Companies with strong ethics programs have found that these efforts can reduce potential costly fines, decrease vulnerability, improve reputation, provide access to capital, favorably influence their bottom line, positively affect their employees' commitment to work and enhance customer loyalty. These benefits are outlined below:
Potential Avoidance of Fines:Companies and their employees are required to comply with national, international, and local laws governing their operation. Failure to comply with these standards can be costly in terms of time, resources, brand image and employee and customer loyalty. In addition, the development of strong ethics initiatives can greatly reduce the chance of fines resulting from wrongful, fraudulent, discriminatory or illegal activities. With the revision of the U.S. Sentencing Guidelines, companies developing "good corporate citizenship" actions can substantially reduce potential penalties when misconduct occurs.
Decreased Vulnerability:As companies develop or enhance their overseas operations, decentralize their business functions, and empower their workforce, it is imperative for them to develop ethics practices that provide the necessary training and tools to assure that their employees throughout the world can make ethical decisions. This decreases a company's vulnerability to misconduct and the harm it can cause to profitability, brand image and management focus.
Improved Brand Image and Reputation:Several ethics awards and media lists on corporate reputation (e.g., American Business Ethics Awards, Better Business Bureau Torch Award for Marketplace Ethics, and Business Ethics "100 Best Corporate Citizens") consider a range of ethical criteria for determining the companies' rankings. In addition, a 1998 Burson-Marsteller study on the link between CEOs and corporate reputation reported that a CEO's ethical reputation enhances a company's ability to attract investment capital, recruit the best employees, and earn a company the benefit of the doubt in times of crisis.
Access to Capital:The Social Investment Forum reports that, in 1997, more than $1 trillion in assets is under management in the United States in portfolios that use screens linked to ethics, the environment, and corporate social responsibility. In 1995, the figure was $639 billion. The 1997 portfolio amount accounts for nearly 9% of the $13.7 trillion in investment assets under professional management in the United States. Given these numbers, it is clear that companies addressing ethical, social, and environmental responsibilities have growing access to capital that has not otherwise been available.
Financial Performance:As early as 1988, a study by The Business Roundtable, "Corporate Ethics: A Prime Business Asset," reported that "a strong corporate culture and ethics are a vital strategic key to survival and profitability in a highly competitive era" and that "sound values, purposes, and practices are the basis for long-range achievement." More recently, some academic studies have shown a positive link between the existence of corporate ethics programs and financial performance. A 1997 DePaul University study found that companies with a defined corporate commitment to ethical principles do better financially (based on annual sales/revenues) than companies that don't. Similarly, another study by the University of Southwestern Louisiana, titled "The Effect of Published Reports of Unethical Conduct on Stock Prices," showed that publicity about unethical corporate behavior lowers stock prices for a minimum of six months.
Employee Commitment:A 1997 Walker Information survey of employees' views on business ethics revealed that 42% of respondents said that a company's ethical integrity directly influences their decision to work at the company. In addition, a 1994 survey by the same organization, titled "Corporate Character: Highlights of a National Survey Measuring the Impact of Corporate Social Responsibility," reported that the most important factors for employees in deciding where to work were employee treatment and business practices, ahead of quality, service, or price.
Customer Loyalty:A 1996 survey by Bozell Worldwide, The Wall Street Journal International Edition, and Nihon Keizai Shimbun, titled "Global Corporate Good Citizenship: Improving Perceptions in the '90s," reports that business ethics matter to consumers. When compared with nine "extremely important" general corporate citizenship categories or activities, "ethics and values" ranked highest in the United States and Europe and third highest in Japan.
Copyright ©1999 BSR Education Fund. All Rights Reserved.
The culture of a company influences the moral judgment of employees and stakeholders. Companies that work to create a strong ethical culture motivate everyone to speak and act with honesty and integrity. Companies that portray strong ethics attract customers to their products and services.
Customers are happy and confident in knowing they’re dealing with an honest company. Ethical companies also retain the bulk of their employees for the long-term which reduces costs associated with turnover. Investors have peace of mind when they invest in companies that display good ethics because they feel assured that their funds are protected. Good ethics keep share prices high and protect businesses from takeovers.
Creating an ethical organizational culture:
One of the most noticeable ways that companies can demonstrate their commitment to creating an ethical organizational culture is to ensure that top managers and leaders lead by example. Employees look to the behavior of top management as an example of the type of behavior that the company finds acceptable in the workplace. Actions speak louder than words, so when top executives display ethical behavior, it sends a positive message to employees. Senior leaders need to be mindful of the fact that they’re being watched and be sure to practice what they preach.
Research backs up the notion of leading by example. Stanford psychologist, Al Bandura is known for his research on observational learning. Bandura’s stages of observational learning are:
- Attention
- Retention
- Reproduction
- Motivation
The stages suggest that people pay attention to the behavior of others and retain thoughts about it. Then they reproduce the behavior. After repeated times of having a good experience with behavior, people are motivated to repeat it.
Companies that create and disseminate an official code of ethics send a clear message of the expectations for their employees. A code of ethics or code of conduct clearly outlines the organization’s primary values and ethical rules that they expect everyone to follow. The code should indicate that it applies to attire, attitudes, and behavior. Cultural norms and expectations are also inferred and are easily detected by observing the environment.
While it’s good to have a written record of the code of ethics, means nothing if top management fails to model ethical behavior. Employees are observant. They take note of whether the company is adhering to the ethical principles that it set or whether they are merely paying lip service.
A formal ethics training program sends a strong message about a company’s ethical stance. Seminars, workshops, and other ethical training programs reinforce the organization’s standards of conduct and clarify the types of behaviors that the company deems permissible or out of bounds. Situational examples help to address how to handle possible ethical dilemmas. Workshops can help employees to work on their problem-solving skills. Trainings may include consultations from peers or mentors.
Corporate culture always begins at the top. Managers should be evaluated on their ethical behavior as part of their annual performance appraisals. Their appraisals should include specific questions about how their decisions measure up against the code of ethics. Top executives should also be evaluated on the means they take to achieve their ethical goals as well as how the means lead to the ends.
Once again, research supports ethical principles. The principle of operant conditioning, by B.F. Skinner, represents that it’s possible to reinforce the behavior you want to see in others. The principle of operant conditioning also shows that companies shouldn’t reinforce behavior they don’t want to see in others.
People who act ethically should be noticeably rewarded for their behavior and those who fail to act and behave ethically should have consequences for unethical behavior. Rather than fire good employees who demonstrate a single ethics violation, the company may choose to provide correct feedback for the behavior along with a short probationary period. Correction should be conducted in the spirit of collaboration and education rather than punishment or chastisement.
This step should encourage companies to offer their employees opportunities for rewards, recognition, and social reinforcements. Rewards and recognition should be thoughtfully considered taking care to deliver it with attention to detail to avoid unintended consequences.
Most employees will want to do the right thing especially if they work for a company that has high moral and ethical standards. It can be difficult for anyone to report unethical behavior that they witness in other people at the company. Shy or introverted employees may find it particularly challenging to report unethical behavior. Almost anyone would feel intimidated if they felt the need to report the unethical behavior of one of their superiors or someone in a senior management position.
There are several ways that companies can assure their employees that they can safely report unethical behavior without fear of losing their jobs or getting some sort of punishment or consequence. An objective third party such as an ethics counselor, ethics officer, ombudsman, or ethics consultant can be helpful in these situations. An ombudsman can get the tools and resources to help with a consultation or investigation of a complaint about ethical behavior.
Using Technology to Support Creating an Ethical Organizational Culture
In the best-case scenario, your company will never have to deal with an infraction of your Code of Ethics policy. Unfortunately, that’s not the reality for many companies. Here’s where it pays to take a modern approach to creating an ethical organizational culture. BoardEffect offers the perfect electronic platform for securely storing your code of conduct policies, reports, investigations, and the outcome of investigative results. It provides a secure, confidential online space where a team can investigate, communicate, and collaborate about ethical reports that have the potential to harm the company’s reputation. In the event that an incident takes a legal turn, attorneys have quick access to the company’s code and all other documentation regarding the incident. The board administrator has the ability to limit the users who can participate in such discussions.
The best judgment you can use to protect your company is to implement modern governance processes with the help of a BoardEffect board management software solution.