Every one of us remembers learning in school about ethics and morality, right? Indeed, they are the very foundations of humanity. However, "ethical" is one of those phrases that have so many different definitions and interpretations that it can be difficult to pin down exactly what it means. This is particularly true in the context of business practice, where the financial gain has a tendency to obscure ideals and a company's moral compass.
In this article, we are going to discuss business ethics and social responsibility in detail. After going through it, you will have a clear idea about what they are in the business context, how they differ, and how to inculcate them in your business operations.
Let’s start with the very basics then!
What is business ethics?
Business ethics is the study of proper business rules and procedures surrounding potentially contentious topics such as corporate governance, bribery, fiduciary responsibilities, discrimination, insider trading, corporate social responsibility, and many more. It is not something you should think of when your company reaches a certain scale. Rather, they must be integrated into the fabric of your startup from the very beginning. Ethical principles can be important in defining how a business handles specific scenarios and internal and external challenges. Values assist business executives to avoid temptations and avoid lapses as the company grows.
Business ethics ensures that there is a standard level of trust between consumers and other relevant stakeholders and enterprises.
What is Social Responsibility?
Corporate social responsibility, or CSR, is a self-regulating business strategy that allows an organization to be socially accountable to itself, its stakeholders, and the general public. Companies that practice corporate social responsibility can be aware of the impact they have on all facets of society, including social, economic, and environmental. CSR implies that a business operates in ways that benefit society and the environment rather than harming them in the normal course of its operations.
How do business ethics and Corporate Social Responsibility differ?
While business ethics and Corporate social responsibility are inextricably linked, there is sometimes confusion about the difference between the two. This is because neither term has a universally accepted definition. However, there are subtle differences between them, as discussed below-
Business ethics is a broad topic of study that focuses on ethical decision-making in business environments. In summary, it is concerned with a company's social obligations as well as with its commitments to its employees, suppliers, customers, and competitors. The following topics are frequently addressed in business ethics:
- Fraud and manipulation
- Diversity and inclusion
- Donations and contributions
On the other hand, social responsibility focuses more narrowly on a company's social obligations, while falling under the purview of business ethics. It is all about the extent to which companies owe something to society as a whole. It is also about how much they feel obligated to give back to those who are not directly associated with the business. CSR is the obligation placed on businesses to act in the best interests of the community wherever possible. This may even mean foregoing a profitable opportunity that may have negative consequences for the environment or people.
Why are business ethics and Social Responsibility important for businesses?
If inculcated properly, business ethics and Social Responsibility can change the trajectory of business success. We will discuss how-
- Helps to hire top talent
The ability to recruit top talents is critical to business success. But, hiring exceptional talents involve more than just paying a handsome salary. This is especially true when acquiring top talents from the Millennial generation, who will soon dominate the professional sector. Being a socially responsible and ethical company may make it easier to hire new employees or retain existing ones. Employees may be encouraged to stay longer, thus, lowering the expenses and disruption associated with recruitment and retraining.
- Facilitates better employee engagement
When you involve your employees in greater planning processes such as designing and implementing a socially responsible programme for your company, they will feel like they are part of something bigger and more important than their day-to-day responsibilities. As a result, they will be more engaged. A study conducted by Texas A&M, the University of Minnesota, and Temple revealed that CSR-related values that connect businesses and employees act as non-financial job benefits that improve employee retention. Employees are more likely to stay with a company in which they believe. This decreases staff turnover, dissatisfied employees and the total cost of hiring a new employee.
- Gives your business a competitive edge
Another element to consider when it comes to business ethics and social responsibility is the compounding nature of competition. Those businesses that do not adopt and invest in ethical standards will look inferior in comparison.
- Helps mitigate risk
Consider negative activities such as employee group discrimination, disregard for natural resources, or unethical use of company assets. This type of activity is more likely to result in lawsuits, litigation, or legal proceedings in which the company may suffer financial losses and reputational damage. Companies that follow CSR practices can reduce risk by avoiding troublesome situations and complying with acceptable activities.
- Builds positive brand image and boosts brand recognition
Implementing ethical business practices and incorporating social responsibility are effective strategies to build your brand. This is particularly true when you are just starting your business. While you should never use these tactics simply for marketing goals, doing so can help you generate marketing and co-branding opportunities.
On the other hand, sacrificing business ethics and social responsibility can negatively influence your hiring and revenue stream, and hence your company's capacity to prosper. A company's history, public messaging, and present employees are all publicly available information these days. Any prospective employee can locate it with a simple Google search. This shows business ethics are more crucial than ever before.
According to a report published in the Journal of Consumer Psychology, consumers may act more favourably towards a company that has demonstrated an ability to benefit its customers, than one that produces quality items. Customers are becoming more conscious of the effects that businesses may have on their communities. Many such customers actually base their purchase decisions on a company's CSR aspects. As a company becomes more involved in CSR, it is more likely to gain favourable brand recognition.
- Improves investor relations
According to a Boston Consulting Group study, companies that are thought to be leaders in social, environmental, or governance domains have an 11% more valuable than their competitors.
Enacting a CSR strategy tends to positively affect how investors feel about an organisation and how they see the company's worth. Therefore, organisations trying to gain an advantage and outperform their competitors should employ a well-planned CSR strategy and business ethics.
How can startups implement business ethics?
We have seen how putting a strong ethical framework in place can help businesses. We know it’s easier said than done but it’s certainly easier to do this earlier than later. Here, we will discuss certain ways in how startup leaders can provide an ethical framework for their businesses-
- Define your core values quite early
Your core values are the lifeblood of your business, as they influence your hiring processes, business operations, corporate culture, and business strategy. You may develop symbiosis between your strategic vision, people, and processes by filtering all business decisions via your core values.
- Integrate business ethics into your recruitment process
Integrating business ethics into your hiring process is one approach to start focusing on business ethics early on. By being judicious about who you recruit, you can save time, money, and disagreement over difficult decisions later on. One way to do so is to ask questions during the interview process that unearth a candidate's decision-making capabilities.
- Encourage a culture of openness and welcome dissent
Different points of view and constructive internal critics are the closest aids of a startup leader. Too often, founders are misled by the passion for their creative vision. At times, they surround themselves with "yes-men" who don't question their practices. When this happens, founders can easily lose touch with reality and lose sight of their ethical compass. Creating an open culture is an excellent method to develop internal checks and balances.
- Set examples and lead by them
We are all aware that actions speak louder than words. Similarly, leadership behaviours reflect the culture of the organisation. Following what you preach can assist your team in identifying ideal patterns of behaviour.
- Craft values everyone can own
Defining core values for your team is not sufficient alone. Startups must create values that everyone can relate to. This not only helps to attract talented employees early on, but it also inspires your team to truly own and live the organizational values on a regular basis.
- Do not stop learning
Many entrepreneurs make the cardinal mistake of believing that just because their business is unique, their leadership values must also be unique and different. As a result, they lack the ability to grow. In reality, successful icons like Steve Jobs were inspired by other creative innovators. Therefore, you should never stop learning and should expand your leadership knowledge by learning from the experiences of other successful entrepreneurs.
- Establish an independent board
Conflicts unavoidably emerge since venture capital companies frequently seek a majority of board seats as a condition for their investments. In many cases, the board serves the needs of venture capitalists and management rather than the needs of the company. This may result in fewer independent and impartial voices that may alert startup founders to ethical red flags. By establishing an independent board, members are obligated to operate in the best interests of the company.
How can your business prioritise social responsibility?
Getting started is one of the most difficult hurdles for startups to face. Therefore finding the resources to give back to society appears to be a daunting task. Most startups consider it a luxury reserved for bigger corporations. However, this does not have to be the case.
Before you begin planning how to include social responsibility into your core values, you must first learn how to prioritise it. Even entrepreneurs with the necessary resources may find it difficult to prioritise social responsibility.
Finding answers to the following questions will give your startup a view of the social issues you may invest in and how you can make a difference-
1. What impact does your company have on its employees, the environment, society, customers, the local community, and suppliers, both favourably and negatively?
2. What are the most urgent concerns in the key communities in which your company operates? How do they relate to your company's strengths?
3. What are your company's primary strengths?
4. Are competitors conducting ethical business? If so, how will you set yourself apart?
5. What resources, from labour to product to financing, are available to carry out socially responsible strategies?
What should your business avoid while creating a socially responsible model?
If done right, social responsibility can help your startup stand out from the crowd while also practising excellent business ethics. Unfortunately, many businesses have abused CSR activities for self-gain, and while there are still great outcomes, they are not necessarily genuine.
Simply put, don't participate in social endeavours if you can't be honest about them. One of the most effective methods to avoid this ethical quandary is to incorporate social responsibility activities into your core values. This is because your core values are always the leading force of your startup.
When developing a socially responsible company strategy, there are some activities you should avoid at all costs.
- Using CSR to gain moral credits
According to research on Fortune 500 corporations, companies that participate in socially responsible behaviour toward their stakeholders are more likely to demonstrate socially irresponsible behaviour toward those same stakeholders later on. While the vast majority of businesses do not seek to be irresponsible, it does happen. Don't be the corporation that creates a CSR agenda in order to get moral points and divert attention away from irresponsible behaviour or controversy later on.
- Employing charitable efforts not related to your core values or ethical standards
Instead of donating money to an unrelated group, choose a nonprofit that your firm believes in or a community project that resonates with your core values. The bottom line is that if you start compromising your beliefs for short-term advantages, there is no turning back, and in today's context, a company's ethics and how it executes social responsibility are more important than they were a few decades ago.
- Using CSR activities for marketing purposes only
We have already discussed the impact of social responsibility in creating your brand when you were just getting started. While marketing opportunities and co-branding can be advantages of developing a CSR programme, you should never perform CSR tasks only for marketing purposes. This will almost always backfire on your company. Adopt long-term practices rather than a one-time act.
- Maintain transparency in making decisions related to CSR
Making CSR-related decisions behind closed doors can leave people (particularly your employees) wondering whether there are any ulterior motives linked to these projects. they may also doubt if donations are genuinely going where you promise they are. Instead, involve your staff so they believe they have a voice. Also, be open and honest about your CSR efforts with the public.
We hope the discussion above will help you understand what business ethics and social responsibility are in the business context, how they differ, and how to inculcate them in your business operations. We have also discussed other important matters related to business ethics and social responsibility.
Read here how to create an effective business continuity plan.
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