NEW YORK (MainStreet) — In decades past, bad business ethics might have been defined as stealing a stapler from the office, taking a nap at your desk after lunch or, for executives, skimming off the top.
And though business ethics today involve the same examination of moral and social responsibility, what has changed is the introduction of the many ethical breaches connected with new technology and how ethics are recognized and handled in the workplace.
Diane Swanson, chair of the business ethics education initiative at Kansas State University in Manhattan, Kan., says business ethics, as an industry, has been an evolutionary process. While there were ethical practices before, the business ethics consulting business really began in the 1980s during the savings and loan scandals and widespread greed and corruption personified by Gordon Gekko from the movie Wall Street.
“This led to longer federal sentencing guidelines, which led to the creation of the ethics consulting industry,” Swanson says. “Companies created a code of ethics, which helped in the sentencing. If you had a code of ethics, the sentences were shorter.”
The industry was created with compliance as a focus and has morphed into what most companies recognize today as a more proactive approach in risk management, she says.
“That has led us to the consideration of what is an ethical culture in organizations today,” Swanson says. “Companies are finding if a company has strong ethics at its core, the risk is diminished by that alone.”
Abbot Martin, research director for CEB, a research advisory firm in Washington, D.C., that focuses on risk and compliance, says the company has surveyed more than 900,000 employees around the world from 2007 to the present and found that overall, companies that had higher internal ethical standards also realized higher returns.
The company looked at many different types of violations, including alcohol and drug use in the workplace, misappropriation of time, conflict of interest, fraud, harassment, discrimination and data privacy violations.
The study found that companies that spent time building a high-integrity corporate culture and had fewer incidents of these types of violations saw a 7.9% average annual shareholder return, as opposed to 2.1% at other companies.
These companies also saw a 12% increase in discretionary effort and a 67% decrease in the most significant forms of business misconduct.
The most common forms of ethical breaches included misuse of company time (attention, all you employees playing Farmville during work hours) and harassment or discrimination in the workplace.
The industry hasn’t been tied to only traditional ethical conduct; risk management has also led to more emphasis on corporate social responsibility. Howard E. Horton, president of the New England College of Business and Finance, which has a master’s in business ethics program, says companies that do not asses their risk in social responsibility, such as the environmental risks for oil companies, or ignore the risk, also pay a higher price if there is an accident.
Horton says companies are not only realizing it is in their best interest financially to put more effort into ethics; it is becoming necessary even to operate, thanks to the prevalence of social media.
“There are more watchdogs and more scrutiny with the public who has social media,” Horton says. “Companies are aware that their customers will read about how things went wrong with their company, and they cannot afford to take those social media hits.”
This has led to more business ethics consultants — contractors and, at larger corporations, in-house — training employees on the company code of ethics, conducting social media training and even instituting internal hotlines for whistleblowers to minimize the risk, Swanson says.
Horton says prominent business schools are even emphasizing business ethics by requiring their business school graduates to take an ethics oath, much as attorneys and doctors do in their own professions.
“It’s a sign of the times,” Horton says. “Business people are being held to a higher standards and recognizing that they have a responsibility to operate their businesses in an ethical manner.”