Monday Mornings with Madison

Five Goals for Your Workplace in 2014 – Part 2

Being More Ethical

Companies looking to be more successful and improve their bottom lines in 2014 should focus on becoming more trustworthy, transparent, ethical, collaborative and mindful of its employee needs.   These goals deliver long-term gains to the bottom line.  Last week, we looked more closely at two of these goals:  the importance of being more trustworthy and transparent.   A company can be transparent and not be trustworthy… depending on how it is behaving.  It is much harder for a company to be seen as trustworthy if it is not transparent. Transparency and honesty are the coins by which trust is purchased.  And trust is an essential part of any business transaction or relationship.

Today’s global, interconnected, interdependent and highly interactive marketplace also requires businesses to be increasingly ethical.  Like trustworthiness and transparency, ethical business behavior has a long-term impact on corporate performance and success.  But it is also a more difficult target to hit.  Making increased ethical behavior a goal can help a company to align with the ever-evolving, fast-paced, information-savvy business world.

Raising the Bar on Ethics

To be more ethical, it is important to have a clear understanding of what constitutes business ethics in the first place.  One definition puts it this way:

Ethics in business looks at how people and institutions should behave in the world of commerce.  In particular, it involves applying appropriate constraints on the pursuit of self-interest or profits when the actions of the individuals or companies affects others.

It is where the rubber meets the road in fair business practices.  So what does ethical business behavior look like and can a company’s ethical behavior even be evaluated? Apparently so.  The Ethisphere Institute, an international think tank, has been compiling a list of the World’s Most Ethical Companies for the past seven years.  Companies can either be nominated by others or can self-nominate.  Any company from any industry can participate each year.  In 2013, thousands of companies from 36 industries in 100 countries entered, but only 134 made the cut.

To judge each participating company’s ethics, a committee:

  • reviews the code of ethics
  • examines the litigation and regulatory infraction history
  • evaluates investment in innovation
  • assesses sustainable business practices
  • looks at activities designed to improve corporate citizenship
  • studies nominations from senior executives, industry peers, suppliers and customers
  • examines training policies
  • reviews whistle-blower programs
  • reads internal tone-from-the-top communications
  • considers employee well-being
  • looks at workforce diversity

Then, after all that, they cross-check their short-list of finalists against governance lists from organizations including GMI Ratings and FTSE4Good. Any company that had significant legal trouble over the past five years is disqualified. Companies that focus on alcohol, tobacco or firearms are also disqualified.

The application process is intricate and time-consuming for companies to enter.  So why go through the trouble?  Studies have shown that ethical companies have a competitive advantage in workforce recruitment.  Employees increasingly want to work for an organization that aligns with their own personal values. Employees are more loyal to such organizations.  Also, chosen companies can increase their credibility in new markets by showcasing their “World’s Most Ethical Company” designation in their marketing materials to attract customers that don’t know the brand yet.

According to Alex Brigham, Executive Director of the Ethisphere Institute, “Companies have become increasingly aware of the advantages that being ethically-conscious has to offer, especially in the global economy. Companies find that ethical business practices increase their competitiveness in their respective industries, helping to further substantiate the notion that a culture of ethics is crucial to sustainable excellence.”

The ROI on Ethical Standards

Apparently global companies understand that ethical behavior has value.  But how does that translate for small and mid-size companies?  Behaving ethically may impact a company’s bottom line.  Will customers pay a premium for products made with higher ethical standards?  Does it make fiscal sense for a company to behave ethically, if ethical behavior costs more?

The Wall Street Journal put it to the test.  In 2008, WSJ conducted a series of experiments in an attempt to answer this question.  They showed consumers two products — coffee and T-shirts — but told one group the items had been made using high ethical standards, another group that low standards had been used, and a control group was given no information at all.  For the purpose of these studies, ethical behavior consisted of three factors:

  • progressive stakeholder relations:   diversity hiring, consumer safety
  • progressive environmental practices:  eco-friendly technology
  • respect for human rights:  no child or forced labor in overseas factories

In all their tests, consumers were willing to pay a higher premium for the ethically made goods, but would only buy unethically made products if given a steep discount.  For example, here is what consumers were willing to pay for a pound of coffee based on what they were told about the company’s production standards:

A company with ethical standards  $9.71

A company with unethical standards  $5.89

Control group with no information about the company’s ethics   $8.31

Interestingly, they also found that companies did not necessarily need to go all-out with their ethical standards and efforts to win over customers.  If a company invested in even a small degree of ethical behavior, customers would reward it just as much as a company that went much further in its efforts.  Thus, even a little ethical behavior goes a long way.

Taking the High Road

Despite pressure to make a fast buck or cut corners, there are companies choosing to take the high road to success.  These companies work according to a set of values, ethics and principles that pay dividends.  Employees are proud to work for those companies.  Customers are proud to buy from those companies.  Shareholders are proud to invest in those companies.  Such companies attract more ethical and talented people.  In the long term, the high road creates greater wealth and success.  This can be measured in the degree of customer and employee loyalty, community support, and steady, sustained growth.  It can be seen in the community’s good will and the staff’s inner certainty that what they are doing is right.

Taking the high road isn’t easy.  The low road is paved with easy decisions and immediate payoffs while the high road is full of tough decisions and delayed gratification. The high road requires commitment and demands that each employee makes choices daily between the easy way or the right way.  Each salesperson has to decide between getting a sale unethically or not getting it at all.  Each manager has to choose between going along with bad decisions or standing like a rock against the prevailing tide of ethical compromise.

Ethical behavior, of course, goes hand-in-hand with transparency and trustworthiness.  The three behaviors are intricately connected, reinforcing the fact that people do business with people (businesses) they know, like and trust.  Companies that behave unethically or unscrupulously with their employees, vendors, or customers will increasingly pay a price as it becomes easier and easier – through social media and the Internet — to shine on a light on and spread the word about poor business behavior.

Quote of the Week

“A strong culture of ethics is key to helping drive financial performance.” Alex Brigham

© 2014, Keren Peters-Atkinson. All rights reserved.

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