Does running a business ethically add value or cost?

GoodCorporation’s second Business Ethics Debate to be held in Paris looked at whether or not business ethics can be said to add value to an organisation, or is it simply another cost that must be borne?

In the introduction to the debate, it was suggested that those working in the fields of ethics and compliance have a need to demonstrate the commercial viability of their roles. Most of those present were, not surprisingly, of the view that ethics and compliance do offer added value.

However, the debate was divided as to whether this was the case for ethics alone. A vote at the start of the discussion revealed that above all, the majority felt that ethics was more of a preventative measure, necessary for the protection of a company’s reputation.

Some did feel that if ethical business practices were properly and successfully implemented, they brought tangible business benefits and real added value.

It was also suggested that rather than being an added cost, business ethics was really all about the right way to do business. Viewed in this light, it was argued that ethics did not require a separate budget, as it was really a question of doing what was necessary to run a business but doing it ethically.

Corporate motivation and the role of a company were also discussed. While it was agreed that there were many organisations that consider ethics to be vital to the way they do business, there still remain plenty whose principle aim is to generate revenue and profits. Would such businesses be more interested in ethics if it could be shown to add commercial value? Similarly, from a consumer perspective, there are many who are more interested in the quality of the goods and services a company produces than in its ethical conduct. Would ethical conduct influence their purchasing patterns in anyway?

This led on to the question of marketing, with some suggesting that building an ethical reputation for a business can be a highly effective and in fact, cost efficient marketing tool.

Others were opposed to the notion of ethics as a form of economic model, preferring to see it more as a way of behaving and, more importantly, teaching others to behave. Ethical conduct, it was suggested, should be at the heart of an organisation, and should emanate from the Board down to all stakeholders and business partners.

Many felt that we are observing a tangible shift in favour of ethics. Suggesting that in a short space of time, debating the importance of ethics will no longer be necessary as implementing good ethical conduct will simply be regarded as the right way to do business. Not because ethics necessarily offers a truly quantifiable benefit, but because the cost of failing to do so, in terms of damage to both profit and reputation, is all too easily quantifiable.

Finally the debate examined the impact of ethics on customers and employees. Customers, it was felt, prefer to deal with an ethical business, even if that means paying a little more. As for employees, those in human resources noted that the ethical conduct of an organisation is a key motivating factor for new recruits, particularly younger employees who want to feel proud of, rather than embarrassed by, the organisations for which they work.

The GoodCorporation View

In the last few years it has become increasingly clear that there is a real business case for an ethics and compliance function. Clients are starting to ‘screen’ suppliers against their corruption policies, human rights, labour standards and environmental performance. This is particularly evident in construction, oil & gas and public procurement processes. As a result, organisations need to be able to demonstrate ethical behaviour and compliance with regulations. We see this trend growing strongly, particularly with anti-corruption compliance.

Our best clients can demonstrate a virtuous circle of ethical behaviour. An organisation that sets out to be values-driven and treat all stakeholders well, will keep hold of its staff, attract the best recruits, find itself recommended by clients and working with suppliers who strive hard to keep the organisation’s business. This may be a subtle benefit, but it is nonetheless a genuine business case for ethical and values driven behaviour supported by a strong compliance function.

Conversely, clients that rely heavily on a compliance function that follows the letter rather than the spirit of the law, often struggle to create good cultures. Such a focus can create a culture that leaves all compliance to the compliance team, with no one taking responsibility for protecting the organisation’s reputation. The reputational damage caused by this approach is hitting the headlines with increasing frequency.

GoodCorporation Business Ethics Debate September 2012