These days, businesses talk about ethical behavior both within and outside of the company. Internal trainings focus on teaching employees how to spot unethical behavior, what to do if approached with a bribe or inappropriate gift and how to protect company secrets. Externally, companies focus on properly sourcing suppliers, following labor laws and giving back to their community.
Focusing on ethics seems like a good thing to do for a company’s brand awareness, but it is not easy, and there can be disadvantages.
Disadvantages of Business Ethics
There are many pros and cons of business ethics and — believe it or not — benefits of acting unethically in business. Businesses that adopt ethical practices can have a competitive advantage: When markets are swamped with homogenous suppliers, a company that is trustworthy and upstanding will earn valuable support and loyalty from consumers.
In today’s competitive landscape, more and more information is available to customers. As a result, customers express deliberate concern over where their money goes, so publicly adhering to ethical practices can give a business a huge advantage. In addition, companies who expect their employees to follow ethical business practices are far less likely to see costly internal scandals, leaked information and other bad press. Educating employees about laws helps keep them from breaking these laws even with good intentions.
Business Ethics Can Reduce Profits
The biggest disadvantage of introducing business ethics is that they reduce the company’s profits by spending time, money and other valuable resources on issues not focused on the bottom line. These costs come through at all levels of the business, from increased HR resources and training costs to an inability to compete price-wise with competitors who do not follow ethical practices.
For example, a company abusing child labor and paying low wages will produce goods and services that are much cheaper than competitor company following labor laws and paying a healthy wage. This, in turn, impacts any businesses looking for suppliers; they may not know why the price difference exists, and if only looking at their budget, the cheaper supplier would win.
Importance of Ethical Behavior
So why do so many businesses take up visible, significant and costly efforts to ensure ethical behavior? It seems that for many customers in many markets, the good outweighs the bad, and companies still have to market their goods out to these customers. In the past, businesses have succeeded in marketing the least expensive option to consumers. But with international markets and competition expanding day by day, companies need to differentiate themselves with more than just a price tag.
Consumer Focus on Ethics
Consumers these days have rapidly increasing interest in environmental issues such as carbon footprint, emissions, waste and water pollution. They are also increasingly aware of international living conditions, human rights and the importance of a living wage. Movements for fair-trade sourcing, planet-friendly processes and byproducts and positive working conditions show just how much customers can care about a business’ practices.
It is not just about customers, either; the new generations entering the workforce have expectations of their future employers, and companies that focus on giving back and ethical practices are more likely to attract and retain quality talent.
With all of this in mind, a company that does not make money will not remain a company for very long, no matter how respectable their ethics. It is up to the decision-makers and leaders of a company to determine the balance point between being able to improve the bottom line while keeping their practices as clean and ethical as they can. For each company and its decision-makers, this is likely to be a different balance point — and as always, the customers will decide where to put their money.