In today’s rapidly evolving business climate, ethics is central to an organization’s long-term profitability and success. Companies that operate with high integrity perform better financially, gain more trust with stakeholders, and are more sustainable. The actual return on investment for a company that operates with integrity at its core is quite high.
Better Financial Performance
For the past 17 years some businesses have earned the distinction of being named one of the World’s Most Ethical Companies® by Ethisphere, a non-profit committed to defining and advancing the standards of ethical business practices. Companies earn the designation by scoring high on Ethisphere’s proprietary qualitative and quantitative assessment. The robust evaluation reviews and rates certain business practices of companies, including governance, culture, ethics and compliance activities, and environmental and social impact programs.
This year Ethisphere bestowed the honor on 135 companies representing 19 countries and 46 industries. Among these, six stalwarts – PepsiCo, Aflac, Ecolab, International Paper, KAO, and Milliken and Company have received the honor for a remarkable 17 years in a row.
In conjunction with this recognition program, Ethisphere studied the financial performance of its award winners and found that consistent commitment to ethics is not just possible, but profitable. According to Ethisphere’s Ethics Index, the 2023 honorees outperformed a comparable index of large cap companies by 13.6 percentage points over the past five years.
This outperformance is referred to by Ethisphere as the Ethics Premium. It has remained consistent since Ethisphere began tracking the equity performance of honoree companies several years ago.
Ethisphere’s Ethics Index quantifies and underscores the financial value of a business that operates with integrity. There are some key business integrity practices that differentiate these ethical giants from other companies, including:
Developing a clear purpose, mission, vision and values statement;
Walking the talk – leaders who display the company’s values through their actions;
Training that includes those at the very top, namely the board of directors;
Measuring the company’s ethical culture periodically, sharing results with employees, and executing improvement plans where needed; and
Appointing a senior leader to oversee the ethics and compliance program, typically a Chief Ethics and/or Compliance Officer.
Increased Trust with Stakeholders
Trust is an elusive, yet essential, asset for any organization. It’s hard to earn and easy to lose.
The Edelman Trust Barometer has surveyed societal trust in business and other institutions (government, media and NGOs) for over two decades. Recently, the report found that people gauge trust in societal institutions on two factors – competence and ethical behavior.
Moreover, ethics forms a whopping 75% of the trust quotient! The overwhelming significance of ethical drivers, such as how the public perceives an organization’s honesty, dependability and purpose beyond profits, reveals the importance of an organization ‘doing right’ in the eyes of stakeholders. Without it, the bond of trust will be weak.
Currently, businesses hold the highest trust capital among the four societal institutions studied. In fact, business is now the only segment seen by the public as both ethical and competent. While this is good news for businesses now, a reputation for being trustworthy is never fully secured. It must be earned continually through sound business integrity practices, such as those outlined above.
Long-Term Value Creation
Long-term value for a company comes from considering the broader stakeholder ecosystem and not just shareholders. One of the most important stakeholder groups for any company is their own employees. The sustainability of any organization depends on attracting and retaining talent.
Among the younger workforce, there’s a strong inclination to align personal values with professional affiliations. Many generation Z and millennial employees evaluate potential employers differently than prior generations. They are looking for companies that exhibit deep purpose – a reason for being that goes beyond profits and resonates with them on a personal level. Today, two issues important to Gen Z and millenial employees are climate change and work/life balance. They continue to wrestle with the role of work in their lives and the impact of climate change on their communities. Companies that show alignment with their views on these issues are coming out ahead.
B Corporations, or B Corps, are increasingly resonating with younger generations around the world. Household names like Patagonia, Ben & Jerry’s, Danone North America, and Nespresso are testaments to the success of the B Corp movement. The B Corp ethos – long-term value creation for all stakeholders through ethical, sustainable, and socially conscious business practices – aligns with the values of many of today’s younger generations. Overall, the movement has garnered immense momentum since it began in 2006, with over 6,000 Certified B Corporations across 80 countries and150 industries.
So, What Can We Learn
In essence, good ethics is not just the ‘right thing to do’ – it’s good business. Ethical businesses experience enhanced financial performance, foster greater trust with stakeholders, and cultivate long-term value, including attracting and retaining talent needed for the future. As the business landscape evolves, those committed to ethical practices will undoubtedly lead the way, proving that principles and profitability can, and do, go hand in hand.
Matt WallerCindy Moehring is the founder and executive chair of the Business Integrity Leadership Initiative at the Sam M. Walton College of Business at the University of Arkansas. She recently retired from Walmart after 20 years, where she served as senior vice president, Global Chief Ethics Officer, and senior vice president, U.S. Chief Ethics and Compliance Officer.
What’s your thought on this review?
Kindly like and share.