Effect on Companies When Not Following Codes of Ethics

Effect on Companies When Not Following Codes of Ethics

The concept of ethics has been connected to the socialisation of people throughout human civilisation. The understanding of ethics keeps changing and developing depending on different variables such as time and context. Changes cannot always be predicted, and acting ethical is not always an easy task (Isidorsson, 2010). Regardless, research reveals that being perceived as ethical can be advantageous.  Ethics in organisation entails vital aspects such as honesty, integrity, and fairness. Therefore, acting ethically is a form of social responsibility of professionals in a company to guarantee survival and stability.

A code of ethics guides professionals in conducting business with honesty and integrity. The document outlines the mission and value of a company and describes how professionals are supposed to do business and approach problems. The ethical principles are based on the company’s core values and standards to which employees are supposed to follow and uphold. Jefferson (2017) argues that although ethics do not have a price tag, they can significantly affect a company’s financial results such as diving of stock prices, protects, leaving of customers and other firms restricting the ability to do business. Therefore, failure to comply with the code of ethics can result in severe damages especially in regards to reputation and in severe cases; it can lead to the downfall of the company. In this research, it is essential to examine the effect of not following the code of ethics in a company, and how it affects its financial results. Further, the study will review the effectiveness of the code of ethics through ethical decision-making and the extent to which its lack affects the company.

Research Rationale/Context

Ethics is on the agenda of big corporations, and the importance of having a way to deal with the concept is acknowledged to be of more importance. Andrade et al. (2017) argue that companies are increasingly interacting with their stakeholders via several relationships thus leading to an increase in scrutiny of the practices they observe primarily at the ethical level. This research scrutinises the social pressures that are increasingly putting companies under pressure to examine how they deal with consumers, competitors, suppliers and other stakeholders from an ethical perspective.  The study will review the codes of conduct that generates a clean marketing image for a company in which investors could not only be attracted by a company’s financial growth but also the moral, ethical driven by the business activities that guide the company (Popescu, 2016).

Research Background

In recent years, major accounting scandals around the world have revealed the impact of unethical conduct, which is often costly to a firm and its shareholders because it can bankrupt the company or result in less severe relapses, jeopardize the profitability of an organisation and market value, tarnish the reputation or brand image, or lead to mistrust from the public.  For instance, the 2008 financial crisis threatened big corporations such as Lehman Brothers and Morgan Stanley leading them to unprecedented financial issues that threatened their longevity and future prospects. Lehman Brothers, a well- known staple firm collapsed within nine months, this failure was directly linked to the company’s unethical and short-sighted decisions that valued short terms profits over the health of the firm. Brown (2014) stipulates that codes of ethics encourage people to behave with integrity. During the last decade, codes of ethics have been voluntary for firms that are trying to protect their interest and in other cases, public interest thus having a code of ethics has become a rule in corporate culture (Popescu, 2016). However, how well the codes serve company goals and public interest needs to be examined.

Research Aim

The main aim of the research is to examine the extent to which a company that fails to follow codes of ethics are impacted whether negatively or positively in regards to its financial records and accounting. The significance of this study is to evaluate how organisational performance is affected by codes of ethics. The research will look at how the company responds to consumer pressure and social concerns, and how they improve or protect cooperate reputation. The study will further review how they deal with cases of corporate corruption by keeping employees’ behaviour under control by preventing unethical financial desires (Popescu, 2016). The primary reason a company develops codes of ethics is to self-protect itself by mainly reducing conflict of interest at the company level. Therefore, this research will review the impact of not following these ethics.

Research Objectives

The objectives of this research are grounded on the existing literature, other sources of information and feedback from questionnaires. The study intends to clearly understand codes of ethics and how they affect a company by scrutinising companies that fail to put proper financial principles in place that guides employees in their daily activities in the company. The main research questions are:

  1. To examine the significance of codes of ethics on the financial performance of an organisation.
  2. To review the extent to which companies in the 21st century value the presence of codes of ethics as part of the corporate culture
  • To examine employees adherence toward ethical conduct as a measure of corporate performance and productivity
  1. To explore the negative financial impact that results from failure to adhere to ethical behaviours especially concerning the company’s reputation and performance.

Research Questions/Hypotheses

The hypothesis of this research predicts that there was a significant correlation between unethical conducts of employees and poor performance and productivity of the organisation. The study believes that a lack of a strong cooperate culture increase pressure on the firm to increase productivity and the increased demand to respond to public and government pressure on corporate responsibility might have motivated unethical behaviours. Further, professionals who choose unethical behaviours as an easy way to achieve financial gains destroy the value of a company.

In this study the research questions were:

  1. Are employees conversant with their company’s codes of ethics and are they able to describe the organisation’s ethical behaviour?
  2. What factors will improve employees’ adherence to ethical conduct in the 21st century?
  • How would adherence cooperate codes of conduct positively affect the financial status of an organisation?
  1. What is the appropriate description of corporate codes of ethics concerning accountancy and finance?


Conclusion and Recommendation

Bad ethics affects negatively on a company’s financial results and profitability, unlike the companies that choose to follow the law and become accountable, others fail to maintain the integrity and strive to gain profit on every available opportunity. Companies faced with a lot of pressure to achieve growth in spite of economic, social and political turmoil in today’s world tend to divert to unethical behaviour as an easy way to achieve financial gains. Ethics affects financial results significantly thus revealing the significance of focusing on the ethical standards of a company over huge value and profits.



Reference List

Andrade, J., Hamza, K. & Xara-Brasil, D., 2017. Business Ethics: International Analysis of Codes of Ethics and Conduct. Brazilian Journal of Marketing, 16(1), pp. 1-15.

Brown, D., 2014. The impact of codes of ethics on behaviour: A rapid evidence assessment. [online] College of Policing. Available at: <http://whatworks.college.police.uk/Research/Documents/REA_codes_of_ethics.pdf>. [Accessed 25 February 2019].

Isidorsson, G., 2010. Ethics Affecting Business – Improving Ethical Performance. Master Dissertation in International Marketing

Popescu, A.-I., 2016. In Brief: Pros And Cons Of Corporate Codes Of Conduct. Journal of Public Administration, Finance and Law, 9, pp.125-32.