QS Study

Importance of Business Ethics in Strategic Management

Ethics are a set of moral standards that are relied upon to reach conclusions and make decisions. In a business environment, ethics are a key factor in responsible decision making. Maintaining a high ethical standpoint when operating your business can provide benefits to both the internal and external stakeholders of your business. Strategic management refers to the managerial process of forming a strategic vision, setting objectives, crafting a strategy and then over time initiating whatever corrective adjustments required for achieving the long-term objectives and goals of an organization.

The business case for ethics is based on the positive benefits that it can provide to your business. The reasons behind maintaining high ethical standards include:

  1. Long-term growth: Sustainability comes from an ethical long-term vision which takes into account all stakeholders. Smaller but sustainable profits long-term must be better than higher but riskier short-lived profits.
  2. Cost and risk reduction: companies which recognize the importance of business ethics will need to spend less protecting themselves from internal and external behavioral risks, especially when supported by sound governance -systems and independent.
  3. Anti-capitalist sentiment: the financial crisis marked another blow for the credibility of capitalism, with resentment towards bank bailouts at the cost of fundamental rights such as education and healthcare.
  4. Limited resources: the planet has finite resources but a growing population; without ethics, those resources are depleted for purely individual gain at a huge cost both to current and future generations.
  5. Creating Credibility: An organization that is believed to be driven by moral values is respected in the society even by those who may have no information about the working and the businesses or an organization. Infosys, for example, is perceived as an organization for good corporate governance and social responsibility initiatives. This perception is held far and wide even by those who do not even know what business the organization is into.
  1. Improving Decision Making: A man’s destiny is the sum totals of all the decisions that he/she takes in course of his life. The same holds true for organizations. Decisions are driven by values. For example, an organization that does not value competition will be fierce in its operations aiming to wipe out its competitors and establish a monopoly in the market.

Business ethics are important for managing a sustainable business mainly because of the serious consequences that can result from decisions made, with a lack of regard to ethics. Even if you believe that good business ethics don’t contribute to profit levels, you should be able to recognize that poor ethics can have ‘a detrimental effect on your bottom in the long term.