Does ethical decision-making in business pay?
Does ethics pay? There is a general perception that good ethics mean good business and that in the long run, businesses that incorporate ethics in their decision-making will enhance their reputation and produce better financial results. This perception is borne out by statements such as:
“Organisations which drive ethics to the heart of their operations can obtain the additional bonus of a trust dividend. It is a dividend that feeds into employee engagement and workforce commitment, and thus improves organisational performance.”
However, these claims are difficult to measure factually because the ‘long run’ is an indefinite period of time and there are no generally accepted criteria by which success can be measured.
One piece of research that did take a serious look at this issue, albeit from a pure ethics rather than ethics in business decision-making perspective, is the research done by the Institute of Business Ethics (“IBE”) in their report ‘Does Business ethics pay? Revisited’. The report describes research into the relationship between the provision of business ethics training and corporate financial performance over a five-year period, from 2001 to 2005. One of the core questions in the research was, “Do you offer training to members of staff on the meaning and use of your (ethics) code?” The research then looked at the performance of companies who had:
- Corporate revealed ethics (a published code included in documents such as the corporate statement mission/vision statements)
- Corporate applied ethics (a code which was supported by actions such as training initiatives)
The report concluded that “using four measures of financial performance, companies with corporate applied ethics perform better financially than those with only corporate revealed ethics. This difference was found not to be due to the difference in company size nor risk effects.”
So, a standalone ethics policy is not the answer: it is the application of a core set of organisational values to decision-making within the business that results in better organisational performance.
Further evidence, again more from a pure ethics perspective, is available from The Ethisphere Institute. In 2011, they reported that ‘The World’s Most Ethical Firms‘ had outperformed the S&P 500 index every year since its inception in 2007.