Business Ethics

BUSINESS ETHICS
By the end of this sub-topic, learners should be able to:

1. Define business ethics;
2. Explain business ethics;
3. Identify professional ethics in accounting;
4. Apply business ethics in day - to - day business transactions.
Introduction
 Ethics are about morality which helps a person separate what is wrong from what is
right.
 Decisions are made basing on ethics and values.
 However, what may be right to one person may not be right to another hence there
are no laws that govern ethics.
Definition
 Business ethics can be defined as values and standards that determine acceptable
conduct in business organisations.
 They are written or unwritten morals, principles, policies and values that govern
how a business operates and behaves. They also influence decision making and
how stakeholders are treated.
 An ethical business or employee no matter their level in an organisation is affected
by the following questions when making decisions:
o Is this legal?
o Is this fair?
o Would I want other people to know I did it?
o How would I feel if I read about this in the newspaper?
o How will I feel about myself if I do it?
o What would I tell my child or close friend to do if in a similar situation?
Importance of good business ethics

Attracts customers to a firm’s products.
 Knowing that a business has good business ethics can attract and motivate
customers to buy a firm’s products thus increasing the sales and profits of the
organisation.
 If there is an increase in sales and profits, a business might end up expanding.
Reduce high labour turnover

 Labour turnover is the rate at which employees leave an organisation.
 If a business has good business ethics, employees will be eager and motivated to
work for the organisation, meaning less employees will be quitting their jobs.
 Also, if a business operates in an ethical and responsible manner, it reduces
recruitment costs and enables the company to produce quality products.
Attracts investors and keeps a company’s share price up

 Investors prefer putting their resources in a profitable and responsible business. If
an organisation operates in an ethical and responsible manner, it is likely to attract
more investors, leading to an increased share capital.
Business ethics
 If a business practices the following business ethics, it reduces inconveniences to
stakeholders thereby impressing them and building a strong bond and loyalty.
 The following are business ethics and how they apply in day to day business
transactions.
Honesty
 Honesty means telling the truth and a person or a business that is honest is likely
not to steal, cheat or lie.
 A business has to be honest in all its actions and communications. If a company is
making honest decisions, investors are likely to be attracted to the company and
would want to invest in it.
 An example of a situation that reflects honesty can be that of a cashier who calls a
customer back when the customer has forgotten to collect his or her change.
Trust
 Trust means believing that someone or something is reliable and has the ability to
do what you expect it to.
 Trust and promise keeping is one of the most important tools when one is operating
a business.
 Building trust is an ethical executive move which means customers, investors and
accounts payables will be motivated to do business with the organisation as it takes
every reasonable effort to fulfil each and every promise they make.
 An example which displays being trustworthy is of a company which promises to
replace a faulty gadget returned by a customer with a new one and goes on to
replace it.
Respect for others

 Respect means having a positive feeling towards something that someone did or
did not do. It also includes being considerate, polite and courteous to someone.
 A business must be ethical by treating everyone with respect and this can be
demonstrated by treating people equally regardless of who they are.
 If employees, investors and customers are treated respectably, the company will
gain a good reputation which becomes a competitive advantage to them.
Accountability
 Accountability is accepting responsibility for something that someone did or did not
do.
 A business should have stakeholders who are willing to acknowledge and accept
personal accountability for their decisions and consequences.
 They should be able to stand up and take accountability in front of their colleagues,
their company and the community as a whole.
Empowerment
 This is whereby the employer gives official authority or legal power to its employees
to enable them to execute some duties more efficiently.
 Empowered employees are crucial in running a successful business. They have the
authority to make decisions, are able to take responsibility for their work, and are
generally happier and more productive as they feel like an essential member of the
team.
 Empowered employees are likely to make more ethical decisions.
Openness
 Openness means being transparent, having free and unrestricted access to
knowledge and information, and making decisions as a team than using a central
authority.
 Openness creates an environment where employees can discuss their point of
view, emotions, dilemmas, and wrong doings without fear of losing their jobs.
 People within the organisation have more room to talk about moral issues. The
more they do this, the more they learn from one another.
 Openness creates an environment which enables the implementation of some
organisational policies and professional ethics.
Professional ethics in accounting

Professionalism
 Professionalism is acting or behaving in a way that is expected by a particular
profession.
 This means that an accountant’s behaviour should not tarnish the accounting
profession.
 Professional behaviour includes among other things:
o Following rules and standards.
o Making sure one’s work is always of best quality.
o Making sure that one’s actions do not damage the name of the accounting
profession.
o Putting effort to try and improve the name of the accounting profession.
o Acting in the public interest at all times.
Integrity
 Integrity means obedience to moral and ethical principles; an upright character that
is reliable and sound.
 Being ethical in business means maintaining a high level of personal integrity. This
means having a consistent character that can be demonstrated in the form of
words and actions.
 Integrity will make the business earn the trust of customers and employees.
Confidentiality
 It is an act of keeping information between two people that is, the client and the
accountant, without telling it to other people whether they are family, friends or
workmates.
 In the process of doing one’s work an accountant comes across private information
that should not be disclosed to everyone.
 A professional accountant is one who does not go around telling people about the
secrets of his/her client or employer.
Competence
 When an accountant is competent, it means he/she understands the skills required
to do the job and has got the skills to do it. For example, an accountant should be
able to record transactions correctly and accurately.
 It is unacceptable for accountants to accept a duty that they cannot execute.
Objectivity
 This is a way of making decisions, where one is required to consider facts
concerning the issue to be decided on.
 Conflicts, personal issues or influence from other people should not be used to
make a decision.
Compliance
 Compliance is following rules and principles that govern the accounting industry.
 Accountants should follow the stipulated rules when doing their work.

Business Ethics

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BUSINESS ETHICS

By the end of this sub-topic, learners should be able to:

Importance of good business ethics

Reduce high labour turnover

Attracts investors and keeps a company’s share price up

Respect for others

Professional ethics in accounting

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