Factors Influencing Business Ethics

Factors Influencing Business Ethics

In addition to the different types of positions on ethics in societies, we have also seen ethics evolving. People within a community take up ethical positions based on many human, political, social and economic factors around them. We have seen over time the world has evolved in an ethical standpoint and business is not immune to this. From this, we can understand that there are factors influencing business ethics that stem from within the considerations of the business world and some that are from outside the business world. To understand the factors influencing business ethics we, first of all, need a working definition of business ethics.

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What Are Business Ethics?

The definition of business ethics is the set of moral rules that govern how businesses operate, how business decisions are made and how people are treated. In business, there are many different people you have to answer to including customers, shareholders and clients. Business ethics are therefore not limited to expressed legal rules and involve elements of culture and norms in the communities which the business operates. They are a combination of formal and informal mindsets and rules that determine behaviour in business situations. So there are many factors influencing business ethics at the same time. Let’s examine them one by one.



The first factor influencing business ethics in any situation is the culture. Culture is a collection of the customs, norms and practices of a group of people. Culture has been described simply as “the way we do things”. This simple definition best explains how culture is regarded as one of the factors influencing business ethics. Many different measures can be used to assess where a community stands culturally. One good example that has a large influence on business ethics is the power distance rating of a culture. Power distance is a measure of the degree to which members of a community with authority are distanced by fear from those without authority. In a high power distance culture, authority is not questioned whereas low power distance cultures openly question those in authority. This is a factor influencing business ethics as it determines how easily subordinates can question their superiors. Many other cultural considerations influence business ethics.


Personal Code Of Ethics

If Culture is the first factor influencing business ethics then personal code of ethics is certainly the second factor influencing business ethics. The personal code of ethics is is a set of principles and rules used by an individual to govern their decision-making process, as well as to distinguish right from wrong. This is not necessarily a set of written principles but they none the less determine how a person handles decisions that require a moral position. An example may be drawn from a celebrated individual who is against tobacco smoking and refuses to work with businesses or other people involved in the tobacco industry. The personal code of ethics is an important factor influencing business ethics because individuals though in a larger organisation from time to time make decisions based on personal ethics on behalf of their employers.



The legislation is another factor influencing business ethics. The legislation refers to the rules and laws that govern a country. If behaviour is defined as being illegal in a country then it is also unethical for a business to be involved in such behaviour. However, in other countries, the same behaviour may be perfectly legal and this would influence business ethics in that country with regards to the behaviour. It is important to note that ethics is not limited to what is legal and it is perfectly acceptable for business ethics to deem behaviours that are otherwise legal to be unethical. The legislation is, however, a strong factor influencing business ethics because it forms a basis and behavioural guideline.


Rules And Regulations

Rules and regulations are another factor influencing business ethics in a way similar to legislation. Rules and regulations refer to guidelines that are specific to business or particular industries which guide the behaviour of businesses and their agents within the industry. They differ from legislation in that they are industry-specific and breaking them may not amount to the commission of a crime but would not be taken positively in the industry. It doesn’t take much to see how it is unethical but in some countries and industries giving gifts may not be allowed or there are restrictions on the nature, size and value of gifts that can be given in a business relationship. Of course, a cash gift would be frowned upon by many even if not illegal. Some professions such as accounting and banking would have rules in place against cash gifts.


Company Ethical Code

It has become the norm for companies to have their ethical codes. These are general agreements with employees on how employees will conduct themselves as agents of the business and they may extend to behaviour even when not representing the company. A company ethical code is a factor that influences business ethics to the extent that employees are aware of it and have been bound to it. To be effective it is best if they are stated clearly and all matters understood by employees. These company ethical codes tend to be tied into conditions of employment and have a direct bearing on the choices employees of companies make. In the absence of these companies would rely on personal ethical codes which are not always known or expressed.


Industry Ethical Climate

An industries ethical climate can also act as a factor influencing business ethics. Earlier it was noted that ethics have evolved. Similarly, business ethics have evolved in ways specific to certain industries. The collapse of Enron and Anderson Accounting along with it put the spotlight on the ethical climate within the accounting industry. As people placed a lot of trust in the information produced by accountants on businesses like Enron, trust was broken and the general public needed greater assurances that those in charge of reporting had a strict ethical code. This factor influenced business ethics in the accounting industry to the extent that professional accounting bodies include ethics classes in their training processes.


Social Pressures

The final factor affecting business ethics we will look at are social pressures. Communities are affected by business operations. The best example of this is the effect extractive businesses like mining have on the communities which live in areas close to the mines. While they bring employment and investment to these areas it comes with the cost of environmental impact. People have increasingly put pressure via political and social channels on mining companies and their attitude towards the environment. While legal pressure has also lead to change in their practices social pressure has been a major factor affecting business ethics in mining companies. Many more businesses have been affected in a similar fashion including alcohol, tobacco and cosmetics companies.


There are multiple factors affecting business ethics in the modern world and there is a tendency for many of these to intersect at times. For example, social pressure may lead to or be combined with legislation. These factors affecting business ethics may be subject to evolution in themself.

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