Measuring the Value of Ethics in Business

The student’s hand shot up excitedly.  “Business ethics!” the student exclaimed.  Another student pushed back, “Wait a minute.  What’s the difference between ‘business ethics’ and just ‘ethics’?”

Ohio State’s Fisher College of Business has some of the brightest students in the world, and they had unintentionally stumbled into an important nuance on an often-confusing topic.  As business students, they’re often introduced to the topic of “business ethics” in the classroom.  But why the distinction?  Isn’t “ethics” just “ethics”?  Could something be ethical, for example, at home, but unethical at work?  Some of the world’s major religious faiths offer some guidance¹:

• “No one of you is a believer until he loves for his neighbor what he loves for himself.” – Islam
• “What is hateful to you, do not do to your fellow man. This is the entire Law; all the rest is commentary.” – Judaism
• “Hurt not others with that which pains yourself.” – Buddhism
• “The sum of duty; do naught unto others what you would not have them do unto you.” – Hinduism
• “Do unto others as you would have them do unto you.” – Christianity

You may recognize these as variations of the “Golden Rule” most of us are taught as children.  This begs the question: Are (or should) the tenets and characteristics of ethics differ from realm-to-realm?  And why is it so important to define ethics in a way that’s both commonly understood, and consistently applied?

One might argue that it’s solely the duty of the legal system to codify ethics, provide oversight, and implement penalties related to violations.  However, that perspective is shifting as more and more companies realize that their stakeholders (customers, suppliers, shareholders, the media, the general public and more) have sophisticated and educated expectations around their behavior. 

Examples include the Wells Fargo fake account scandal², and Volkswagen’s falsification of emissions reports³.  Companies that violate their ethical duties are punished not only in the court of public opinion, but on Wall Street.  Millennials and Generation Z, more than any generations before them, are holding companies accountable.  While only 7% of the general population will abandon a brand for objectionable activity, that number leaps to 15% with the youngest generations and is rising.⁴

Correspondingly, there is strong evidence that companies that place a concerted focus on an ethics-based strategy see a positive impact to their bottom line.  For example, each year The Ethisphere Institute releases an index of the “World’s Most Ethical Companies”, using dozens of metrics involving governance, diversity, compliance and many other factors.  The companies recognized on Ethisphere’s list outperformed a comparable index of large cap stocks, from 2017 to 2022, by over 24%.⁵

Therefore, it’s not surprising that companies that have a strong focus on ethics are preferred by stakeholders.  They outperform their competition fiscally, are seen as better places to work, have a positive impact on the communities in which they operate, and are seen as worthy suppliers to ethics-conscious consumers.  A recent TED Talk even suggests that understanding ethics helps to improve the decision-making process.⁶

So, what does all of this mean moving forward?  Most likely:

• Companies will continue to increase their focus on socially conscious commerce due to the financial, branding, hiring and image implications.
• Consumers will continue to become increasingly aware and educated with respect to ethical behavior by the companies they know and hope to trust.  And they’ll find new and impactful ways to hold those companies accountable.

After all, there’s “gold” in that “Golden Rule”!

REFERENCES

1. Maxwell, J. C. (2005). Ethics 101: What Every Leader Needs to Know. Center Street. 17.
2. https://www.forbes.com/sites/jackkelly/2020/02/24/wells-fargo-forced-to-pay-3-billion-for-the-banks-fake-account-scandal/?sh=206d880042d2 (Retrieved 17 July 2022)
3. https://www.bbc.com/news/business-34324772 (Retrieved 17 July 2022)
4. https://sustainablebrands.com/read/behavior-change/survey-millennials-and-women-leading-the-sustainable-investing-charge (Retrieved 17 July 2022)
5. https://ethisphere.com/2022-worldsmostethical-news/#:~:text=Ethisphere's%202022%20Ethics%20Index%2C%20the,the%20past%20five%20calendar%20years. (Retrieved 17 July 2022)
6. https://www.ted.com/talks/michael_schur_how_ethics_can_help_you_make_better_decisions?mc_cid=c5ceab5e60&mc_eid=b8aa0a347d (Retrieved 17 July 2022)