What Are Some Procedures a Company Can Have to Minimize Unethical Behavior?

Companies must show stakeholders evidence of ethical practices.

Shareholders and customers alike are increasingly taking notice of companies' unethical behaviors. Every company must define its environmental and social welfare standards to enhance its reputation as socially and environmentally responsible. Complying with laws is a first step, but going beyond the law can enhance a company's competitive advantage, as consumers grow increasingly more concerned about what they buy.

Practice More Than Preach

Companies that make a token effort to protect the environment or human rights lose credibility when they spend large sums of money advertising their good deeds. For instance, in 2005, the tobacco company Phillip Morris spent $115 million on socially responsible projects, then dropped $150 million on advertising these good deeds, according to Dan Harris in ABC News' "Corporate Goodwill or Tainted Money?" Companies should aim to spend more time and effort doing good deeds than advertising them -- if they truly benefit society, others will tell their stories for them.

Follow Supply Chains

Companies must thoroughly research and monitor their supply chains to ensure they're not doing business with unscrupulous businesses. For instance, they must ensure they're not buying materials from companies with poor labor or environmental standards in other countries. They must also communicate clear expectations and consequences with all members of the supply chain, as Jeffrey T. Luftig and Stephen Ouellette say in "The Decline of Ethical Behavior in Business." Representatives from the company should make surprise visits to their suppliers and their own operations to ensure all affiliated companies are respecting human rights and the environment.

Develop Environmental Practices

Developing a more environmentally friendly company is a challenge, but an ethical company makes a genuine effort to "green" its practices. Having an independent consultant conduct an energy audit will ensure an unbiased evaluation of the company's practices. Using energy-efficient appliances, installing solar panels, using storm water, letting employees work from home, minimizing waste and using recycled materials are just a few initiatives companies should consider.

Honesty

Companies must share accurate financial data, never misrepresenting their funds. Likewise, they should not deceive shareholders or the public by making false claims about products or company practices. Even if they follow the law while making misleading advertising claims, many consumers are likely to resent the dishonesty. To ensure the business acts in the best interest of stakeholders and consumers, and is honest about its practices, the company should have a board of directors comprised primarily of outside executives, along with a minority of executives from within the company. Small businesses may not yet have a board of directors, of course, but they should strive for full, honest disclosure of their practices.

References

• ABC News; Corporate Goodwill or Tainted Money?; Dan Harris; Jan. 7, 2006
• "Quality Digest"; The Decline of Ethical Behavior in Business; Jeffrey T. Luftig and Stephen Ouellette; May 3, 2009
• "Fast Company"; Rules of Business Ethics; Andrew Marlatt; March 31, 2003
• "The Complete Idiot's Guide to Socially Responsible Investing"; Ken Little; 2008