Understanding Business Ethics

May 20, 2008 By Mary White

Have you ever faced an ethical dilemma in your professional life? When you’ve found yourself torn between doing what is right for one person versus doing what’s in the best interest of your company, that’s exactly what you were dealing with. The same can be said for situations in which you have to choose between doing what is in the best interest of society and your company, yourself, or individual people potentially impacted by your decisions.

Business ethics is related to applying one’s knowledge of right and wrong to decision making processes and actions made in the context of a business environment. When you’re concerned with making decisions that are in the long term best interest of your organization, it’s best to take a stakeholder approach to decision making, rather than a shareholder approach.

Shareholder Approach to Decision Making
When you make decisions based solely on the concerns of shareholders, you act in a manner designed to maximize bottom line profits. Your primary concern is taking actions that result in increased bottom line profitability for those with a direct ownership interest in your company.

Stakeholder Approach to Decision Making
A stakeholder perspective, on the other hand, involves taking the needs of multiple groups into account when making decision. Stakeholders are every group or person who affects or is affected by your organization. Shareholders are stakeholders, but they are not the only ones.

In addition to considering the needs and goals of shareholders when making decisions, those who use a shareholder perspective also consider the needs of and consequences to multiple groups, including: employees, suppliers, customers, competitors, regulatory agencies, the news media, community citizens, and more.

Why Use a Shareholder Approach
Using a shareholder approach to guide ones business decisions and behaviors can lead to very different outcomes than if you focus solely on structuring your actions so that bottom line profitability is maximized. Business owners and managers who let their actions be guided by the shareholder perspective are much less likely to make decisions that aren’t in the best interest of all parties associated with their companies.

The good news is that acting in a right manner is likely to greatly enhance bottom line profitability in the long term. Business owners are well served to realize that striving to make win-win decisions that consider the needs of all stakeholders are likely to cultivate a healthy business that’s likely to thrive over the long run.

Posted in Operations