Creating an Ethical Company

Businesses have to follow the law and the law is black and white. Being ethical in business is a choice and the rules are often in the gray area. Understanding what it means to be ethical in business, and realizing the rewards, can start you on the road to establishing guidelines in your company.

What it means to be an ethical business
Take this example: A company sells bottled water and a devastating storm hits its area. People are desperate for water. If the company increases prices too much, it'll be in violation of laws against price gouging; this is a black-and-white area. But should the company take advantage of supply and demand and raise prices at all? This is an ethical question.

Sometimes it appears that it costs more to act ethically (e.g., foregoing potential profit from a small price increase as in the previous example can be costly). However, the contrary is true. Studies have shown that ethical companies are significantly more profitable (see e.g., Corpedia's Ethics Index for public companies). Think of the goodwill that the company in the example could engender by giving away its bottled water for free in the aftermath of the storm?

And it seems only logical that acting ethically avoids problems that would otherwise cost money to resolve.

How to create ethics guidelines
Owners must make the decision to create an ethical company and then follow through. Here are my suggestions for getting started:

Identify all of the parties (also referred to as stakeholders) to be concerned about. These include:

  • Employees
  • Customers
  • Vendors
  • Investors
  • The community

Create the practices, attitudes, and actions to be applied. Steps include:

  • Listing objectives
  • Defining activities
  • Creating a company culture that reflects the set policies

Share the company's Code of Ethics. Provide employees with written statements about the company's ethics. Owners should be prepared to lead by example, acting ethically and requiring the same from their staff.

The following are some sample codes that you can review and adapt to your needs.


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