Corporate Ethics and Business Impact

ethics
Friday, May 16, 2014

Most corporations, if asked, would describe themselves as “ethical.” Recently, talk of corporate ethics and “corporate social responsibility” has been frequent. Even so, it’s hard to create a list of rules that define exactly what constitutes good ethics. 

In the past, many companies have satisfied themselves by listing off unethical behaviors and asking employees to avoid those activities. Some examples would be insider trading, asking hourly employees to work “off the clock,” or deceiving customers in order to make a sale. Proactive, superior corporate ethics have had even less focus, with many companies assuming that superior ethics may place them at a disadvantage to their competitors.

Recently, however, companies have started measuring the dollar-and-cents value of good corporate citizenship. Those companies are finding that strong business ethics can drive industry-leading returns. Some of the drivers of increased business performance are:

Recruiting 

Employees are looking for more than a paycheck. In the article, “Never Mind the Chatter–What do Millennials Really Want?”, RealizedWorth offers an eye-opening statistic. When asked about the “non-negotiables” for a potential job, 29% of those surveyed mentioned “good corporate citizenship.” That's compared to just 15% that responded “salary.” Companies who also establish strong ethical standards have an economic edge in recruiting top talent.

Employee Turnover

That leads directly into another expense for businesses–employee turnover. A 2012 study from The Center for American Progress cites a replacement cost for a departing professional as 21% of that person's salary. So, for every employee making $50,000 per year, that person will cost about $10,000 to replace if they leave. The higher satisfaction rates experienced by employees of highly ethical companies lead directly to lower turnover rates.

Sales 

With greater awareness of the responsibilities corporations have to their communities, businesses and consumers are starting to state a preference for doing business with ethical, responsible companies. Studies have shown a reduced cost of sales for companies with a reputation for good corporate citizenship.

Companies that are good corporate citizens also consistently outperform those that aren’t, as researchers Graves and Waddock discussed in their best-selling book, Built to Last—yet another sign that corporate citizenship can positively (or negatively) impact company performance.

In the current business climate, business ethics are not simply about “right and wrong.” Senior managers who can drive ethical, socially responsible behaviors in their organizations have the ability to positively impact the bottom line.  

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Photo credit: St. Edward's University

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