Modern businesses like to show that they care about their customers, staff, community and the environment – but is ethical practice and social responsibility something that we can consider important for business success?
In this article, we take a look at why ethics and social responsibility became such important issues in recent years.
This will involve looking at how stronger ethical principles can actually help a business to succeed, and how companies are using corporate social responsibility to increase trust in their brand.
Some of the issues that we will explore include:
- How ethics became vital to businesses
- What are business ethics and social responsibility?
- Making ethics a part of a business’ identity
- The impact on recruitment
- Maintaining staff morale
- Honesty is the best policy (for building customer loyalty)
- The rise of B Corp
- The success of unethical practice
How ethics became vital to businesses
We live in a society where the success of a business is judged almost exclusively on one single thing; how much profit it makes.
However, this might not be as frighteningly capitalist as it sounds: for businesses to be successful, they usually have to be doing something good for society. This isn’t true in every case, but a company generally has to do something positive in order to get customers to spend money with them – either by making quality products, or by offering them at a lower price point.
Nobel Prize winning economist Milton Friedman once said ‘the social responsibility of business is to increase profit’. But it’s too simplistic to think that simply making more profit leads companies to ethical and socially responsible decisions.
For most businesses, ethical behaviour and social responsibility have their own benefits and rewards, and should be pursued for their own ends. This is a big part of the reason they have become so important in recent years.
But to explore this issue further, we need to understand what is meant by the terms ‘business ethics’ and ‘social responsibility’.
What are business ethics and social responsibility?
Business ethics generally refers to the policies and practices a business operates by. Some elements might be relatively simple; following the law, acting with honesty and integrity, and hiring with diversity in mind.
Others are more complex and potentially open to interpretation. For example, is it truly ethical to stand by the business cliche ‘the customer is always right’? Google created news when it abandoned its unofficial motto ‘don’t be evil’ in favour of ‘do the right thing’. This shows the level of nuance involved in what is considered ethical practice.
Corporate social responsibility focuses on a company’s commitment to managing their social, environmental and economic impact. For those companies with shareholders, a major challenge can be balancing their needs with those of society.
Making ethics a part of the business identity
It can be a very powerful branding tool when companies make ethical behaviour a big part of their business identity. Cosmetics company Lush has always made ethical thinking a huge element of their branding, even launching an ‘ethical charter’ to set it in stone.
Indeed, ethics is a major part of the company’s marketing strategy. By championing ideas such as ethically sourced ingredients, and utilising alternatives to animal testing, the company positions itself as an alternative to traditional cosmetics companies that customers can feel good about buying from.
Increasingly, customers prefer to make ethical choices with what they buy. This is evident from the rise in prominence of brands promoting sustainability and other aspects of corporate social responsibility. If ethical behaviour can be made a genuine part of the identity of the company, this can be very powerful for the perspective of generating new business.
Of course, not all examples are as overt as Lush. Making ethical behaviour a part of the company’s identity doesn’t have to mean using the phrase ‘eco-friendly’ somewhere in the company slogan.
But good behaviour should be implicit in the services and products that the company offers – it should be obvious to those considering using your business, as this can be a key way to impress customers.
The impact on recruitment
Perhaps it is unsurprising to say that if customers prefer to buy from ethical companies, employees want to work for ethical companies. When attempting to recruit the best talent, businesses often need to show that they are the best choice for a potential employee.
Being able to use ethical credentials to show that the company is a good place to work is increasingly important. Job adverts will often add details on businesses’ commitments to social responsibility including charity work and environmentally-friendly practice.
“To attract and recruit socially conscious talent, corporate social responsibility has to be a theme which runs throughout a company’s culture,” says Go Green Recruitment, specialists in socially responsible recruitment.
“Potential candidates are increasingly able to distinguish between companies who are just using social responsibility as a marketing tool, and those which use it to guide all of their practices.”
Where once potential employees might only consider factors like salary and benefits, a workforce that increasingly features millennials and Generation Z workers is now just as interested in ensuring they work for a ‘good’ company.
Maintaining staff morale
Of course, it’s not just the new employees that are impressed by good ethical behaviour – it also has an impact on existing staff.
For the same reason, staff want to feel like the company they work for is doing the right thing. This is why it is so important that ethical behaviour and social responsibility should be a part of the ethos of the business and company culture – not just a throwaway tagline.
Employees need to feel engaged with the company that they work for in order to give their best performance. If they don’t feel good about the business practice they are involved in, it can weaken morale and eventually lead to reduced productivity and efficiency in the team.
It is also worth noting that employees follow the example set by the business. If a business does ethically questionable things, it normalises this as a way to get ahead. Using unethical practice sets the wrong example and can lead to more serious problems down the line.
Honesty is the best policy (for building loyalty)
There is no doubt that honesty is an important aspect of business ethics. Attempting to oversell a product or service may work out in the short-term, but often causes long-term problems as the facade becomes more difficult to maintain in front of the critical eyes of customers.
Take the example of printed labels for products. Some brand messages might make a product sound more appealing, but would be ethically questionable.
For instance, describing a food product as ‘fat-free’ on a label might be technically true, but if the product also contains a significant amount of sugar to compensate, then that sugar will almost immediately break down into fat when digested.
Using deliberately misleading branding might be a way to make an initial sale, but it certainly won’t promote a good image for a business or lead to any kind of customer loyalty.
“A high quality label will enhance the value of your brand,” says label supplier Fast Labels. “It is your first chance to make an impression on potential customers. The branding needs to match their expectations of the product and highlight its best features, but it should not make any promises that it can’t deliver”.
Setting out honest and high-quality messaging on labels is the best ethical policy here, and it is also the one that will benefit the business overall through better brand reputation and increased customer retention.
The rise of B Corp
Some businesses want to go further than simply ethical branding and messaging – and this has led to the rise of B Corp.
This is a certification for businesses that is given to companies that can achieve a set of social and environmental standards. To achieve certification, a company has to undergo an assessment across a number of areas including governance, workers, community, the environment and customers.
Some famous brands that are certified B Corporations include Ella’s Kitchen and Patagonia. This shows that there is certainly some mainstream interest in the idea – and that those companies that want to show off their ethical credentials in future may need to consider getting themselves certified.
The fact that this kind of certification now exists shows the importance of ethics and social responsibility to modern businesses.
The success of unethical practice
It is worth touching on the point of unethical practice. It is unfortunately not uncommon to see businesses operating with what many would consider to be unethical practice. Worse still is seeing those businesses having success.
Ultimately, it is possible for companies to be successful without having any interest in social responsibility or doing what is right. However, it’s worth noting that if a business is interested in long-term success, it is unlikely that bad ethical practice will be sustainable in the long-term.
This is something that is well understood by the largest and most successful companies. For example, in 2006, an employee of Coca-Cola attempted to sell secret documents to the company’s arch-rival Pepsi.
Rather than taking the documents, which contained trade secrets, Pepsi immediately contacted the authorities, and the employee responsible was caught and convicted. A Pepsi spokesman was quoted as saying: “Competition can be fierce, but it must also be fair and legal.”
The good ethical practice of Pepsi here was a big PR win for the company. Should they have unethically accepted the documents, it could ultimately have backfired.
Ethical behaviour and social responsibility are vital to businesses from a range of perspectives. Not only is good ethical standards a way to impress potential and existing customers – they can also have a big impact on how staff feel about the business, and the ability to recruit top talent.
When a business acts ethically it can undoubtedly be a big positive for society – but is also in the interest of the company too.
About the Author
Dakota Murphey has worked with a range of established companies as a business growth consultant. Since becoming a full-time Mother she’s turned her hand towards sharing her knowledge and experience through her writing and connecting with other industry professionals. Follow her on Twitter.