for positive ethical behavior entices more potential clients, customers and partners to work with you. It also builds customer loyalty over time, creating a loyal customer base that is likely to refer your business to others.

Key TakeawayKey takeaway: Ethical behavior means your team operates according to fair and transparent standards, not just complying with legal rules or regulatory requirements but going above and beyond to ensure decisions are applied through an ethical lens.

Why is ethical behavior important?

To understand why ethical behavior is important, it might be helpful to know how unethical behavior affects a company. Think about a business that hires only family, or one that gives inappropriate incentives, for example. While these actions might not be illegal, they can definitely have negative effects on the morale and success of a company.

On the flip side, a leader who personifies ethical behavior will be fair in all situations. In turn, employees will trust that their leadership team is working toward the greater good of the entire company. By being ethical, leaders can foster an environment that rewards and encourages good attitudes.

What are examples of ethical behavior?

Ethical behavior includes honesty, integrity, fairness and a variety of other positive traits. Those who have others’ interests in mind when they make decisions are displaying ethical behavior. Here are other common examples of ethical behavior:

Respect for others

No matter the relationship between two people and what they agree or disagree upon, people within an organization should always respect each other. This includes managers and subordinates, peers and clients. When there is a base level of respect established, people take criticism less personally, are able to communicate more openly and can see and value the other person’s perspective.

Open communication

All successful businesses communicate effectively. When the lines of communication are open and employees are willing to have conversations with one another, misunderstandings are avoided. Having constant conversations and reminders makes it less likely for an employee to break a rule or have a low-quality output.

Responsibility

Mistakes and misunderstandings are bound to happen in any work setting. But when they do, employees need to take accountability for their actions. They need to take responsibility for what happened and be proactive in fixing it. When there is a standard of accountability at an organization, its people hold themselves and their peers to a standard of responsibility.

TipTip: The best way to instill a culture of ethics among your employees is to lead by example and maintain a clear zero-tolerance policy on specific unethical behaviors, such as lying, cheating, stealing, or fraud.

What is a code of ethics?

In the workplace, there might be a standard for ethics set throughout the company. Many organizations create a code of ethics, which might include generic guidelines for ethical behavior about doing the right thing or remaining fair. It could also mention specific protocol within the business. For example, a code of ethics at a doctor’s office might include putting the patient first and remaining understanding in tough situations. At a college, a code of ethics could include being honest and unbiased when grading and being a catalyst for diverse perspectives in the classroom.

Businesses should create and display their code of ethics publicly. The company’s vision, values and mission should be clearly stated and visible to both employees and clients so that it can be held to those standards. A code of ethics builds trust and credibility in an organization and creates a culture of open and honest communication. If an ethical tone is set at the top and followed by management, everyone who works there will hold themselves and each other to those standards.

Source interviews were conducted for a previous version of this article.

Image Credit:

Sjale / Getty Images

Sean Peek
Sean Peek
Business News Daily Contributing Writer
Sean Peek has written more than 100 B2B-focused articles on various subjects including business technology, marketing and business finance. In addition to researching trends, reviewing products and writing articles that help small business owners, Sean runs a content marketing agency that creates high-quality editorial content for both B2B and B2C businesses.