Leading by example—why it’s important to have ethics in business.
Everyone has a moral compass. Something that guides them on the decisions they make. Their own personal line in the sand.
While finding that line can be difficult, behaving ethically is crucial for business leaders. There are countless examples of leaders behaving badly and there are frequently negative consequences for both themselves and their business.
A high-profile recent example is Boris Johnson’s recent string of let’s call them questionable decisions which have managed to turn his own party against him, despite an 80-seat majority.
In business, consumers are more switched on than ever to a company's ethical stance and this is predominantly driven by the leader. Accenture Strategy’s Global Consumer Pulse Research found more than six in ten younger consumers closely consider a company’s ethical values and authenticity before buying their products.
So what does this mean for business leaders?
Defining business ethics
It can be hard to define business ethics, but it essentially boils down to the moral beliefs that guide the decisions of a business leader. The six main traits that make up ethics can be broadly categorized into:
Honesty. Honesty makes ethical leaders worthy of the trust others place in them. It means leaders commit to presenting facts as they are, playing fair with competitors, and communicating honestly with others.
Justice. To be fair means to treat everyone equally, offer opportunities with no favoritism and condemn improper behaviors and manipulations, as well as any other actions that could harm someone.
Respect. Ethical leaders respect others around them, regardless of their position or identifying characteristics. This means they listen to each stakeholder, foster inclusion and value diversity.
Integrity. Integrity is shown when values, words, and actions are aligned and consistent. It is not enough to talk the talk, one has to walk the walk to demonstrate integrity.
Responsibility. Responsibility means accepting to be in charge, embracing the power and duties that come with it and always responding and being present in challenging situations.
Transparency. Transparency concerns mainly the communication with all stakeholders. It means keeping an open dialogue, accepting feedback and disclosing the information others need to deliver their work.
While some will see the above as non-compulsory, some ethical requirements for businesses are mandatory. Environmental regulations, the minimum wage and restrictions against insider trading and collusion are all examples of the government setting minimum standards for ethical practices.
Leading by example
A management team sets the tone for how an entire company runs on a day-to-day basis. When the prevailing management philosophy is based on ethical practices and behavior, leaders within an organization can direct employees by example. They can guide them in making decisions that are beneficial to them as individuals and to the organization as a whole.
Building on a foundation of ethical behavior helps create long-lasting positive effects for a company. One such effect is the ability to attract and retain highly talented individuals. Another is a positive reputation within the community.
Running a business in an ethical manner from the top down establishes stronger bonds between individuals on the management team. This, then, creates greater stability within the company.
Best practice brings rewards
Going beyond these mandatory requirements has benefits. More than ever, consumers are interested in whether a business is run ethically.
Although still relatively in its infancy, environmental, social and governance (ESG) factors are being considered by investors. And rightly so. A Goldman Sachs study found companies that with strong ESG ratings returned 9% whereas those without returned 2%.
This was particularly true during the pandemic. In the first year of the pandemic, large funds with environmental, social, and governance criteria outperformed the broader market, according to a report published by S&P Global.
Governance is a crucial part of a business’ ESG score and refers to the standards set by those in charge. When considering a companies’ governance score, they will usually be evaluated on whether they use accurate and transparent accounting methods, pursue integrity and diversity in selecting its leadership, and are accountable to shareholders.
Protecting reputation
Beyond the share price, acting ethically can help build a positive reputation. This process can take time, but destroying it can take just a few bad decisions.
According to Inc, Millennials will make up 75% of the workforce by 2025 and they are looking for socially responsible employers. The Cone Communications Millennial Employee Study found that 64% of Millennials won’t take a job if their employer doesn’t have a strong CSR policy, and 83% would be more loyal to a company that helps them contribute to social and environmental issues.
And when it comes to Gen-Z, again the data is even more compelling. The newest entrant to the workforce, Gen-Z, is expected to make up 30% of the workforce in just four years. A study by WeSpire found that Gen-Z is the first generation to prioritize purpose over salary.
The leader of a business behaving ethically certainly brings benefits. When you have a reputation for consistently being ethical in how you source and build products, and treat employees, customers and the community, more people will want to do business with you.
There are certainly benefits to behaving ethically and the repercussions for those that don’t are severe. With growing scrutiny of companies and their leaders, those in positions of power need to ensure their moral compass points north.
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August 19, 2022 at 08:26PM
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