Top 8 Ethical Business Practices To Follow (2023)

Ethical business practices have far-reaching effects, impacting everything from how your employees, customers, and the general public perceive your company to the legality of your business. Often, to act ethically, it may be necessary to make decisions regarding controversial topics or go beyond the minimum of what is required of you.

What Are Ethical Business Practices?

Before going further, it’s important to understand the definition of ethical business practices. Let’s start by thinking about what we mean by ethics.

Ethics are the principles that regulate our behavior and ensure we do the right thing. Therefore, ethical business practices are a set of principles that govern your business. They concern your employees, customers, and stakeholders as well as society as a whole.

It’s important to note that some unethical business practices are legal. In terms of laws, there is nothing to stop you from adopting these practices. However, there are many reasons why you should want to behave ethically.

Why Are Ethical Business Practices Important?

There are many benefits of ethical business practices for your company. In fact, many ethical actions can have big payoffs over the long term.

For one thing, employees at ethical companies tend to be more motivated. This leads to higher productivity and lower turnover. You’ll also find it easier to attract top employees in the first place.

In addition, customers are more willing to purchase from ethical companies, which results in loyalty, higher sales, and greater profits. Similarly, your company will be attractive to investors. This could provide you with more opportunities for funding or increase your share price.

Top Ethical Business Practices

To become an ethical company, it’s necessary to follow a few key ethical business practices. These will be applicable to your situation no matter what ethical issues you may face.

1. Define Your Values

Everyone at your organization needs to be familiar with your business values. The best place to include these values is the employee handbook, under a code of ethics section. When writing this section, be as clear as possible to avoid any opportunity for misinterpretation.

A code of ethics is critical for everyone at your company, but it’s most important for those in a leadership position. Leaders should refer to your values when making important decisions, such as implementing a new strategy or dealing with employees. Your values are critical for everything from hiring and firing to figuring out how to improve operations.

To communicate your values with a wider audience, include a mission statement on your website. Creating a short statement will help you whittle down your values into a succinct description. This is important for making sure your values are easy to remember and apply. Plus, it helps you tailor your values to employees, rather than to regulators. To ensure your mission statement does serve its purpose, think about what makes your business unique and avoid stating the obvious.

2. Decide On Appropriate Disciplinary Action

There will be times when employees fail to adhere to your ethical standards. It’s crucial to be consistent with disciplinary action and ensure the punishment does fit the crime.

Create a set of policies from the start and enforce the rules. This will demonstrate that you stand by your values and have no tolerance for unethical behavior. It will also show employees what to expect if they are considering acting inappropriately.

3. Hold Your Leaders to High Standards

Leaders have great influence over their subordinates. By holding your leaders to a high standard, you show your employees what you expect from everyone and inspire each individual to act with integrity. This will also help you to develop future leaders in your current employees.

4. Incentivize Ethical Behavior

To increase ethical behavior, you need to use rewards as well as punishment. A reward can be as simple as praise in the face of good behavior — particularly when it would be easy for an employee to act unethically.

Another option is to use a reward program, such as employee of the month. Most programs rely on pro-self bonuses, but you may see even better results if you use prosocial bonuses. For instance, you could encourage winners to use their bonuses to treat the rest of their team or you could donate the bonus to a charity of their choice. The benefit of this strategy is that it promotes good behavior in the short term and leads to a lasting sense of having done something important.

Non-financial incentives are also effective — often far more than business owners believe they will be. Just reminding employees of how actions can impact other people can incentivize them to make the ethically-right decision. Alternatively, you can emphasize how behaving ethically will ultimately improve the employees’ own lives.

5. Keep Ethics Top of Mind

Everyone from leaders to entry-level employees will behave more ethically if you frequently remind them of your company values. They’ll be less likely to justify an action that (deep down) they know is ethically wrong.

There are many ways to create constant reminders of values. One thing to do is to include an honor code at the beginning of forms. Too often, companies need to check a box and sign after they’ve already completed a form. By this point, it’s too late to change anything if the person has already provided dishonest information.

6. Become Active in Your Community

Just because you’re a for-profit company doesn’t mean everything you do needs to be about making money. Volunteering in your community can be a humbling experience and it can serve as a reminder to everyone at your company that other activities are perhaps more important than what your business is doing. You’ll also show customers that you care about enriching the lives of others.

7. Hire a Diverse Range of Employees

More companies are trying to increase diversity in their workforce — and their reasons extend beyond creating a better public image. Hiring employees from a diverse range of backgrounds brings a wider variety of perspectives. Not only will you receive fresh ideas for solving problems, you may even avoid introducing unforeseen problems into your products and services.

8. Monitor Your Suppliers

It’s important to hold suppliers and other professionals you outsource to the same standards as your own employees. Choose suppliers whose values align with your own. It may we worthwhile to go so far as to vet them to ensure they are behaving ethically.

Ethical Business Practices Examples

To see ethical business practices in action, let’s examine some top companies in their respective fields.

Levi Strauss

Levi Strauss is committed to assuring social responsibility through its various programs. It has the Levi Strauss Foundation, which carries out philanthropic work in under-served areas where the company operates and its Red Tab Foundation provides employees and retirees with a financial safety net. In 2016, the company also released Levi Strauss & Co. Collaboratory — a program that brought fashion entrepreneurs together to tackle a different problem in the industry each year.

Costco

A major reason why Costco has so many loyal customers is due to its excellent service. The top-quality customer service is, at least in part, down to employee wages, which are much higher than the average for retail jobs. Costco regularly raises its wages to stay significantly above the national minimum wage — it reached $15 an hour in 2019. This is a great example of an ethical choice that is clearly a smart business move.

Best Buy

It’s difficult for a company that sells consumer goods to make a positive impact on the environment, but Best Buy has been successful. Barron’s awarded Best Buy with first place in the 100 Most Sustainable U.S. Companies in 2019. Best Buy has achieved sustainability through its Geek Squad, which collects electronics and appliances that consumers no longer want or need.

Aflac

An example of a company that extends ethical practices to its suppliers is Aflac. The company has a supplier code of conduct and the company expects suppliers to comply with its ethical practices. Aflac also has a fair purchasing policy, which states how it chooses suppliers — all the criteria is merit-based and there’s no favoritism allowed.

CVS

Despite a risk to its bottom line, CVS decided to stop selling tobacco products in 2014. It’s impossible to know what (if any) impact this had on the number of smokers, although CVS says many did quit, as shown by the increase in patch sales.

Ethical business practices come down to individuals’ decisions to act the way they feel is right. Whereas the behavior of others is out of your direct control, company culture and leadership do have a major role to play. It’s up to everyone to insist upon making the right choices at individual and group level, create a culture of accountability, and avoid actions that involve unethical actions to see short-term gains.

Many business owners are hesitant to go the extra mile to ensure their companies are ethical. After all, this requires time, effort, and expense. However, the consequences of being unethical can be severe. Check out our blog post on the ugly truth of unethical business practices to see what we mean.