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A Culture of Ethical Behavior is Essential to Business Success

image for Sjale / Getty Images
Sjale / Getty Images
  • 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 companywide code of ethics.

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 future 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 more positively impacted operations when ethical adherence was also high. Conversely, when unethical behavior was commonplace, a 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," 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, said 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 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.
  • Take corrective actions before unethical behaviors occur by periodically measuring employee perceptions of your 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.

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.

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.

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.

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.

Business News Daily Editor

Business News Daily was founded in 2010 as a resource for small business owners at all stages of their entrepreneurial journey. Our site is focused exclusively on giving small business advice, tutorials and insider insights. Business News Daily is owned by Business.com.