You don’t have to be the former CEO of Volkswagen to know how devastating being caught doing the wrong thing can be for your business.
Doing the right thing, being ethical, isn’t just about not getting caught and having to pay the price. Research in Australia and internationally suggests that ethical businesses are more attractive to customers and to employees, are able to command a higher price for their products and outperform their less ethical peers on the stock market.
Why ethical business is better business
Ethical businesses will attract and keep the workforce of the future
Millennials want to work with employers that demonstrate a strong sense of company purpose beyond financial success, and they are more loyal to companies that value inclusiveness and open communications according to the Deloitte Millennial’s Survey 2016. Only five percent of survey respondents thought profit-focused values ensure long-term business success.
Ethical businesses do better financially
According to research by The Guardian published in late 2015, in the previous three years, the typical ethical fund in the UK market was up by almost 35% compared with a 28% rise for the FTSE All-Share index.
Poor ethics mean lower margins
In one trial, Academics from Western Ontario’s Ivey School of Business showed consumers the same products – coffee and T-shirts – telling one group that the items had been made under high ethical standards, and another group that low standards had been used. The control group got no information either way.
What they initially found was largely predictable. Consumers were willing to pay a slight premium for something they believed was made under ethical standards. More surprising was the size of the financial punishment doled out when consumers believed something was made unethically. They would only buy these at a considerable discount, much larger than the premium they were happy to pay the ‘good guys’.
Poor ethical decisions cause significant reputational damage
This doesn’t need explaining. Ask Volkswagen about emissions testing, CommInsure about health insurance, 7-Eleven about award wages or Martin Shkreli about price gouging life-saving pharmaceuticals. And, as many companies and individuals are learning, we live in an age of radical transparency: information is abundant, networked and ultimately accessible. The likelihood of being caught out by the authorities – and the news spreading like wildfire across social media – has dramatically increased.
Ethics in this month’s Insight Edge
- How do you create an ethical culture for your organisation?
- What can neuroscience tell us about ethical decision-making, and how can we use it in business?
- What is the role of compliance in ethical business practice?
- What was it like to work in international finance in the lead up to the global crisis?
- Do we need to consider our multicultural workplaces when we consider ethical culture at work?
- Extended interviews with all our experts on the monthly leadership podcast, Insight Edge.