Are Business Ethics Important for Profitability?

A number of factors play a part in making a business profitable, including expert management teams, dedicated and productive employees, consistent consumer demand and careful watch over the bottom line. In addition to these well-known business practices, companies that implement a management philosophy that relies heavily on business ethics are proven to be more successful than those that operate in an unethical manner. Although it may not be the first variable considered in analyzing the profits of a company, business ethics is an equally important catalyst to the success of a company.

The leadership of an organization holds the key to its long-term success, and remaining consistent with a management philosophy built on a foundation of ethics creates a positive example for all workers. Ethical accounting practices, treatment of employees, interactions with the public and information disseminated to shareholders are all responsibilities of the leadership team and can have a direct impact on the overall profitability of the company. When these integral aspects of business are not performed with a resounding theme of business ethics from the top down, each facet of the business beneath the management team has a greater potential to falter in the short or long term.

It has been proven time and again that employees who are satisfied with the environment in which they work are more productive than workers who are unhappy. Unethical practices in the workplace can cause widespread unrest with employees, leading to a greater sense of dissatisfaction with the work they are doing and their employers. However, when business ethics are encouraged from management and company executives lead by example, the ability of employees to focus on the work they need to complete to make themselves and the organization successful increases exponentially. Productivity increases when fewer distractions are present and morale is high, and this leads to greater profit levels for the company. (For related reading, see: 5 Unique Ways to Increase Office Morale.)

Employee happiness can also have an impact on turnover and retention, as unsatisfied workers are more prone to seek out other opportunities, regardless of higher pay or benefits offered by their current employer. Continuous recruitment and training of new employees can reduce the capital a company can spend on revenue-producing activities, ultimately shrinking its long-term profits.

Companies would be nothing without shareholders and investors, and as such, operating with business ethics in mind is most important when interacting with these crucial players. It is common for the profitability of publicly traded companies to decline rapidly when they encounter situations where information regarding unethical behavior is discovered. When investor confidence is lost, it can be a struggle for a company to regain the trust of the public, its investors and its valuable shareholders; profitability may take years to build up again. Companies that lay the framework for business ethics in all facets of operation are more likely to become and remain profitable than those that conduct business in an unethical manner.

(For related reading, see: How have business ethics evolved over time?)