good business

8 reasons Ethics make good business sense
 
Facebook is the latest company to learn the hard way that bad conduct affects stakeholders. The share price has seen a 13.5% drop since the Cambridge Analytica drama. Here are eight reasons why ethics are good for business.

Shareholder Sentiment

Trust and confidence in management affect shareholder sentiment. News related to unethical behaviour negatively impacts this level of confidence. Negative shareholder sentiment does not attract investment.

This is relevant to private companies too, especially family businesses, where reputation and standing of the company impact the family name. Family businesses also have other stakeholders to bear in mind – other family members used to dividend payouts.

Engagement and Retention

Employees prefer working for companies that treat people with dignity, respect and fairness. An environment where employees feel valued. When employees see, hear or experience negative behaviour or practices misaligned with their principles, their trust and loyalty to the company erode. Hence ethics = higher engagement + retention.

Customer Satisfaction

Would you want to do business with a company you don’t trust? Other customers wouldn’t either.

Companies with high levels of customer satisfaction tend to generate a higher degree of customer loyalty, repeat business and greater market share.  Moreover, businesses that genuinely contribute to their community and maintain good relationships with other businesses tend to be more successful in the long run.

There is a caveat to this. Companies who have corporate social responsibility initiatives but poor business practices are in danger of breeding cynicism and mistrust. This is counter-productive to building brand and customer loyalty.

Focus on Creating Value

A business needs its people to focus on activities that grow the company and create value. Unethical practices are more likely to open a company up to unwanted distractions such as lawsuits. Why would a business engage in activities that detract from creating value?

“Ethical business practices are sound business practices.”

Financial Records

The last two decades have seen a number of cases centred on fraudulent financial reporting. Whilst the effects of misleading financial reporting may boost the company’s stock price in the short-term, there are almost always ill effects in the long run.

Accurate financial records are more than a regulatory requirement. They are key to sound decision-making and long-term success.

Green Practices

I was once told ‘whether you’re chopping trees or hugging trees, people look for returns.”

The fact of the matter is if you don’t keep an eye on your bottom line, the business will be unsustainable. The bottom line is affected by people’s perception, belief and likeability of your company. The internet and social media have provided stakeholders with greater insight into the impact businesses have on our environment and society. Customers seek to do business with companies that reflect their values. Suppliers and investors would be wise to follow suit.

Unforeseen Circumstances

Waiting until a crisis strikes to instil and encourage good behaviours is a poor strategy. It takes time to overhaul embedded systems, beliefs and practices, so businesses are better off setting off on the right foot, rather than trying to course correct when calamity hits.

Genuine errors and unforeseen circumstances do happen. The ability for a business to respond appropriately and speedily speaks volumes in the eyes of stakeholders. When bad news hits, taking prompt and proper action is essential. Delayed decisions fuel negative public opinion, causing a downward spiral in relationships with stakeholders. This is not good practice for any business that needs customers, employees, suppliers and/or investors to thrive.

Counteract Apathy

Some may still argue why change when some are getting away with it. Others may wait for regulatory bodies to force them to clean up their business practices. But the fact of the matter is, we can no longer ignore the impact business has. We can no longer exonerate our actions through corporate social responsibility. We need to challenge the status quo bred under the guise ‘but this is business’. It’s smart to start right – acting responsibly in the first place.

Originally featured in Fresh Business Thinking and updated on 25 April 2018.

Facebook is the latest company to learn the hard way that bad conduct affects stakeholders. The share price has seen a 13.5% drop since the Cambridge Analytica drama. Here are eight reasons why ethics are good for business.

Shareholder Sentiment

Trust and confidence in management affect shareholder sentiment. News related to unethical behaviour negatively impacts this level of confidence. Negative shareholder sentiment does not attract investment.

This is relevant to private companies too, especially family businesses, where reputation and standing of the company impact the family name. Family businesses also have other stakeholders to bear in mind – other family members used to dividend payouts.

Engagement and Retention

Employees prefer working for companies that treat people with dignity, respect and fairness. An environment where employees feel valued. When employees see, hear or experience negative behaviour or practices misaligned with their principles, their trust and loyalty to the company erode. Hence ethics = higher engagement + retention.

Customer Satisfaction

Would you want to do business with a company you don’t trust? Other customers wouldn’t either.

Companies with high levels of customer satisfaction tend to generate a higher degree of customer loyalty, repeat business and greater market share.  Moreover, businesses that genuinely contribute to their community and maintain good relationships with other businesses tend to be more successful in the long run.

There is a caveat to this. Companies who have corporate social responsibility initiatives but poor business practices are in danger of breeding cynicism and mistrust. This is counter-productive to building brand and customer loyalty.

Focus on Creating Value

A business needs its people to focus on activities that grow the company and create value. Unethical practices are more likely to open a company up to unwanted distractions such as lawsuits. Why would a business engage in activities that detract from creating value?

“Ethical business practices are sound business practices.”

Financial Records

The last two decades have seen a number of cases centred on fraudulent financial reporting. Whilst the effects of misleading financial reporting may boost the company’s stock price in the short-term, there are almost always ill effects in the long run.

Accurate financial records are more than a regulatory requirement. They are key to sound decision-making and long-term success.

Green Practices

I was once told ‘whether you’re chopping trees or hugging trees, people look for returns.”

The fact of the matter is if you don’t keep an eye on your bottom line, the business will be unsustainable. The bottom line is affected by people’s perception, belief and likeability of your company. The internet and social media have provided stakeholders with greater insight into the impact businesses have on our environment and society. Customers seek to do business with companies that reflect their values. Suppliers and investors would be wise to follow suit.

Unforeseen Circumstances

Waiting until a crisis strikes to instil and encourage good behaviours is a poor strategy. It takes time to overhaul embedded systems, beliefs and practices, so businesses are better off setting off on the right foot, rather than trying to course correct when calamity hits.

Genuine errors and unforeseen circumstances do happen. The ability for a business to respond appropriately and speedily speaks volumes in the eyes of stakeholders. When bad news hits, taking prompt and proper action is essential. Delayed decisions fuel negative public opinion, causing a downward spiral in relationships with stakeholders. This is not good practice for any business that needs customers, employees, suppliers and/or investors to thrive.

Counteract Apathy

Some may still argue why change when some are getting away with it. Others may wait for regulatory bodies to force them to clean up their business practices. But the fact of the matter is, we can no longer ignore the impact business has. We can no longer exonerate our actions through corporate social responsibility. We need to challenge the status quo bred under the guise ‘but this is business’. It’s smart to start right – acting responsibly in the first place.

Originally featured in Fresh Business Thinking and updated on 25 April 2018.