What is an Ethical Business Model?
Is an ethical business one that practices
1) corporate responsibility (includes standards for ethical behavior and social responsibility in the decision-making practice)
2) conscious capitalism (adds an extra emphasis on social responsibility—going so far as to make pursuing the social good one of the business’s primary functions)
That seems up to whoever is defining “ethical business”.
Should we consider it enough to include ethical considerations in one’s business statement, organization and practices?
Or must the business be as committed to serving humanity as it is to the traditional business goals of looking out for customers, vendors, employees, owners and other investors / financial stakeholders, and local communities?
For our purposes here, we’ll define an ethical business as one that at the very least takes corporate responsibility so seriously that it clearly states and consistently implements policies and procedures to ensure that it doesn’t abandon ethical practices for profits, or anything else.
Of course, as this site is dedicated to Pure Love and Its applications, we’ll frame a business’s moral obligations within an understanding of the interdependence of everyone and everything.
Here’s our definition:
An ethical business model is a business strategy that is concerned most fundamentally not with maximizing profits, but with sustainably providing worthwhile products and/or services while adhering to the timeless human values of fairness, integrity, decency, and working together for the benefit of all.
People, Planet, and Profit?
A business that consciously chooses to prioritize ethics may frame its ethos in terms of a triple bottom line: focusing equally on the three Ps: people, planet, and profit.
To be considered socially conscious, a business must weight all three of these considerations equally.
To be ethical (from our point of view), a business must simply work openly, transparently, and honestly to do business beautifully (usefully, efficiently) while not sacrificing people or the planet for the sake of profits (or prestige, or anything).
Towards an Evolving, Self-Correcting Ethical Organization
We’ve chosen this (at least at first glance less demanding) definition of an ethical business because we believe the best way to maintain ethical behavior is good, clear intentions—along with a transparent, open, and honest accounting of one’s successes and failures reaching one’s stated goals and living up to one’s proclaimed values. With that foundation, any individual or organization can continuously improve their moral behavior.
Additionally, we believe there should be room for companies to evolve the details of their own ethics.
To be considered ethical, companies should prioritize doing the right thing; but it seems overly rigid to demand that all businesses work equally on their commitment to people, planet, and profit.
Smaller enterprises in particular may simply lack the resources and clout to live up to those standards.
Here’s another definition:
An ethical business is one that pursues human excellence within the world of commerce. It provides useful goods and/or services efficiently/beautifully/get-er-done-erly, and without mistreating or in anyway exploiting others or our shared resources.
An ethical business model is a set of principles and protocols designed to help an organization meet both its ethical goals, financial goals and overall mission. It’s a business model that prioritizes wholesome behavior, as well as economic sustainability, usefulness, efficiency and other traditional business goals.
To some degree “wholesome behavior” is up to a given company to define, and their definition will evolve over time. The key is intentionality, clarity, transparency, openness, and accountability: given those prerequisites any organization can move consistently towards the wiser/kinder/more-effectively-joyful.
Below we cover the three Ps (people, planet, and profit) in more detail.
In the article’s final section, we discuss the structure of an ethical business—how a business can organize itself so that it consistently does right by itself, its customers, employees, vendors, local community, and everyone else.
Businesses have a responsibility to the primary stakeholders: the business’s customers, employees, vendors, and owners; but also to the community within which the business operates and the society that the business effects—which in today’s interconnected world, includes (at least to some degree) everyone.
A company working for the social good:
- Provides products and services that benefit consumers and the larger world.
- Creates, markets, and distributes these products and services in ways that minimize harm (to its employees, business partners, community, and the wider world) and maximizes helping.
Examples of how a business can help employees:
- Fair wages and generous benefits for necessities like health insurance and paid time off.
- Maintaining an open and ethical environment that empowers employees to contribute, speak their minds, call out any wrong-doings, and grow professionally and personally.
- Immediately and effectively dealing with any work-place harassment or discrimination.
Examples of how a business can help the community and larger world:
- Operate transparently and maintain ethical and legal standards that are higher than those mandated by the authorities (the best defense is a good offense).
- Treat vendors with respect, fulfill your obligations to them, and source products ethically. Make sure no part of the supply-chain gets a raw deal. This cannot be done perfectly, but if paired with transparency and honest ethical accounting and reporting it can be done reasonably well. (There should be some consideration of the operation’s size: A small company has less choice about where to source supplies and less ability to leverage over how they’re produced.
- Give back through philanthropy, support for volunteering, and community initiatives.
- Never use deceptive marketing practices, but instead focus on clear, honest descriptions of your products and their benefits and how you as a company seek to fit into the larger world. (You can still have entertaining commercials!)
- Do not manipulate governments to serve your needs. This is a tricky one, since if you don’t speak up for your needs, you may get run over. However, a great deal of trouble is caused by established businesses manipulating governments into tilting the game towards their narrow interests and away from the interests of the citizens, or even of the economy. How to get the balance right? For now, we’ll just suggest that companies work together to reduce the impact of lobbying on political decision-making.
- Seek to avoid damage to and maximize benefit to our shared resources: our government, media landscape, and environment.
Which brings us to:
Businesses have traditionally recognized the need to conserve resources for the sake of long-term profitability. But with the current emphasis on environmental sustainability, more and more companies are seeking to decrease their overall impact on the environment.
To be more environmentally sustainable, a business can make changes to day-to-day practices, such as recycling and offering more ride-sharing and work-from-home options.
But to best minimize their environmental impact, most businesses will have to also look for ways to minimize pollution and waste in their supply chain, production and shipping—as well as ensuring that their products are overall environmentally benign. No matter how you tweak the supply chain, if your business makes nothing but little plastic figurines, you probably ought to think about finding a more environmentally-friendly substance to mold into the figurines, or perhaps even going into a business that doesn’t clutter up the world with nonsense.
A business’s profitability is the traditional bottom line. An ethical business may still desire to maximize profits—but only so long as those near-term profits do not endanger the company’s long-term sustainability or contradict their commitment to people and the planet.
It is also worth pointing out that to be successful, a business does not need to make all the money it possibly can as quickly as it possibly can—it just needs to consistently make enough money to meet its expenses and invest in the human, intellectual, and material capital needed to remain competitive.
Craig Newman, the founder of Craigslist.com, is for example famous for pursuing what he’s called an “enough money” business model. In his case, he got very wealthy with a business strategy that focused primarily on usefulness.
Indeed, perhaps part of Craigslist’s success stems from allowing most everyone to post for free and then charging a reasonable (currently $10-$75) fee for job-posters (Craigslist has also very recently [we write this post in January of 2021] added a small charge for a few other kinds of postings). Combined with getting into the scene early (1995), free-to-cheap participation charges probably explain the site’s ability to attract so many participants, which is critical to the success of online communities.
The Structure of an Ethical Business
Ethical businesses don’t spontaneously arise. Just like wholesome living, maintaining an ethically healthy business requires consistently consciously choosing to prioritize goodness. All aspects of a company should be aware of the organization goal—providing truly-useful products and/or services efficiently and ethically—, as well as the procedures in place to reach that goal.
Implementing an ethical business model starts and ends with:
Explicitly stating company values and weaving them into the day-to-day
No company (worth addressing here) begins with the intention of immoral behavior, but without explicitly stating your ethical standards and weaving those standards into the business’s day-to-day decision-making, it is easy for managers and staff to get caught up in the pressures of the moment and lose sight of the bigger picture.
A. An ethical business includes the company’s moral values in the business statement and implements that business statement in its day-to-day practices.
- Managers and staff refer to and measure their assessments and decisions against clearly defined goals and standards—including ethical goals and standards. These standards flow from the company’s business statement, and the statement itself is known and referenced by staff at all levels. It’s important to keep bringing everyone back the same page!
2. Discuss ethical choices in interviews. This helps both with the hiring process and in setting the right tone with future employees.
3. Include ethical standards when evaluating employees for promotions, raises, and bonuses. Make sure employees, as well as all levels of management are aware of these expectations, and how they fit into the company’s larger sense of purpose.
B. Weave the company’s specific mission into all it does.
For example: If a big part of what you stand for is environmental health, you could offer employees bonuses for reducing your company’s carbon footprint; supply chain conversations could focus on both profitability and environmental sustainability; etc.
C. “If you can’t measure it, you can’t manage it!”
Along with measuring, analyzing and working to improve and expenditures and sales, an ethical company measures, analyzes and works to improve their social and environmental impact on local communities and the wider world.
Think you can’t measure Good and Evil?
Well, maybe not.
But there are many resources for helping one to track and quantify ethical behavior. Such as those methods developed by EthicalSystems.org from NYU’s Stern Business & Society Program.
D. A top-to-bottom ethical culture.
People are greatly influenced by the ethical standards of those around them. If, for example, everyone in your department you is routinely fudging numbers, it is hard to believe your company—whatever it may officially say—expects you to be particularly honest in your accounting practices.
Middle-managers and their staff must be empowered to encourage corporate responsibility and to report behaviors that contradict the company’s stated values.
E. Blowing your own horn
Like other companies, an ethical business generally builds public relations into their business model. This serves a practical purpose, as most consumers favor dealing with businesses that they believe are doing the right thing. However, going public with one’s intentions to behave morally also help to cement the ethos and culture within the organization.
If done within an atmosphere of honesty and transparency, publicly discussing your company’s moral commitments can help set right the tone inside your organization, as well as outside.
For example: If you advertise your organization as environmentally friendly and are transparent and honest about how you are working to meet those goals and how well you’ve met them so far, and management shares and discusses this information with staff, you signal to everyone inside the organization that you expect them to help you maintain high standards of environmental sustainability.
Why did you go into business in the first place?
Wasn’t it to do something cool and helpful while still making a decent living for yourself and your loved ones? Wasn’t it to pursue human excellence within the realm of commerce? And isn’t part of human excellence doing right by everyone?
Therefore, an ethical business model is part of being true to your company’s raison d’être: Create useful products efficiently and without harming other people or our shared resources—and, insofar as it is possible—in ways that (besides the usefulness of the product itself) benefit everyone.
Authors: Bartleby Willard & Amble Whistletown,
PLS Applied Love Dept.
Copyright: Andy Watson