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How Companies Can Increase Profitability with Business Ethics
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Profitability is important for every business, in fact a lot of businesses tend to view it as their main priority, often overlooking other factors such as ethics in its favour. While overlooking ethical considerations might bring short-term gains, in the long run it not only harms a brand's reputation but may also impact a company’s bottom line.
👉 In this article we’ll explore the meaning of business ethics and how companies can actually increase their profitability by adopting such practices.
Firstly, what do we mean by business ethics?
“ Business ethics are the moral principles that act as guidelines for the way a business conducts itself. It refers to the application of ethical values to business behaviour through the implementation of appropriate business policies and practices regarding topics such as fraud, bribery, discrimination, social responsibility and corporate governance. ”
Ethics goes beyond the legal requirements for a company. In fact, business ethics often enhances the law by governing acceptable behaviours that lie outside the control of the government. Companies establish business ethics policies to ensure that their employees act with integrity and in order to gain trust from their stakeholders (eg. clients, customers and investors). It asks companies to make decisions and to act in a way that most would consider to be morally acceptable.
Some companies may see morality as something that stands in the way of profitability, and may choose to favour profitability over any question of ethics. While this may lead to an increase in profit in the short term, it’s actually a fallacy to think that business ethics are a barrier to profitability. Research consistently shows that companies who adopt ethical policies and practices see better long term financial results and tend to be more successful. In the next section we’ll take a closer look at some of the benefits of business ethics and how they can actually increase profitability.
How can business ethics benefit a company?
Legal protection
Principles of business ethics help to ensure that a company is operating within the area of the law. By acting responsibly it can ensure that it reduces the risk of incurring any legal liability, which also means that it is protecting itself from having to pay for legal services and fines.
Google for example has found itself suffering the financial and legal repercussions of its dubious ethical practices. Google has been fined over €8 billion by the European Union for a range of antitrust issues, including abuse of their dominant market position after they allegedly forced customers to sign contracts promising not to accept advertising from rival search engines.
Reputation
Business ethics can help to maintain or even improve the reputation of a company. These days, stakeholders - investors, clients and customers - all expect companies to act in a fair and ethical manner. In fact, where a company isn’t seen to be doing so, they risk suffering significant reputational damage and even losing out on business opportunities. According to some studies 43% of customers have stopped buying from brands they felt were unethical and 73% of consumers said they consider corporate values before making a purchase. So the research is clear, good business ethics is important for the reputation (and therefore profitability) of the company.
Customer loyalty
Hand in hand with building a company’s reputation is customer loyalty. Practices of good business ethics help a company to increase the trust of their clients and customers. The result of this is that they’re more likely to make repeat purchases from your brand, or to engage your services time and time again.
Attract new investors
These days investors actively seek out investment opportunities with companies who have a track record of ethical business practices. This is because their investment is seen to be more secure - ethically run companies are less likely to fall into legal trouble, or to suffer reputational damange that could potentially threaten investments.
Attract and retain talent
It’s not just customers and investors who have come to expect more from the companies they do business with, it’s employee’s too. In fact, research shows that as much as 82% of employees would rather be paid less than work for an unethical company, and a correspondingly high portion of professionals say that they wouldn’t work for a company whose ethics didn’t align with their own values.
In other words, a company’s ethics not only impacts how easily it can attract new talent, but also how well it can retain its employees. Unethical workplace practices can create negative feelings among employees and fuel feelings of dissatisfaction. Ultimately this means that they’re more likely to look for work elsewhere.
High employee turnover is not only bad news for staff morale but also costs a company time and money. Each new hire has to go through a period of training which takes time and financial investment from the company. Therefore keeping employees happy benefits the bottom line.
👉 Another advantage of keeping employees content is that research has linked happy employees to higher levels of productivity - it’s win-win!
What about ethics and the environment?
There is a considerable overlap between principles of business ethics and environmental ethics. A company’s actions can significantly impact the environment around them, and where companies fail to take this into consideration serious harm can result.
Examples of company actions that can negatively impact the environment or society include: companies operating in the agricultural sector who clear land to make way for livestock (deforestation contributes towards global warming); businesses who rely on the use of pesticides which not only negatively affect human health but also the health of animals and insects; banks and investment managers who promote financial products based on unsustainable investment opportunities such as investment into fossil fuel companies; companies who use harmful chemicals such as PFAS (also known as forever chemicals) in their products despite studies suggesting that there’s a link between the chemicals and health conditions.
For a long time companies have gotten away with showing indifference when it comes to their impact on the environment and a few decades ago it would rarely have been considered an issue. However, this no longer holds true. Climate change and environmental issues are now seen as the defining challenge of our time and governments, companies and individuals are all being asked to play their part as we look to tackle it.
This is why it is also important for companies to incorporate environmental considerations into their principles of business ethics.
How can companies implement business ethics policies?
Companies can show stakeholders how they’ve aligned business ethics to the core of their company values and business operations by adopting something called a ‘code of ethics statement’. This is an outline of the ethical principles that govern a business's actions and behaviour. It provides employees with guidance for their actions and ensures that they handle situations with an ethical element in a way that aligns with the company's mission and values.
A good code of ethics should not only include practical guidance on what is expected of employees, but should also look to outline expectations regarding stakeholder relationships, FAQs, example scenarios or a decision making tree to help employees to understand the implication of the guidance, guidance on how the code will be implemented and monitored, as well as the consequences of any beach of ethics.
But it doesn’t end there. Implementing an effective corporate ethics policy requires constant communication and training. Companies should make an effort to engage the workforce in discussions on ethics. This might mean training sessions where ethical issues are presented and explored, or online training videos or interactive sessions. In fact, a mix of different types of training and communication is the most effective.
Companies should also look to create an overarching company context and culture that supports its code of ethics. This means accountability from top management, including policies in employee contracts and supplier agreements, implementing effective monitoring practices and most importantly taking action against any actions that don’t align with the company’s code of ethics.
The bottom line
The implementation of a strong ethical policy in a company is crucial to keeping investors, employees and stakeholders happy. By protecting the company from legal issues, reducing any risk to the brand, and by improving the overall reputation of the company, business ethics can actually improve a company’s profitability.
Where a company finds itself in a situation where ethics seems to be at odds with profitability, while prioritising profitability might result in an immediate benefit to its bottom line, in the long run research shows that this is unlikely to hold true. In fact, past examples show that where a company chooses to prioritise profits over doing the right thing they may actually inflict huge reputational damage on the company and even invite legal repercussions.
What about Greenly?
At Greenly we can help you to assess your company’s carbon footprint, and then give you the tools you need to cut down on emissions. Why not request a free demo with one of our experts - no obligation or commitment required.
If reading this article has inspired you to consider your company’s own carbon footprint, Greenly can help. Learn more about Greenly’s carbon management platform here.
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