Why doing business ethically makes for better business

22 January 2015 -

A leading voice on business ethics tells us why safeguarding sound reputations is not just important in and of itself, but can actually boost company performance

Philippa Foster Back CBE

Many companies make the mistake of tackling ethical problems only once they have arisen. A reputation takes years to build, but can be lost overnight following an ethical lapse. Talking about ethical issues and training staff can help to encourage an ethical culture – one in which employees do the right thing, because it is the right thing to do.

Increasing focus by the media, regulators and governments on how companies conduct their business has made it critical that companies examine their ethics cultures. Reputations are based not only on how companies deliver their products and services, but on how they value their relationships with stakeholders.

So – what IS “business ethics”?

At the Institute of Business Ethics (IBE), we define it as the application of key values – such as fairness, honesty, openness and integrity – to all business behaviour. In short, it is about how an organisation does its business – eg, does it:

Treat its employees with dignity and respect?

Support them to “do the right thing”?

Treat its customers fairly?

Pay its suppliers on time?

Acknowledge its responsibilities to wider society?

Plus…

Is it open to dialogue with its local communities?

The IBE believes that business should “do the right thing” simply on the basis that it’s the right thing to do. But there are further benefits for organisations that take their ethical values seriously:

1. It is good for staff morale to work in an open culture, with possible benefits of increased productivity and staff loyalty. These are vital ingredients in the current climate, when staff may be pushed to the limit. An organisation known for fair and responsible practice is likely to attract high-quality employees and “stand out from the crowd”. 70% of students look at a company’s ethical approach to be a determining factor when they are assessing potential employers.

2. Demonstrating sound ethical practices can often be a condition for tendering for contracts with large customers needing to ensure the integrity of their supply chain. Good relationships with customers based upon a commitment to honesty and transparency will enhance a company’s reputation. Businesses that are familiar with those demands will have a competitive advantage.

3. Ethical companies outperform their peers financially in the long term. IBE research found that companies with codes of ethics are consistently more admired by their peer group in Management Today’s Most Admired Companies list than those without codes. We also showed that companies that train their staff in ethical standards financially outperform those that don’t.

Creating a culture of integrity and openness – where ethical dilemmas are discussed and debated and employees feel supported to do the right thing – is a powerful way to mitigate against the risk of ethical failure. Indeed, a healthy, trustworthy culture is the basis of a sustainable business in the long term.

No company should feel that this is anything other than good management sense.

Philippa Foster Back CBE is director of the Institute of Business Ethics.

For more thoughts on business ethics in management, download the recent CMI report The MoralDNA of Performance.