Ethics and Profits

Ethics and Profits
by Simon Webley

"To be ethical is profitable; but to be ethical because it is profitable is not ethical" Dr Peter Koestenbaum

This encapsulates one of the contemporary issues facing businessmen who think seriously about business ethics; they are looking for a clear case for implementing business ethics.

There is a subdued frustration amongst business leaders that consultants who advise on corporate ethical behaviour cannot convincingly show that adopting ethical practices makes a positive difference to the company's bottom line. This is understandable as shareholders' money will have to be spent if a corporate ethical programme is to have any credibility, let alone effectiveness. But the question has to be asked: is this reason for assuming a business ethics programme - from creating a code, to training, reporting and regular reviews - correct?

It is possible to argue from circumstantial evidence that a realistic business ethics policy will pay in the longer term. Studies in the US on long-term performance show that organisations with established ethical policies, have been more successful than those who do not.

The current popular argument for adopting an ethical strategy revolves around reputation risk management, the need for which has been spurred on by the Turnbull Committee report. This places a duty on directors to assess and report on financial and non-financial risks alike.

Furthermore, several high profile business scandals in the 1990s have provoked a more questioning approach by those looking for a career in business. Graduates are now concerned with the reputation of organisations as well as the financial package. Consumers too, realise that they can make their feelings about corporate behaviour known by boycotting products, especially with well known brands.

But if these types of argument do not prove convincing to CEOs, then they must also consider whether "as a good citizen" they should provide basic guidance to staff about behaviour expectations in their daily encounters and working relationships. Customer complaints or harassment from an environmental preservation organisation can be time-consuming and tend to throw doubts on a company's credibility.

Good ethics is good business.

It is my contention that even if it were not always the case that 'good ethics is good business' it is still important to provide clear guidance as to what is expected of an individual in any organisation. High standards of business behaviour, from boardroom to postroom, enhance the morale and well-being of a company, from the standpoint of employees and customers. The JABE research underlying the school curriculum modules shows just how unreliable it is to take the behavioural standard of younger people - indeed anyone - for granted.

Another difficulty encountered when addressing the issue of ethical standards at the workplace is the definition of "ethics." It is the same problem that those who offer "ethical funds" to investors encounter and certainly exercised the minds of those who compiled the FTSE4Good index, introduced last July. What may be unethical to me may not seem that way to another. It becomes more complicated when different cultures are involved.

At present, there does not seem to be a generally agreed definition of ethics for the corporate world to adopt. Russell Sparkes, an experienced business ethicist, in an article in Business Ethics: A European Review July 2001 suggests:

To describe something as ethical conveys certain principles of altruism, of self-sacrifice, of a normative and systematic code of conduct.. It also implies the existence of a set of consistent general principles that guide and influence behaviour."

Ethics then flow from principles and principles are derived from values. An individual's core values lie behind his or her behaviour. The same is true of corporate standards. If the ethical values of an organisation are not known or made explicit, there is little chance that a statement of Business Principles or a Code of Conduct will have much effect on managers or other staff.

At the highest level, the United Nations' Global Compact, which sets out nine principles for International Business in the fields of human rights, environmental protection and health & safety, does not have a preamble setting out to what values these standards are responding. It is assumed that because they have been taken from protocols which have been endorsed by the UN, that is sufficient.

With the smaller business at the opposite end of the scale, the values are usually not explicit; the owner/manager sets the tone and the style. Employees know that the values of the business are synonmous with those of the boss and are reflected everyday by the way employees and customers are treated. It also shows in the nature of relationships that exist with competitors. The adage: "If you want to be ethical, get an ethical boss" seems to hold good.


Practical application.

Moral and ethical values are indivisible - they are the same in any sphere of life. There is not a special set applicable to business, it is the application that is important. The hard choices are where obligations to different people with whom the business has a relationship come into conflict. Who takes precedence? Would compromise work?

The key tests to apply are:

Transparency - do I mind them knowing my decision?

Effect - who will be affected by the decision and how am I going to mitigate any adverse effects?

Fairness - would all involved consider they have been treated in a fair and equitable way?

It may be that it can never be proven that an ethical approach pays off; but if it is absent, it seems that businesses do not fare as well, nor have the long term customer and employee loyalty.