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How Ethics in Business Drive Success

December 28, 2022
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Do ethical principles and business behavior go together? Researchers studying the financial performance of companies have found a direct correlation between business ethics and bottom-line results. Read on to explore the relationship of ethics to business success and guidelines for creating an ethical work culture.

Why Ethical Business Practices Are Important

The rewards of creating a strong, ethically grounded organizational culture are both internal and external. Organizations committed to ethical business practices are developing healthier work cultures, attracting top employee talent, and building stronger customer relationships. That all contributes to superior marketplace performance.1

Ethisphere, a company that tracks the relationship between business ethics and financial performance, has consistently found that companies with ethical culture and practices exceed their competitors' financial performance, demonstrating a clear, tangible return on investment (ROI) for ‘doing the right thing.’ For the five years ending in January 2022, the company's list of "the World's Most Ethical Companies" outperformed a comparable index of large-cap companies by 24.6 percentage points.1, 2

Similarly, the Society for Human Resource Management (SHRM) has cited research showing that the stock market returns of publicly traded firms with strong, congruent organizational culture outperformed their competitors by an average of 20%. "The evidence indicates that a positive workplace culture predicts shareholder value by enabling superior value creation. The ethics of a firm’s culture plays a significant role in creating and sustaining value."3

Management Consultants McKinsey & Company reported on research that shows a correlation between employee satisfaction and connection to performance and prosocial behavior motivated by helping others.4

A Working Definition of Business Ethics

Simply put, ethics are the moral principles that guide people through their daily lives. The term business ethics refers to the moral framework of business operations and corporate culture.

Our ethical frameworks help us decide what actions to take, how to treat others, and what rules to uphold. Ethics inform the goals we pursue and derive from the things we value. People who are considered ethical are trustworthy, honest and act with integrity.

People around the world tend to place great value in the principles of benevolence, which is about taking care of others, and universalism, which means extending the same concern to all people and nature.3

In business, benevolence and universalism encompass behaviors and attitudes that shape business operations, customer relations and corporate responsibility.

How Business Ethics Relate to Company Culture

Internally, ethical conduct translates to concern for employees' rights, respect, and equitable policies for pay and promotion, as well as a commitment to diversity, equity, inclusion and belonging.

When a company's senior executives and managers model compliance with clearly articulated ethical standards, that creates an atmosphere of trust for employees. "If managed attentively, strong ethics create trust, and trust is key to improving employee engagement and commitment." By definition, engaged, committed employees strive to create positive business outcomes. 3

Business Ethics and ESG Programs

Environmental, social and governance (ESG) programs formalize a company's ethics and report on its activities in relation to these dimensions. More and more investors are considering corporate social responsibility and other business ethics practices when making investment decisions. They want to know how the business responds to environmental concerns and about its corporate governance practices.

Consumers Support Good Corporate Citizens

The public relations firm Edelman has been studying trust for two decades and believes "It is the ultimate currency in the relationship that all institutions—business, governments, NGOs and media—build with their stakeholders." Their most recent findings indicate that as people are losing faith in government and the media, they are increasingly turning to business to help solve societal problems and will support those businesses they believe are good corporate citizens. 5

How Ethical Behavior Supports Business Success

McKinsey found five different ways that having a solid ESG framework and congruent corporate culture helped businesses thrive, including:

  • Creating top-line growth
  • Reducing costs
  • Minimizing the risk of legal and regulatory actions
  • Increasing productivity
  • Optimizing investments and assets4

For an ESG program to provide these benefits, however, it must be an accurate reflection of the corporate culture. A senior consultant for Deloitte & Touche, LLP pointed out that some of the worst corporate offenders have had ethics and compliance programs in place, but employees just viewed them as a "check-the-box" activity or a bureaucratic hindrance to reaching business goals.6

The chief financial officer is often tasked with managing and reporting on the company's ESG program. Because the human resources department usually takes the lead in nurturing corporate culture, business leaders need to collaborate across departments.

The Cost of Unethical Business Practices

Over the course of about 30 years, beginning in the 1980s, unethical business practices led to bankruptcies that drained more than $1.25 trillion from the U.S. economy. For reference, that's about 20% of the fiscal 2023 budget proposal for the federal government.3, 7

Enron, Arthur Anderson, Worldcom and Lehman Brothers are among the now-defunct firms whose names are infamous because their leadership allowed and even encouraged morally wrong behavior. Unethical behavior in these cases hurt investors, employees and the communities where they lived. It also led to the creation of increasingly more detailed laws regulating business activities, including the Sarbanes-Oxley Act and the Dodd-Frank Act.

Advice for Building an Ethical Corporate Culture

Good business ethics go beyond legal obligations, and it takes support from all levels of leadership to build an ethical business culture. A company's human resources department may play a leading role in articulating corporate ethics, but in highly ethical companies, business leaders and managers from all departments model ethical behavior and regularly engage with employees on the subject of corporate ethics and handling ethical dilemmas.

Rather than creating siloed ethics programs, the companies that most successfully instill corporate values in employees begin communicating about those values immediately and reinforce them at every opportunity.

Tools that you can use to build a resilient, ethical corporate culture include your employee hiring, onboarding, performance and promotion procedures, role-modeling, internal communications and employee feedback.

Regular conversations about company values and how to handle ethical dilemmas specific to the business will help staff make better decisions in the moment. A well-designed employee feedback loop helps you assess the degree of alignment with corporate ethics.3

Importantly, business imperatives and operational directives must align with the company's formal code of ethics. There should be no contradiction between the mandates employees are given and the values the company espouses.6

Two more key practices for reinforcing the alignment of operations and ethics are to create a culture where it's ok to fail or make mistakes so that people don't feel pressured to hide problems, and to support employees for reporting unethical behavior. Both will strengthen employee trust in leadership's commitment to ethical business operations.3

Become an Effective, Ethical Leader with Seattle University

Seattle University’s Albers School of Business and Economics is among the premier business schools in the Pacific Northwest. Actively continuing the school's 70-year legacy as a champion of social justice, Albers' Online MBA program is highly praised by The Princeton Review for its distinguishing focus on promoting ethical practices in business to build a better society. Enrich your ethical business expertise and hone your negotiating, decision-making, and culture-building leadership skills.8, 9

From the moment you enroll, Seattle University’s forward-looking Online MBA program prepares you for fast-tracked professional growth and positions you as a top hiring prospect for companies as diverse as startups, Fortune 100 businesses, and global non-profit organizations. You'll gain immediate access to our prestigious network of tech-savvy alumni, mentors, and partnerships. Designed for working professionals, the Online MBA program facilitates excellent career connections and internships with major players in the Pacific Northwest tech community. Review our application requirements to get started, or connect with an Admissions Advisor to talk through the details.