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Understanding The Difference Between Business Ethics And Social Responsibility Is Important For Board Members

Why Business Ethics Are Important for Your Organization


Business ethics refers to the principles and values that guide the behavior of individuals and organizations in the business world, including nonprofits. It dictates that organizations consider the impact of their decisions on various stakeholders, such as customers, employees, suppliers, shareholders and the communities they serve.

The ways an organization responds to right and wrong is a reflection of its business ethics. In many ways, business ethics go hand-in-hand with social responsibility. Both concepts are essential in every workplace, including nonprofit organizations’ activities and operations.

Here, we help you better understand the concept of business ethics by discussing the following topics:

  • A definition of business ethics and its principles
  • The importance of business ethics
  • The difference between business ethics and social responsibility
  • How to write a code of business ethics with examples

What Are Business Ethics?

‘Ethics’ comes from the Greek word, ethos, which means moral character. Ethics means knowing the difference between right and wrong and doing the right thing.

Boards often make ethical decisions based on the law, the nonprofit’s principles, or their consciences.

Business ethics refers to policies and practices related to such things as:

Boards are responsible for establishing policies and procedures, and ethical processes set the tone for an ethical nonprofit culture, this includes ethical responsibility in the workplace. With a BoardEffect board management system, your nonprofit can put its policies and procedures at your board members’ fingertips.

What Principles Do Ethical Businesses Follow?

The 11 principles of business ethics include:

  • Integrity
  • Honesty
  • Fairness
  • Compassion
  • Leadership
  • Respect
  • Loyalty
  • Transparency
  • Environmentally conscious
  • Law-abiding
  • Responsibility

Nonprofit boards should embrace these principles when dealing with employees, volunteers, donors, vendors, beneficiaries of programs and services, and each other.

Why Are Business Ethics Important?

Exercising ethical behavior in business is important for the following reasons:

  • It can help build trust and credibility with stakeholders
  • Promote long-term sustainability and profitability
  • Prevent reputational damage, legal problems and loss of business

Our laws set the official standard for business ethics. Nonetheless, nonprofits, corporations and other organizations must use their best judgment to decide what is morally and ethically right in any situation.

The premise behind business ethics is that business activities shouldn’t harm people, products or services.

What Is the Difference Between Social Responsibility and Business Ethics?

We’ve noted that business ethics refers to moral principles that serve as the foundation for how a nonprofit conducts itself and the behavior of individuals and organizations in the business world. By contrast, social responsibility is concerned with the impact of those behaviors on society and the environment.

The main differences between social responsibility and business ethics are listed below:

Social Responsibility

  • Focuses on ethical concerns that affect societies
  • Affects society as a whole
  • Requires accountability to the organization, stakeholders and the public

Business Ethics

  • Defines what is right and wrong
  • Affects the people within an organization
  • Requires ethical decision-making

Business ethics is a necessary foundation for social responsibility, but social responsibility goes beyond simply following ethical principles to actively contributing to the greater good.

Creating a Code of Business Ethics: Step-by-Step

Each ethics program is unique to the organization. For that reason, a good place to start creating a code of business ethics is to look to your nonprofit’s vision statement and mission statement for inspiration. A committee dedicated to the task will streamline the process.

With that in mind, here is an eight-step process for creating a business code of ethics for your nonprofit:

  1. List your nonprofit’s values.
  2. Ask for input from your staff and volunteers.
  3. Assess areas of risk (discrimination, reputation, security, confidentiality, etc.).
  4. Develop a framework for ethical decision-making.
  5. Determine how the framework dovetails with other policies.
  6. Write out the code of business ethics.
  7. Get board approval.
  8. Communicate the code of business ethics to staff and volunteers and post it on your website.

Business ethics can be challenging because our decisions often reflect our own beliefs and cultures in addition to the nonprofit’s culture.

Moreover, relationships are complicated, and there’s not always a clear-cut appropriate answer. Cultural assessments can be a valuable part of understanding whether certain behaviors align with a company’s code of ethics.

Business Code of Ethics Examples

We can take a cue from businesses and organizations we are familiar with as examples of business codes of ethics.

Here are some worth reviewing:

American Heart Association

In part, the American Heart Association’s ethics policy reads:

“The purpose for this ethics policy is to support a culture of openness, trust, and integrity in all American Heart Association management and business practices. A well understood ethics policy requires the participation and support of every AHA volunteer and employee.

At the American Heart Association, we are dedicated to working with our volunteers, employees, partners, vendors and customers to reduce disability and death from cardiovascular diseases and stroke. We are committed to conducting all of the AHA’s affairs and activities with the highest standards of ethical conduct. The AHA Code of Conduct in the Human Resources Policy Manual provides guidance for decisions and actions during our daily work.”

The American National Red Cross

The American National Red Cross states the following in its code of business ethics and conduct:

“As a charitable organization, the American Red Cross (the “Red Cross”) places the utmost importance on acting with integrity. In other words, the way we approach our work is just as important as the results we achieve.”

Dementia UK

The Dementia UK Ethical Policy states its purpose and context:

“The purpose of this policy is to provide guidance in relation to the type and nature of companies and events (including those undertaken by Individuals and Groups who are fundraising in aid of Dementia UK) that Dementia UK will, and will not, work with in order to raise funds to support the delivery of its mission, vision and objectives.” 

The Final Wrap: Business Ethics and Your Nonprofit

It is worthwhile for your board to take sufficient time to create a robust business code of conduct to guide your organization and help avoid reputational damage and costly fines while building value with stakeholders and maximizing profitability.

Discover how the BoardEffect board management software provides unlimited document storage where your board can share its code of business ethics, other policies, research, meeting minutes and more with fellow board members.

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