Effect on Companies When Not Following Codes of Ethics

Effect on Companies When Not Following Codes of Ethics

The concept of ethics is as old as society itself; throughout history, it has been connected to socialization between individuals. The domain 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). However, there is a consensus among scientist that being perceived as ethical can be advantageous. Ethics in the world of organisation’s business involve ordinary decency and entails vital aspects such as honesty, integrity, and fairness. Therefore, acting ethically is viewed as a form of social responsibility of professionals in a company toguarantee 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 professional is 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. Failure to comply with the code of ethics on the part of organisations can cause severe damages especially in regards to reputation and in severe cases; it can lead to the downfall of the company. In this research, we will examine the effect of not following the code of ethics in companies. Further, the study will review the effectiveness of the code of ethics through ethical decision-making and the extent to which lack of following these codes can affect the company.

Research Rationale/Context

Ethics is on the agenda of big corporations, and the importance of having a way to deal with the domain is acknowledged to be of more importance. Andrade et al. (2017)argue that companies are increasingly interacting with their stakeholders via several relationships and thus leading to an increase in scrutiny of the practises they observe primarily at the ethical level. Codes of ethics assist employees by giving them guidelines on the ways to avoid or solve issues that might affect the company’s reputation as well as being aware of stakeholders’ ethical expectation and how they align with company’s core values that are transmitted to consumers through all consumer experiences. Further, the article argues that social pressures are increasingly putting companies under pressure to examine how it deals with consumers, competitors, suppliers and other stakeholders for an ethical perspective. Popescu (2016) argues thatcodes of conduct generate a clean marketing image for a company where 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. He further argues that customers are also not only attracted to a company that offers a good product but also companies that ethically conducts their businesses thus revealing the significance of codes of ethics to a company.

In recent years, major accounting scandals around the world have revealed the impact of unethical conduct that is often costly to a firm andits shareholders because it could bankrupt the company or result in less serious relapses, jeopardize the profitability of an organization and market value, tarnish the reputation or brand image, or lead to mistrust from the public.  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. Hence the risk of corruption in the public sector is stronger. 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 scrutinised.

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 impact whether negatively or positively. 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 and how they deal with wrongdoings that could have social and economic adverse effects (Popescu, 2016). The primary reason why a company develops codes of ethics is to self-protect itselfby mainly protecting 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 scrutinizing companies that fail to put proper principles in place that guides employees in their daily endeavours in the company. The main research questions are:

  1. To examine the significance of codes of ethics on the 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.
  1. To examine the negative impact that results from failure to adhere to ethical conducts especially concerning the company’s reputation and performance.
  2. To compare the difference between companies that adhere to corporate codes of conducts and those that do not have strict adherence as a measure of the success of the company and employees’ behavior.


Research Questions/Hypotheses

The research predicts that there was a significant correlation between unethical conducts of employees and poor performance of the organization. The research 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.

In this study the research questions were:

  1. Are employees conversant with their company’s codes of ethics; 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 organisation?
  1. What is the appropriate description of corporate codes of ethics?



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.


Brown, D., 2014. The impact of codes of ethics on behaviour: A rapid evidence assessment. College of Policing, (http://whatworks.college.police.uk/Research/Documents/REA_codes_of_ethics.pdf), pp.1-11.

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

(http://www.diva-portal.org/smash/get/diva2:395107/fulltext02), pp.1-58.

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

(http://www.jopafl.com/uploads/issue9/PROS_AND_CONS_OF_CORPORATE_CODES_OF_CONDUCT.pdf), pp.126-32.

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