Ethicalsystems.org
September 2021
Is good ethics good for business? Crime and sleazy behavior sometimes pay off handsomely. People would not do such things if they didn’t think they were more profitable than the alternatives.
But let us make two distinctions right up front. First, let us contrast individual employees with companies. Of course, it can benefit individual employees to lie, cheat, and steal when they can get away with it. But these benefits usually come at the expense of the firm and its shareholders, so leaders and managers should work very hard to design ethical systems that will discourage such self-serving behavior (known as the “principal-agent problem”).
The harder question is whether ethical violations committed by the firm or for the firm’s benefit are profitable. Cheating customers, avoiding taxes, circumventing costly regulations, and undermining competitors can all directly increase shareholder value.
And here we must make the second distinction: short-term vs. long-term. Of course, bad ethics can be extremely profitable in the short run. Business is a complex web of relationships, and it is easy to increase revenues or decrease costs by exploiting some of those relationships. But what happens in the long run?
Customers are happy and confident in knowing they’re dealing with an honest company. Ethical companies retain the bulk of their employees for the long-term, which reduces costs associated with turnover. Investors have peace of mind when they invest in companies that display good ethics because they feel assured that their funds are protected. Good ethics keep share prices high and protect businesses from takeovers.
Culture has a tremendous influence on ethics and its application in a business setting. A corporation’s ability to deliver ethical value is dependent on the state of its culture. The culture of a company influences the moral judgment of employees and stakeholders. Companies that work to create a strong ethical culture motivate everyone to speak and act with honesty and integrity. Companies that portray strong ethics attract customers to their products and services, and are far more likely to manage their negative environmental and social externalities well.
