Why Business Ethics Is So Important

In order for any business to be successful there are some essential business functions that just can’t be overlooked. We are sure everyone knows about the importance of finance and marketing, but another essential business function often overlooked is ethics and social responsibility.

What is Business Ethics?

By definition, business ethics refers to the standards for morally right and wrong conduct in business.

In today’s business environment amidst growing scrutiny of business practices, it’s more important than ever for companies to carry out work the right way. Business owners should never underestimate the link between business ethics and business success.

Why are good ethics so important to businesses?

Ethics Improves Your Business Reputation

The main reason why business should establish business ethics is to promote integrity among their employees and gain trust from key stakeholders, such as investors and most importantly from their customers and clients.

Business Ethics help you Retain Top Talent

Good ethics in business starts at the top. If you’re a business owner or manager, it’s important to lead by example. When employees see you make ethical choices, it lets them know that they can have confidence in the company; they know that you’ll do right by them and your customers. This boosts morale and as word spreads about how you treat employees well, you’ll draw in good workers. Having strong employee retention rates will help you save money over time on recruitment costs and training.

Limit Risk with Good Business Ethics

Businesses that practice good business ethics face less risk for fines and other legal trouble. Sure, the law and regulations are complicated, but a lot of trouble can be avoided just by doing what’s morally right. If business decisions are made with that in mind, you can save the stress of having to defend your company against lawsuits, fines and penalties.

Social and Ethics Committee, does my Company require one?

As we discussed above, a key emphasis has been placed on companies to consider their social, economic and environmental impact of their business activities on the societies in which they operate. As companies grow and become larger, their accountability to society increases which makes it more important for Companies to ensure that their operations are being effectively monitored in this regard.

What is the Companies Act requirements?

The Companies Act, No. 71 of 2008, as amended (“the Act”) prescribes that all state-owned companies, companies listed on the Johannesburg Stock Exchange and private companies, with a Public Interest Score above 500 in any two of the preceding five (5) years, must constitute a Social and Ethics Committee in accordance with Regulation 43 of the Companies Regulations.

Responsibilities of the Social and Ethics Committee

The Committee’s responsibilities include monitoring the company’s activities with regards to social and economic development, good corporate citizenship, environment, health and public safety, consumer relationships and labour and employment. In relation to identifying and evaluating corruption risks, the Committee should further ensure that the company implements a Corporate Compliance Programme in accordance with a practice note released by the Companies and Intellectual Property Commission (“CIPC”).

Composition of a Social and Ethics Committee

When constituting the committee, the membership must comprise of a minimum of three directors and/or prescribed officers of the company. One of these members must be a non-executive director who is not involved in the day-to-day management of the business or has been within the previous three financial years.

CIPC issued the guidelines on 19 November 2018 for Social and Ethics Committees that are required for certain entities, which can be found on the CIPC website: Guideline for Corporate Compliance

Whilst the Companies Act prescribes when a company should constitute a social and ethics committee it is in the best interest of a company to operate ethically no matter how big or small they are. Trustworthy companies are better at attracting and keeping customers and clients, talented employees, and capital which leads to success.

The HDI Group believes in the business principles of being Ethical, Honest, Patient and Straight Forward.