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The Importance of Organizational Ethics in Today’s Business

"Ethics is knowing the difference between what you have a right to do and what is right to do."
Potter Stewart

When most people consider ethics, they think of an individual acting in a fair and virtuous manner – treating others equally and with respect, taking responsibility for one’s conduct, behaving with a set of principles. However, there is a growing focus on organizational ethics and creating a culture of propriety, fairness, and honesty that guides decision making and actions throughout the company. Our strategic planning company in Minneapolis is looking at what organizational ethics are, why they’re important, and how creating this culture isn’t as simple as sending out a memo or rewriting a mission statement.

What Are Organizational Ethics?

At its most basic definition, organizational ethics is the set of standards and principles that determine how the organization and those who represent it or work within it behave in order to meet the goals and objectives of the organization. This can include the written code of conduct or code of ethics, but it also includes less tangible communication, such as company culture, the expectations on employees and how they are expected to meet goals.

For example, a code of conduct may include legal issues such as anti-discrimination and anti-harassment related to sex, race, ethnicity, religion, and disability. They can also include company values that support your mission statement, such as acting with transparency and integrity. However, company policies often take a backseat to company culture. If the board of directors or management are seen as acting in an unethical manner in order to meet sales goals or increase stock prices, employees are more likely to follow suit (Porter, 2014).

Why Are Organizational Ethics Important?

With a better understanding of what organizational ethics are, consider how unethical behavior can harm your organization. One well-known car manufacturer spent years promoting their “Clean Diesel” initiative and had installed emissions tracking software to ensure EPA compliance in millions of their cars, but in 2015, reports showed that a “defeat device” was also installed to mislead these tests. (ICCT, 2015). The investigation led to over $30 billion in fines, recalls, and lawsuits, but just as important, it damaged their reputation, they lost trust from stakeholders and consumers, and even six years later are struggling to reclaim their standing in the automotive industry. Prior to this, this company was seen as having strong ethics and commitment to eco-friendly technology and development, but the truth was much different. (Jacobs & Kalbers, 2019).

On a smaller scale, unethical behavior still damages the organization and can lead to poor employee morale and high turnover rates as well as a damaged reputation and poor reviews from customers who experienced this behavior first hand.

Conversely, adopting organizational ethics and using these standards and core values as the foundation of your organization offers numerous benefits. This includes improved employee morale, leading to reduced turnover and higher productivity and increased consumer confidence through building trust, excellent customer service, and brand loyalty. Both of these increase your revenue and profitability by minimizing the costs associated with high turnover as well as increase sales from an engaged, satisfied customer base.

How to Create an Ethical Culture Within Your Organization

Creating a culture of principles within your organization is key to successfully ensuring organizational ethics and this goes far beyond signing a code of conduct or having a strong mission statement. Ethical behavior in an organization begins with the actions and expectations of the leaders as numerous studies show that when there is a conflict between conscience and ethics and obedience to authority, individuals yield to the rationale of following orders (McLeod, 2017). Thus, an ethical culture must be designed through “values, thoughts during judgement, incentives, and cultural norms” (Epley and Kumar, 2019) and this begins at the top of the leadership structure.


Having a clear code of values and mission statement is important, but it needs to be a living, actionable document, one that leaders refer to to guide strategy, initiative, and decision making. These need to be transparent so employees can see how these organizational ethics influence the company itself (Epley and Kumar, 2019).

Thoughts During Judgement

When employees have to make decisions related to company issues, whether it’s making a financial choice that may increase profits but hurt a customer or hire someone out from under a competitor, having organizational ethics in place will make the decision obvious. Behavior is most often guided by what comes to mind first, so if ethics are at the forefront of your employees’ priorities, that is what will guide decision making (Epley and Kumar, 2019).


There are several studies that show that what is incentivized is what people are likely to do. One asked MBA students to act as a financial advisor, and one group completed an ethics checklist prior to recommending investment funds to clients. The ones who completed the ethics checklist did a better job of protecting the clients from placing money in illegal funds (Zhang 2015).

When you make the goals of the company reflect the values, you’ll see an improvement in ethical behavior.

Cultural Norms

A culture of ethics starts with leadership but it continues with ethical behavior throughout the company. While employees look to their leaders for guidance, how peers act and behave plays a key role, too. Epley and Kumar recommend highlighting the ethical behavior occurring rather than spotlighting poor behavior and making examples of those you want your team to emulate.

When it comes to making organizational ethics a priority in your business, it’s important to have a strategy in place to plan how you intend to make these shifts. Woodland Strategies can work with you to create a strategic plan to develop and enact a clear, cohesive ethical standard for your organization that will build trust and loyalty from both your employees and your customers. To learn more about how we can help you create a clear, goal-driven strategy, reach out to us via our contact form.

Porter, Lori “Take It from the Top” How Leaders Foster an Ethical Culture (Or Not)” Associations Now; Retrieved online 4/30/2021.

International Council on Clean Transportation “EPA’s Notice of Violation of the Clean Air Act to Volkswagen” ICCT; Retrieved online 4/30/2021.

Jacobs, Daniel and Lawrence P. Kalbers, PhD, CPA “The Volkswagen Diesel Emissions Scandal and Accountability” CPA Journal; Retrieved online 4/30/2021

McLeod, Saul “The Milgram Shock Experiment” Simply Psychology; Retrieved online 4/30/2021

Epley, Nicholas and Amit Kumar “How to Design an Ethical Organization” Harvard Business Review; Retrieved online 4/30/2021

Zhang, Ting, Pinar O. Fletcher, Francesca Gino, and Max H. Bazerman “Reducing Bounded Ethicality: How to Help Individuals Notice and Avoid Unethical Behavior” Harvard Business School; Retrieved online 4/30/2021

This article or any other promotional material(s) from Woodland Strategies, Inc. is in no way intended to be a comprehensive plan.

Please note all markets, circumstances, and results vary. Any strategic plan or marketing initiatives must follow all State and Federal laws and regulations, accordingly.

Please contact us directly for a complete assessment and plan for your individual organizational needs.

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