DO BUSINESS PRACTICES IMPACT PROFITABILITY?

 

For a company to thrive, it needs to ensure the wellbeing and level of satisfaction with its stakeholders – investors, employees, suppliers and customers. Recent times have seen how bad conduct results in negative publicity, poor company image and a drop in share price. So should a company adopt ethical practices as a means of improving and securing a company’s economic performance?

Risk Mitigation

According to EIRIS, studies show that ethics-related news influences a company’s share price for better or worse, revealing effects of between 0.5% and 3% of the share price.

The lesson to be extrapolated from the shift in share price is the underlying knock-on effects on the dynamics and relationships that enable that business to thrive, and ultimately the level of trust and confidence in management. Without this trust, stakeholders tend to limit investments, negatively affecting growth.

Private companies may argue this doesn’t affect them since they don’t have a share price. However, they still have other stakeholders to bear in mind, especially customers, suppliers, employees and themselves as the ultimate owner of the asset – its value, reputation and standing.

 

People Taking Care of People

Employees prefer to work with companies that treat them with dignity, respect and fairness. Creating an environment in which employees feel they matter has a residual benefit in propelling them to create positive experiences for customers. However, if employees see, hear or experience negative behaviour, it erodes their trust in and loyalty to the company, and the quality of care they feel compelled or empowered to portray to customers.

 

Customer Satisfaction

Companies with high levels of customer satisfaction tend to generate a higher degree of customer loyalty, repeat business and more market share in the long run. Customers may decline to deal with a company that causes them to be suspicious and afraid. Businesses that genuinely contribute to their community and maintain good relationships with other companies tend to be more successful in the long run. On the flip-side, those who have corporate social responsibility efforts on the one hand but poor business practices on the other, are in danger of breeding cynicism into their customers, and mistrust.

 

Creating Value

Ethical business practices are sound business practices. Instead of being consumed by unnecessary lawsuits and other activities that detract from the mission and purpose, the business can focus on producing quality products and services that enable positive financial results for the company.

 

Financial Health

Beyond regulatory requirements, accurate financial records are essential for sound decision-making and long-term success. Financial records provide an overview of return on effort, a tool to support business to measure its rewards for initiatives taking place in the marketplace. Sound and timely financial records are essential in determining the trajectory of the company, and the ability to course correct where and when necessary. They also provide the ability to respond quickly to opportunities, without adding strain or unwarranted risk. Furthermore, a clear picture on the financial situation of the company will enable it to have the cash flow required to fulfil its commitments, a sound business practice to keep employees and maintain relationships with suppliers.

 

Green Practices

Whether you’re chopping trees or hugging trees, people look for returns.

The fact of the matter is if you don’t keep an eye on your bottom line, the business will be unsustainable. The bottom line is affected by people’s perception, belief and likability of your company. The internet and social media have provided stakeholders with the tools to have a greater insight into the impact businesses have on our environment and society. Customers seek to do business with companies that reflect their values, and suppliers and investors would be wise to follow suit.

 

Unforeseen Circumstances

It is far easier to set off on the right foot in the first place than trying to course correct once calamity hits. That said, genuine errors and unforeseen circumstances do happen. The ability for a business to respond appropriately and speedily speaks volumes in the eyes of stakeholders. However, waiting until a crisis strikes to instil and encourage good behaviours is a poor strategy given the time it takes to overhaul embedded systems, beliefs and practices. These changes result in delayed decisions, negative public opinion and a downward spiral in relationships with stakeholders – not good practice for any business that needs customers, employees, suppliers and investors to thrive.

Some may still argue why change when some are getting away with it. Others may wait for regulatory bodies to force them to clean up their business practices, and there will be those who choose to see the tide is shifting – that the manner in which we produce and deliver products and services matters. Now is an excellent time to challenge the ills we tolerate under the guise ‘but this is business’ and start by acting responsibly in the first place.

 

 

Featured in Fresh Business Thinking

MORAL COURAGE AND CORPORATE CULTURE

It is not in calm seas that our character and integrity are tested but in times of crisis. It is at these times that mistakes are likely to happen.

When people think of ethics and social responsibility in the corporate context, they perceive it as a simple matter of determining what is right and wrong. Since we do not live in a world where decisions are a matter of black or white but more in shades of grey, steering the right course is not always a clear cut decision. With increased diversity of cultures and nationalities in the workplace, the topic of ethics and social responsibility becomes ever more complex, and one that should be treated with attention and focus.

Every company in hiring executives seeks people with integrity and good moral standards, but how do these translate to the corporate culture?

Every organisation has a value system. But is what the company says it stands for and the value system communicated, aligned with desired behaviours, practices and reward systems? There is little point in having formal policies and procedures that prescribe one mode of behaviour, if people are positively rewarded for achievements where an alternative and ‘non-desirable’ behaviour is applauded in terms of raises, bonuses and promotions.

Sharing the value system of an organisation enables the individuals within it to look within themselves and align their values and subsequent behaviour with that of the organisation, making them stronger people and better corporate citizens. Making this a topic of continual attention in an organisation has a resultant impact on the level of openness, integrity and trust amongst colleagues. Research has shown that in organisations with such systems, people within the organisation are motivated to not only be stronger representatives but better enabled to handle turbulent times such as change or crisis management. Continual attention to ethics in the work place sensitises leaders and staff to how they want to act consistently. And this comes from the top – leaders who lead by example will set the tone for the whole organisation to follow.

Ethics programmes have also been shown to support employee growth and development. A study cited in the Wall Street Journal found a direct correlation between the level of emotional health of an executive and the results of a battery of tests on ethics.

Having ethics as part of the organisation’s agenda better prepares employees to face reality with the resultant effect that they feel more confident and ready to deal with whatever comes their way.

Another benefit is the impact ethics can have on a company’s public image if people perceive those organisations as valuing the manner in which business is conducted more than profit. Recent years have seen greater attention to this factor, with more companies reporting on their social responsibility and analysts making it part of their agenda in their valuation of company stock.

In the meantime, we need to ask ourselves how are we contributing to the sustainability and longevity of the local economy? How are we ensuring that our actions have a positive contribution for the next generation and beyond?

Success in succession

Success in successionThe next generation taking over the family businessSituationThe son of the founder was taking over the family business. To grow the company, he also took on a private equity partner. The private equity firm recommended me as a sounding board to...

THREE THINGS YOU CAN DO FOR BETTER DIVERSITY

THREE THINGS YOU CAN DO FOR BETTER DIVERSITY

THREE THINGS WE NEED TO DO FOR BETTER DIVERSITY   We do not need a bunch of men or women pontificating about diversity. We need action. Tip 1 If you’re speaking at a conference, ensure at least 30% of your fellow speakers are women. But more than that, make sure...

WHY INTENTIONS & MOTIVATIONS IN TECH MATTER

WHY INTENTIONS & MOTIVATIONS IN TECH MATTER

WHY INTENTIONS & MOTIVATIONS IN TECH MATTER Tech in the right hands can do some great good. One of the best examples of this is Dr Patrick Meier. I first met Patrick around 2012 when he was giving a lecture at Imperial College on the work he was doing to improve...

VALUES AND GUIDING PRINCIPLES

We have all seen a myriad of company websites touting a list of values they stand for:

  • Respect, Integrity, Communication and Excellence;
  • Integrity and honesty in everything we do;
  • High performance and great behaviours driving exceptional rewards;
  • Respect, trust and integrity; the list goes on.

And yet, it is no good saying what you stand for if the actions of the people and the company operations are not in alignment with what the values presumably set the bar to be.  Values are not mere marketing, nice to have fuzzy words, but rather guiding principles that are supposed to be the bedrock and governance practice of every individual within the organisation. The values listed above are those of notable organisations.  Companies that until the recent past were held in high regard until they were linked or associated with fraud, corruption and the manipulation of the truth.  One would hope that by now, we would be wiser, smarter and behave more responsibly.  But alas, this is not the case.

Countless people are talking about values but how many people in any organisation are aware of what values the company supposedly stands for?  And if they don’t know what they are, how can they be behaving in alignment with those values?  Do we brandish certain values to the outside world, whilst we create compensation and rewards structures that promote behaviours that are contradictory? Values are not drawn up by a single individual or, more worryingly, by a marketing company who then presents some nice fluffy document or prospectus.  Values are determined by the people building and driving the organisation – by individuals who are committed to a vision and have the courage to develop a set of principles they are committed to living by in order to meet that vision.  Everyone in the organisation is responsible for acting in alignment with the values.  But let’s take a closer look… The following is an extract of some values of a financial services organisation.  This is for example purposes only and is not meant to single them out per se, but rather to show the potential complexity in adhering to values and knowing what truly will be ‘rewarded’.

  • Our clients’ interests always come first.
  • Our goal is to provide superior returns to our shareholders (…significant employee stock ownership aligns the interests of our employees and our shareholders.)
  • We stress creativity and imagination in everything we do. (…We pride ourselves on having pioneered many of the practices and techniques that have become standard in the industry.)
  • Integrity and honesty are at the heart of our business.

One could argue that it is these same values that drove this organisation and its people to develop and market complex financial instruments that were a factor in the lead up to the financial crisis, with the exception of course of the last principle – integrity and honesty.  But when a reward system is based on short-term gains and organisations are under pressure to post quarterly results, people choose to hear what they want to hear, making them feel that they are acting honestly. Back in 1990, in an article by Amar Bhide and Howard H. Stevenson entitled Why Be Honest If Honesty Doesn’t Pay, published in the Harvard Business Review, they had highlighted that unfortunately, treachery can pay, and that without values, without a basic preference for right over wrong, trust based on such self-delusion would crumble in the face of temptation.

The recent events have proven this.  Suffice to say, no one person is exempt from knowing, honouring and living the values, regardless of rank, position or title.  People in an organisation and serving an organisation have a fiduciary responsibility to balance results against the backdrop of ethics and purpose.  The real challenge is for each and every one of us to have the courage to do what is right, to think, speak and act with the highest intention, and to have the courage to say no, to break away from the crowd and not be lulled by what the proverbial Joneses are doing.  Failure to do so will inadvertently lead to a more disturbing economic climate than we are experiencing currently. So how is this done?  The key word here is alignment.  Imagine a compass setting for a moment.  If the heading is North, everyone first needs to know the heading is North.  We then need to determine what behaviours are in alignment with the North heading.  And then they need to be tested, creating scenarios that will test their applicability – the what if scenarios.  Just as any sailor knows, the seas change, the winds shift direction, but the heading is there and the skills and tenacity to navigate the course are what determine the true leaders.

WILL YOU CHOOSE TO MATTER?

There is a great talk and initiative by Angela Maiers entitled “You Matter”, and how these two words could positively impact our lives.

It really puts into perspective and simplicity the manner in which we conduct ourselves in our daily interactions, with great relevance for the corporate world and our business dealings.

Consider Customer Care for a moment. How many times do you interact with representatives who simply do not seem to care, let alone make you feel that you matter.

Or of trying to have a conversation with someone who is affixed to their computer or mobile, or looking elsewhere.

Or simply not being acknowledged.

Do these make you feel that you matter?

For if we are making people feel they don’t matter, we make them feel insignificant. And since what goes around, comes around, the deeper question is, do you feel you matter?

For me, these two words “You Matter” have brought to the forefront of my mind a simple code of conduct – going through each day, being present, truly engaging with and caring about people we come into contact with, even people we come across in the street – a simple smile, offering a helping hand, being kind. Isn’t this what being human is ultimately about? I cannot fathom why many people stop being human as soon as they walk into an office building and hide behind “but this is business”.

We have a tendency as humans to complicate simplicity, coming up with words that become so overused they become jargon and meaningless: employer of choice, corporate social responsibility, ethics – all very noble in their own right and when done with the spirit the words themselves intended. And yet ‘You Matter’ for me personifies many of these. If every interaction we have, every decision we make, are centred around these two words, how different would our days be, the people around us, our families, our businesses, our communities. How different would we be? How different would you be if you felt you mattered?

I believe everyone has a purpose and yes, each and every one of us matters. I believe now is a good time to let go of our past, our titles and our pride, and be someone who matters by making someone feel they matter. Will you choose to matter?

IN SEARCH OF WEALTH

I recall being at dinner with the Chinese Ambassador in Malta some years ago. My boss and mentor had invited me, so as they were in the throws of a discussion about power and money, I sat listening.

The conversation was leading down a path where there was no delineation between power and money. That money gives you power and being in a position of power brings you money.  I still recall the unease within me – the restlessness that comes with knowing there is another truth.

Not being able to hold my tongue any longer, I posed a question “Did Mother Teresa have power?”

They looked at me stunned, and then smiling, the Chinese Ambassador nodded at my boss.

I don’t know about you but discussions of this nature have always intrigued me, and how we all too simply assume that one brings the other. Of course, this is very much the truth in some cases, as can be seen amongst some of the regimes and heads of state that exist around the world. But it is not the whole truth.

A similar debate ensued with a group of Russians, some of which were sons and daughters of oligarchs. This time the discussion was around the difference between being rich and being wealthy. If a person is rich, are they necessarily wealthy? If you have lots of money but are not happy, are you wealthy? If you don’t feel free to do or be what and who you are, would you feel wealthy?

In my opinion, wealth goes deeper than the number of digits behind a dollar sign and is more closely linked with the quality and richness of life. By this I do not mean just about how we create a quality of life for ourselves by buying things. Rather how our character, way of being and manner of doing things impact the quality of our experiences internally and externally. In a way, wealth is more closely linked to legacy, purpose and our role as members of the human race – humanity.

Nelson Mandela had once said, “In judging our progress as individuals, we tend to concentrate on external factors such as one’s social position, influence and popularity, wealth and standard of education…but internal factors may be even more crucial in assessing one’s development as a human being; humility, purity, generosity, absence of vanity, readiness to serve your fellow men – qualities within the reach of every human soul.”

In doing your own search for what is important to you, here are some things for you to think about and consider:

  • If you were to find out a product you buy was produced in a way that conflicts with what you deem to be moral, fair and ethical, would you still buy it?
  • Do you care enough to ask the extra question and find out?
  • Do you consider and understand the ripple effects of your decisions and the impact they have?
  • Do you have the courage to speak your truth and not follow the status quo?
  • Do the means justify the ends, and how do you balance these?
  • Where do you draw the line about what and who you care about and what you are willing to do about it
  • In the final count, is wealth perhaps about our ability to enrich the lives of others?

 


 

Deborah has the ability to sense the underlying potential of people and their ideas. Previously a successful headhunter, she is a catalyst for business as a force for good, and works with founders, entrepreneurs, successors and innovators in building businesses with purpose and profit.

Did this resonate and you’d like to know more? Please get in touch for your confidential one-to-one.

inSight - Salty not Sweet

14 + 10 =

COMPANY CULTURE STARTS WITH YOU

COMPANY CULTURE STARTS WITH YOU

Ask a person the reason they love to travel, and often they say to experience different cultures. Human beings seem to be intrigued by the social norms and ways of living of their fellow man in different cities and villages around the world. Having the experience and...

WOMEN IN LEADERSHIP – A MIDDLE EASTERN PERSPECTIVE

WOMEN IN LEADERSHIP – A MIDDLE EASTERN PERSPECTIVE

  There is a general look of surprise, even bewilderment when people hear I love working in the Middle East, for the simple reason that I’m a woman. I understand how there is a perception that women are not respected or highly regarded in the Middle East,...

A DIFFERENT PERSPECTIVE ON WORK & ENGAGEMENT

A DIFFERENT PERSPECTIVE ON WORK & ENGAGEMENT

Do we treat people like a one-night stand or do we show the level of commitment we would give someone we want to marry? And once we marry, do we work at keeping the relationship alive, or do we take each other for granted? I can’t think of many people who don’t want...

DO BUSINESS PRACTICES IMPACT PROFITABILITY?

DO BUSINESS PRACTICES IMPACT PROFITABILITY?

  For a company to thrive, it needs to ensure the wellbeing and level of satisfaction with its stakeholders – investors, employees, suppliers and customers. Recent times have seen how bad conduct results in negative publicity, poor company image and a drop in...

STEWARDSHIP, EDUCATION AND ENTREPRENEURSHIP

STEWARDSHIP, EDUCATION AND ENTREPRENEURSHIP

  Family wealth fails to make it beyond the third generation in 90 per cent of cases. This failure isn't due to poor investment decisions, but rather a lack of cohesion and communication between family members, where the family fragments, and with it the wealth....

ENABLING THE NEXT GENERATION TO THRIVE

ENABLING THE NEXT GENERATION TO THRIVE

I love studying, working with and sharing stories about the next generation for it is a subject that encompasses defining wealth, the impact of our actions and indeed our purpose. In a nutshell it incorporates the purpose of our wealth…the purpose of our lives…and how...


Thank you for signing up!