4.5 Business Ethics and Corporate Social Responsibility

Business Ethics

Business ethics are the moral principles guiding decisions and conduct in a company. Ethical behavior builds trust with stakeholders (employees, customers, investors, suppliers). Common ethical issues include honesty in advertising, fair treatment of workers, conflicts of interest, and data privacy. A code of ethics is a written set of guidelines companies use to promote consistent, responsible decision-making across the organization.

Corporate Social Responsibility (CSR)

Corporate social responsibility (CSR) is a company's commitment to operate in ways that benefit society beyond just making profit. This includes environmental sustainability, philanthropy, ethical labor practices, and community engagement. CSR can improve brand reputation, attract loyal customers, and increase employee satisfaction, but it may also raise short-term costs, creating tension between profitability and social good.

Stakeholders vs. Shareholders

Shareholders own stock and focus on financial returns, while stakeholders include anyone affected by a business's actions—employees, customers, communities, and the environment. Ethical and socially responsible businesses try to balance shareholder profit goals with broader stakeholder interests, recognizing that long-term success often depends on maintaining goodwill and trust across all groups, not just investors.

Key terms

Business ethics

Moral principles guiding decisions and conduct within a company.

Corporate social responsibility (CSR)

A company's commitment to benefit society through sustainability, philanthropy, and ethical practices beyond profit.

Code of ethics

Written guidelines that promote consistent, responsible decision-making in an organization.

Stakeholder

Any person or group affected by a business's actions, including employees, customers, and communities.

Shareholder

A person who owns stock in a company and focuses primarily on financial returns.

Try an AP-style question

Which is an example of corporate social responsibility?

1. Cutting safety training to save money
2. Paying below minimum wage
3. Reducing a factory's carbon emissions
4. Hiding product defects from buyers