Ethical Leadership is Crucial to Profitability

Being an ethical leader is the right thing to do. And it pays off. There is a paradox that makes this information difficult for some experienced leaders to act on. Some business leaders are so concerned with the bottom line and shareholder value that they fail to set leadership standards that require ethical leadership. They may see ethical leadership as taking them in a different direction from profits. But in reality, without those ethical leadership standards, trust and integrity are often damaged in ways that end up harming the bottom line.

Consider, for example, a situation where leaders in an organization without ethical leadership standards achieve record profits, but end up harming customers due to the choice of cheaper ingredients that end up being tainted or carcinogenic. A violation of public trust like this one inevitably leads to a decline in sales and customer satisfaction.

Or take the case of an organization that prides itself on customer loyalty, but fails to teach leaders about the kinds of ethical behaviors that would result in long-term customer trust and loyalty. In a tight economy, some leaders may see the kinds of shortcuts that erode trust and loyalty as the only ways to continue to make a profit. Their creative shortcuts may undermine the hard-won customer loyalty that the company has achieved over many years.

Ethical leadership is becoming known as the way to improve employee satisfaction, morale, engagement, customer loyalty, and yes, profitability. When leaders know the ethical expectations, they can attend to them while meeting business goals. Organizations who develop ethical leaders do better than their competition, all other things being equal.

“The world’s most ethical companies consistently outperform the S&P” Ethisphere

“Companies who are recognized as good corporate citizens—those who consider the interests of employees, customers, the environment, and their community as well as those of shareowners— perform significantly better on a financial basis over the long term. Firms that pay attention to ethics and employ compliance initiatives that assure their conduct harmonizes with their core values build greater customer loyalty; attract and retain superior, more productive employees; and achieve lower costs of capital through greater investor confidence”

Ethical Culture More Important Than Ever by Curtis C. Verschoor

“The New ROE: Return on Ethics” – Sharon Allen, Forbes.com

Stephen M. R Covey, in his book “The Speed of Trust: The One Thing That Changes Everything,” describes trust as the heart and soul of the workplace and the marketplace, and points out that ethical behavior in leadership is just part of what it takes to build that trust.

Businesses with ethical leadership performance outperform their peers.

A recent United Nations meeting on responsible business called attention to a company’s ethical performance as an important consideration for investors deciding which companies to back.

Citing findings from a recent survey by Goldman Sachs, Ling asserted that companies with strong ethical standards outperform the market. For example, companies on an ethical list compiled by Goldman Sachs outperformed the MSCI World Index by an average of 25 percent. 72 percent of these companies were also found to have outperformed their industry peers.

Anthony Ling of Goldman Sachs International insisted that a company’s “ESG” performance (its environmental, social, and corporate governance) can provide an advantage to the company over competitors because these factors are sure to pay off with customers and employees.

“Goldman Sachs Report: Ethical Corporations Outperform Others in Long Run,” Ethisphere, July 19, 2007

Customers and employees have more choices in a global economy, and ethical leadership gives them one more reason to choose your company. Ethical leadership means going beyond complying with laws and regulations, and includes paying attention to environmental and social impact, and building long-term customer trust. In a highly competitive marketplace, that kind of leadership is a crucial key to remaining profitable for the long-term.

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