Factors Influencing Business Ethics: Determinants, Importance & Example

Business organizations and their owners are well-acknowledged of the ethical issues and hence they want to enhance the ethical standards of the business. Self-regulation is, of course, better and gives satisfying results. Besides, there are various factors influencing Business Ethics.

Here we have shared some factors influencing business ethics, determinants, and the importance of business ethics.

What is Business Ethics?

Business ethics is the study of fitting business perspectives and works concerning possibly debatable subjects including corporate governance, insider exchanging, payoff, separation, corporate social obligation, and guardian obligations.

The law regularly guides business morals, however, at different times, business morals give a basic rule that organizations can decide to keep to acquire public endorsement.

Business ethics apply not only to how the business connects with the world at large but also to their one-to-one dealing with a single customer.

Factors Influencing Business Ethics

  1. Personal Code of Ethics
  2. Legislation
  3. Leadership
  4. Government Rules and Regulations
  5. Ethical Code of the Company
  6. Social Pressures
  7. Ethical Climate of the Industry

Now let’s discuss in detail all the above factors influencing Business Ethics.

1. Personal Code of Ethics (Individual Ethics)

A person’s personal code of ethics which is what one considers moral is the prime responsible factor influencing his behavior.

For Example, Ratan Tata, chairman of Tata Group, is known for his personal code of ethics that leads to the high brand value of tata group and employee satisfaction.

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 society.

No society can tolerate such misbehavior continuously. It will certainly apply pressure on the Government and the Government consequently has no other substitute to prohibit such inefficient behavior of the businessmen.

3. Leadership

If the leader leads in ethical ways and motivates the employees, so the employees will perform in legal ways then it will be beneficial for the company and for the employees also.

Leadership plays an important role in business ethics because the leader is a person who can mold the organization.

4. Government Rules and Regulations

Laws support Government regulations regarding working conditions, product safety, statutory warnings, etc. These provide some strategies to the business managers for figuring out what is acceptable or recognized standards and practices.

5. Ethical Code & Policy of the Company

When a company grows larger, its standard of ethical conduct also rises. 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 strategies to their subordinates regarding the dealings of the company.

6. Social Pressures

Social forces and pressures have a considerable influence on ethics in business. If a company supplies sub-standard products and gets involved in unethical conduct, the consumers will become indifferent towards the company.

Such refusals shall apply pressure on the company to act honestly and stick strictly to business ethics. Sometimes, society itself may turn against a company.

For example, Family, Friends, Colleagues, Neighbour, and the media.

7. Ethical Climate of the industry

The 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 their position unaffected in their line of business.

When other firms, in the same industry, are strictly attached to the ethical standards, the firm should also perform up to the level of others. If the company’s performance is below that of other companies, in the same industry, it cannot survive in the field in long run.

Internal & External Factors influencing Business Ethics

Business ethics can be influenced by mainly two factors, i.e. Internal And External.

Internal factors influencing business ethics

Internal factors influencing business ethics are as follows;

  1. Employees and manager
  2. Money and resources
  3. Company culture

✔ 1. Employees and Managers:

Until you’re a one-person show, your employees are an important part of your company’s internal environment. Your employees should be good at their jobs, whether it’s writing code or selling products to unknown people.

Managers should be good at handling lower-level employees and superintending other parts of the internal environment. Even if everyone’s capable and talented, internal politics and conflicts can ruin a good company.

✔ 2. Money and Resources:

A lack of money and resources can also decide whether your company survives or dissolve. When the cash resources of the company are too limited, it affects the number of people you can recruit, the quality of your equipment, and the amount of advertising you can buy.
If you have an adequate amount of cash, you have a lot more opportunities to grow and expand your business.

✔ 3. Company Culture:

A Company’s internal culture contains the values, attitudes, and priorities that its employees live by.

A competitive culture where every employee competes with one another creates a different environment from a company that points up collaboration and teamwork. Typically, company culture flows from top to bottom.

External factors influencing business ethics

External factors influencing business ethics are as follows;

  1. Economy
  2. Customers and suppliers
  3. Politics and government policies.

✔ 1. Economy:

In a lousy economy, even a well-established business may not be able to survive. If customers no longer have their jobs or take jobs that can barely support them, they’ll spend less on sports, recreation, gifts, luxury goods, and new cars.

High-interest rates on credit cards can dishearten customers from spending. You can’t control the economy, but understanding it can help you spot threats and opportunities to the economy.

✔ 2. Customers and Suppliers:

After employees, your customers and suppliers are the most important people you deal with. Suppliers have a large impact on your costs.

The smack of any given supplier depends on scarcity: If you can not buy anywhere else, your negotiating room will be limited.

The power of your customers depends on how untamed the competition for their dollars is, how good your products are, and whether your advertising makes customers want to buy from you, among other things.

✔ 3. Politics and Government policies:

Amendments in government policies can make a huge impact on your business.

The tobacco industry is one of the best examples. Since the 1950s, cigarette companies have been ordered to place warning labels on their products, and they lost the right to advertise on television and other mediums.

Smokers have fewer places where they can smoke legally.

Determinants of Business Ethics

Business ethics has been developed as a result of constant interaction among a variety of factors. The following are the main factors that are influencing the ethical behavior of business:

✔ (1) Social Factors.

Ethics are basically social morals. In other words, ethical business conduct is that which is socially moral.

Accordingly, it is the social values, norms, traditions, customs, etc., which prescribe business ethics and govern business conduct.

And as societal norms and values go through changes, business ethics are also modified to the changing social environment.

✔ (2) Economic Factors.

 The level of economic development also affects the nature and spread of business ethics. Generally, business ethics assume a liberal character with the development in economic spheres, particularly business activities.

For example, the advertisement on mint.

✔ (3) Cultural Factors.

The rule of conduct for individuals as well as organizations develops under the continuous influence of cultural values.

And the sources of these cultural values are historical heritage, family system, religion, education, government, etc.

The continuous influence of these factors controls the form and nature of social ethics of behavior.

✔ (4) Political Factors.

Business ethics are also influenced by the ideology and philosophy of the political party in power.

Through appropriate legislative measures, the government enforces business firms in respect of such important aspects as the business location, maintenance of quality, fair prices, fair treatment to the workers, safety measures, Prevention of pollution, etc.

✔ (5) Organizational Factors.

Organizational factors like the philosophy and policy of the firms, attitudes of the managers, and superior-subordinate relations have a great impact on the ethical perception and judgment of business managers and succeeding behavior.

✔ (6) Institutional Codes.

Business conduct is also governed by codes of conduct prescribed by various sectoral institutions.

The codes of ethical behavior have been prescribed by professional bodies like the Institute of Chartered Accountants of India, the Institute of Costs and Works Accountants of India, the Institute of Company Secretaries of India, and the All India Management Association for their respective members.

Organizations act as Chambers of Commerce and Industry and Trade Associations have also formulated codes of conduct for business enterprises. Such rules of conduct act as trend-setters and create a helpful environment for business firms to adopt ethical behavior.

► Importance of Business Ethics

  • The good reputation of the organization.
  • Improvement in customers’ and investors’ confidence.
  • Improves the employee’s teamwork.
  • Survival for cut-throat competition.
  • Profitability for the organization.
  • Businesses become aware of social responsibility.
  • Attracts customers to the firm’s products.
  • Makes employees stay connected with the organization.
  • Attracts investors and keeps the company’s share price high.
  • Attracts more employees to work with the organization and leads to a reduction in recruitment costs.
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