Empirically speaking, does ethics pay Are firms who are more ethical top performers
Introduction
Ethics is a branch of HYPERLINK httpen.wikipedia.orgwikiPhilosophy o Philosophyphilosophy. It is called moral philosophy by some and its purpose is to address questions about HYPERLINK httpen.wikipedia.orgwikiMorality o Moralitymorality. It encompasses the concepts such as HYPERLINK httpen.wikipedia.orgwikiGood o Goodgood and HYPERLINK httpen.wikipedia.orgwikiBad o Badbad, the noble and the ignoble, HYPERLINK httpen.wikipedia.orgwikiRight o Rightright and HYPERLINK httpen.wikipedia.orgwikiWrong o Wrongwrong, HYPERLINK httpen.wikipedia.orgwikiJustice o Justicejustice, and HYPERLINK httpen.wikipedia.orgwikiVirtue o Virtuevirtue. It is a very subjective term. You may find universality in some issues relating to ethics but broadly speaking ethics is very dependent on perception. What may be right for one person may be wrong for another. These variations may be due to cultures, religions, demographics etc. For example a woman may wear a swimsuit in Florida. That would be a way she expresses herself and it is her choice if she wishes to wear a swimsuit. If she wears the same attire somewhere in Saudi Arabia the people there will consider it incorrect as it does not go in line with their culture and religion. It would be wrong for them. Ethics is based a lot on perception and thus is very hard to define. Some things though are universally unethical. Lying, cheating, stealing, murder, etc. are unethical universally. There is a very fine line between being ethical and unethical and these universal unethical acts may also be viewed as ethical. Capital punishment, abortion and euthanasia are examples of ethical dilemmas that have yet to be termed as completely ethical or unethical.
If it is hard to distinguish between ethical and unethical behaviour, then how can one define it. Being ethical helps you sleep at night with a free conscious. This is a very subjective way to define ethical practice. What bothers ones conscience may not bother another. Even though ethics may vary from people to people we will try and look at it without any relativity. We will look at practices that are either ethical or either unethical. We will try to be as objective as possible for looking at both the pros and cons of being ethical (Lama, 2001).
Does ethics pay
All companies in the 21st century have made their code of ethics. These code of ethics is how they define they will incorporate ethics in their business practices. Companies try to inculcate ethical behaviour into their employees through training and by imposing consequences on people who breach the code of ethics. Ethics is one of the relatively new buzzwords in the field of management. It has increased in importance as rules and regulations are now being set and implemented upon to defend the rights of consumers, employees and other shareholders of companies. Being ethical helps you create relationships whilst being unethical helps you find a way to gain many material goods quickly. As long as you dont get caught being unethical will help you achieve fame, it will help you get your job done much faster, it will also help you make more money, and it will help you achieve rapid fast success in the short run. It all depends on if a company is a short sprint runner or whether a company is a marathon runner. In the long run ethics is bound to pay you results.
There are many different ways in which companies can be unethical. To best define unethical practices are practices that break the laws of the country the company is working in. With this definition we will also add the moral behaviour of a company shows its ethical behaviour. There are many different unethical practices that have been identified in companies. Some of them are window dressing, inside trading, discrimination, sexual harassment, bribery, price fixing, and claiming anything which is not the truth (Frankena, 1988).
To further strengthen this point we can look at many different examples. The examples that are being used are ones that anyone can relate to and are a part of daily lives of many people. We are faced with ethical dilemmas daily and so are companies doing business in the corporate world. If you cheat in an exam you are bound to get good marks and pass that course. If you are caught you might face many different consequences like expulsion, suspension, failure or humiliation. It is a risk one can take if one really wishes to pass the course. If one is not caught then it would mean that the person ends up passing the course without doing any work for the course and this person does not bear the consequence. If this scenario is analyzed after the person has not been caught cheating it may be thought that this person was able to achieve success without working for it. In the short run this person would also be recognized as passing this test like every other student in his class. In the long run this person would have no idea or clue about the concepts he has studied. If this person had failed before then he would have had to work his way so as to manage a passing grade. Even though working hard to pass may seem a waste of time at that moment of time, one has to realize that knowledge learnt is an asset that never goes to waste. In this case we can see that being unethical may seem an easy path towards success but it might also lead to knowledge that is lost in the long run (Thiroux, 2008).
Window dressing and unethical accounting practices have become very common as companies want more people to invest in their companies. Like every other unethical practice that takes place in companies this practice can also be deemed as short run in nature. Investors look at the financial data of companies before deciding on investing in the stock of the company. These unethical practices may lead to people investing their money in the companys stock. This would be short run in nature because the investors would eventually realize they have made a mistake and they would not invest in the company again. The truth does not hide for a very long period of time eventually it has to come out. When it does the company may face many fines and the investors would demand their investment back. Investment would start to pour out of the company. This practice is still in use in many companies because for many companies it is more about first consolidating its position in the short run and then leveraging their position to cater to the long term. This is an ethical dilemma. Being ethical may lead to less investment because of a poor financial standing.
Bribes are an issue that has plagued both developed and developing countries. Bribes are considered unethical in some countries and in other countries bribes are thought of as gift or persuasive arguments in favour for a company. Bribes are unethical and many companies do not compromise on bribing to gain a competitive edge. Bribes are given to companies and also to individuals to gain competitive edges over others. Bribes can be made to government officials to look the other way for a small violation of building regulations. They may be also given to individuals within client companies to get preference for your company. Bribes are also used to win over contracts from different clientele from competitors. Bribes can also be used to make sure that a jury decides in your favour during a lawsuit. Bribing is sometimes necessary in some countries so as to avoid a lot of bureaucratic red tape. So what exactly is bribing. Bribing is giving material benefits to someone in authority so that he does something unethical which helps your company gain an unfair advantage. It is unethical but it poses a dilemma for many companies, especially those working in developing countries. In some of the developing countries the custom officers will not release your shipment for days if he is not given a bribe. They make you go through a lot of bureaucratic red tape before releasing your shipment. In some countries your competitors gain unfair advantages by bribing officials. This brings ethical dilemmas for a company. If it acts ethically it ends up with a disadvantage against its competition. Acting unethical may seem smart in this scenario. This again is very subjective and open to perception. By the looks of things it seems that ethics does not pay off but actually gives you a disadvantage over your unethical competitors. In such a scenario what does one do, act ethically and let your competitors trample over you or act unethically yourself (Curley, 2005).
The biggest unethical practice that companies are using today is marketing. Marketing practices are hailed by many people as unethical. The consumer is led to believe things that are not true. Marketing is all about getting your brand in the mind of the consumer. On many occasions companies play with the minds of their consumers and make space for their brands in their minds. Sublimation, puffery, sex in advertising, children in advertising, and defaming your competition are all practices that are being used in marketing to gain an advantage over the companys competitors. All these practices are unethical and this is agreed upon by even marketers. We are exposed to these unethical practices on a daily basis. Companies use these unethical practices to gain a competitive edge. These marketing techniques are more effective than other ethical marketing techniques that are being used. Marketing is all about playing with perceptions and companies that are able to play well with it succeed.
These examples help us see how disadvantageous being ethical can be. It gives you a disadvantage in front of you unethical competitors and it also means you lose out on the easy path to success. Then how can one say that ethical behaviour pays off. The consequences of being unethical far outweigh the short term benefits. It is the age of relationship selling. Companies in this age are facing a lot of competition and to sell their products they now need to use the concepts of properly managing their relationships with their customers. In an age where information is freely available and so many competitors are fighting for the same set of customers companies that are able to build relationships with customers are the ones that are able to achieve success. You may fool your customer once or twice and make a sale but you end up losing that long term sale in the long run. Companies that are ethical are preferred more by customers and they happen to be more loyal to them.
There are various practical examples that one can learn from. All these examples help us understand how consequential being unethical can be. Texaco was fined 176 million when it discriminated against its employees. It lost its lawsuit and had to compensate such a staggering amount for their unethical practice. Mercury Finance overstated its profits and this eventually led to Mercury Finance to lose 2.2 billion in stock almost overnight. Investors poured out their money from the company when they found about the unethical practices that were being carried out. The largest criminal fine ever paid was 100 million. This was paid by ADM and that for price fixing. The CEO of Genentech lost his job for trying to obtain a 2 million loan as part of a business deal. He tried to gain out of the deal unethically and he was sacked for it when his unethical behaviour was found out. The CEO of W.R. Grace lost his job on charges of sexual harassment. All these examples point to one thing and one thing only. Unethical behaviour costs you big time. If any company is found of unethical behaviour consumers, investors and even employees look at the company with disgrace and then the fines, lawsuits and bad publicity hamper the companys performance. Unethical behaviour has a lot of consequences. Investors stop investing, customers switch to more ethical companies to register their protest, employees wish to work for ethical companies, and the lawsuits are costs incurred (Cahn, 2008).
We have established now that unethical behaviour costs a company. Now we will look at different researches and how they prove that ethical behaviour helps pay the company back. The first study that we will look upon is one that was conducted in1994. This study showed found out that 26 of investors viewed the companys level of social responsibility before investing in it. This study proved that ethical behaviour and corporate values matter to investors. The investors are not only after the financial stability of a company but they also look upon the companys moral ethics before deciding to put their money into the company. There are many potential investors that look at the code of ethics of a company and look at how its repute is before investing in it. They want to invest in companies that are profitable ethically. Another study that was conducted in 1994 showed that 75 of consumers avoid or refuse to buy products from certain companies. The first reason to do so was because of poor service. The second reason that may be a shocker to many is the companys practice. The second biggest reason for customers not to buy a product of a particular company is the business practices of companies. This means that many consumers do not buy certain products because the parent company is involved in some sort of unethical practice. Another study which was conducted in Vanderbilt University demonstrated that low-polluting companies enjoyed better financial performance than high-polluting competitors in eight out of ten cases. This is a staggering number. It clearly shows that investors and customers care a lot about the practices of a company. A company that cares more about the environment will have more money invested in it and more people would like to buy their products. Caring for the environment is what is ethical and this study clearly shows that in the long run the ethical strategy pays off. The ethical strategy helps create relationships with customers and creates a bond which does not break easily. Another study which was conducted in 1997 found that customers are willing to switch to brands that are for a good cause. This study clearly shows that customers are willing to switch to companies following more ethical practices and companies that are giving back to the society. All these studies show one thing and one thing only. Companies that have ethical practices do get paid for it. They are able to attract more investors and their customers are more loyal to them (Frankena, 1988).
Many of the Fortune 500 companies are seen as ethical companies. Their code of ethics is role models for others to follow. The companies that have adopted ethical practices are successful. They are looked favourably by the governments, customers, investors and regulatory bodies alike. Their ethical practices are not the sole reason for their success but their ethical practices do indeed help in being named in the Fortune 500 companies. They are companies with immaculate records. Companies such as Enron that were previously looked upon favourably are now looked with shame due to the unethical practices they carried out. The way Johnson and Johnson solved its Tylenol issue is one that is lauded and praised time and time again. They did what was ethical and the short term loss they incurred back then has now been converted into long term benefits. The loyal customers they have gained after the Tylenol incident is one which can not be measured. They did what was morally correct and they are still reaping the benefits for it. Johnson and Johnson are a role model for any company that does not think that ethical behaviour would eventually pay off (Lama, 2001).
Ethics pays off eventually. The main aim of any company is to make profits by making sales to customers and achieving financial stability or growth by using the investors money. Ethics pays big time in both these different departments. Companies that have adopted ethical practices are in the good books of both investors and consumers. So even though unethical practices do lead to short term gains ethical practices do end up benefitting the company at the end of the day. Ethical and moral behaviour by companies helps them in getting not only customers but relationships with customers that is bound to last for a long time. The consequences of unethical behaviour can deter companies from behaving unethically. Companies need to learn from the experiences of various other companies and start acting in an ethical manner.
Conclusion
Does ethical behaviour pay back companies Are firms who are ethical top performers These were the two questions that this study was set out to answer. There will still be a long debate on this question. From the various studies that were analyzed the conclusion that we can come to is that ethics does indeed pay. The firms that are ethical are indeed todays top performers. Ethical behaviour helps firms in getting better investors and more loyal customers. Ethical behaviour helps one win in the long run. In the short run unethical behaviour may indeed bring you success, but that success is very short lived and is not something that you can count on. Ethics is an integral part of all the companies that have achieved success and are the member of the highly acclaimed Fortune 500 companies.
Ethics is very open to perception and is very subjective in nature. What is wrong for one person may be right for another. Companies need to ensure that they make a code of ethics that they inculcate in all of their employees. The decisions that an employee of a company makes can affect the company in both a positive and a negative manner. Companies need to train their employees about what decisions to take during ethical dilemmas. Formal training is required so as to ensure that the employees understand the importance of ethics. The employees have the responsibility of maintaining the goodwill of the company. The values that are to be inculcated from the code of ethics needs to be followed by both superiors and junior staff members. The upper level management needs to be sure that they act as role models for their peers to follow. Strict check is also required to ensure that the code of ethics is being followed. The bottom line for every company is that it needs to ensure that their employees make ethical decisions at every moment so that the name of the company is not hampered (Cahn, 2008).
Companies face many ethical dilemmas. In the age of globalization where borders have shrunk and different cultures now interact companies need to ensure that during ethical dilemmas their employees make the right decision. Unethical behaviour on the part of the companys employees will cause the company to bear many consequences and it will tamper with their reputation. The importance of ethics cannot be overemphasized. It is what differentiates long term players with short term players. Ethics does indeed pay you back in the long run in the form of higher sales and more investment.
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