Ethical Business Profitability: Unveiling the Link Between Integrity and Success. This newsletter writes about the intersection of ethics and deep tech. Trust in our institutions is at a low point. This situation shines a light on “ethical business profitability.” It’s become clear that ethical practices lead to sustainable success. Ethical businesses are thriving. They outperform competitors in both profitability and positive societal impact.
Ethical Foundations in Business
As we navigate the complexities of the Fourth Industrial Revolution, understanding the paramount importance of ethics in business becomes crucial.
Over the past decade, except during Covid, there’s been a noticeable decline in public trust towards a broad spectrum of institutions, from corporations and governments to media outlets and charities. The ethics and use of AI during the Covid period deserve a book, not a newsletter.
Governance Institute of Australia
Re-evaluating Governance Models
Traditionally, we placed our trust in governance standards and regulatory frameworks, believing they would ensure organisations and their representatives would act not only lawfully but ethically, aligning with community values. However, recent events have shaken this belief to its core, prompting a re-evaluation of our governance models. The once-popular notion championed by Nobel Prize Laureate Milton Friedman—that a company’s primary responsibility is to its shareholders—is now being challenged by modern business leaders who recognise the broader implications of corporate actions.
The focus is shifting towards understanding that compliance with policies and “hard” controls cannot overshadow the “soft” controls necessary for fostering a corporate culture conducive to ethical decision-making. This is particularly pertinent in the age of the Fourth Industrial Revolution, where technological changes are rapid and often unpredictable. A robust Code of Conduct, while essential, is insufficient on its own if the underlying corporate culture is unethical.
Ethics in Theory
At the heart of our discussion on ethics lies a fundamental philosophical inquiry: “What should I do?” This question anchors the essence of ethics, a discipline dedicated to exploring human values, the ideals of our existence, and the framework of right conduct. Ethics, in its scholarly pursuit, delves into the realms of right and wrong, seeking to define the contours of moral and immoral in unequivocal terms.
Theory and Practical Reality
Yet, as we delve into the nuances of business ethics (<<<I really like this video by Two Teachers) we must balance philosophical ideals with practical realities. It’s about integrating ethics with established practices in assurance, compliance, anti-corruption, and whistleblower protocols. But beyond policies and procedures, what organisational tools and skills are needed to truly embed ethics within the fabric of a company? How do we convincingly argue the case for ethics to those still sceptical of its value?
AI Ethics
Furthermore, as we navigate the complexities of artificial intelligence (AI) in business, the ethical considerations multiply. Issues of explainability, fairness, robustness, privacy, transparency, accessibility, originality, and attribution come to the fore, demanding a nuanced approach to how we deploy and manage AI technologies. These are not just technical challenges but ethical imperatives that require thoughtful examination and action.
The Profitable Path of Ethical Business Practices
The notion that a robust ethical culture not only mitigates corruption but also bolsters an organisation’s bottom line is gaining traction, supported by a growing body of evidence. In a 1992 research project, James Heskett and John Kotter looked at the corporate cultures of 200 companies and the long-term effect on economic performance. They found that companies with strong organisational cultures saw their net income soar by an astonishing 756% over a decade, in stark contrast to a mere 1% increase among their counterparts with weaker cultures.
The ethical advantage: the economic and social benefits of ethics to Australia, Deloitte Access Economics and The Ethics Centre, 2020.
Fast forward to 2018, the Regnan Research Institute and Dr Darren Lee from Griffith University embarked on a study to examine the performance disparities among Australian companies based on their management of conduct culture. They demonstrated that firms with well-managed conduct cultures significantly outperformed the S&P/ASX 200 index over the study period. On the flip side, companies scoring low on conduct culture management lagged considerably behind the benchmark.
These studies underscore a pivotal message for today’s business leaders: fostering an ethical culture is not just a moral imperative but a strategic one. It’s a clear indicator that when companies prioritise ethical behaviour and culture, it translates into tangible financial success. In an era where trust in institutions is waning, the business case for ethics has never been stronger. As we strive to navigate the complexities of modern business, let’s not lose sight of the fact that ethical considerations are integral to achieving sustainable growth and restoring public faith in our institutions. The evidence is clear; an ethical foundation is not just good practice—it’s good business.
The compelling case for ethical business practices extends far beyond the boardroom, touching every facet of our lives and the economy at large. In an exhaustive review of numerous data sets and through innovative economic modelling, recent reports illuminate the profound benefits of ethical conduct, both for individuals and businesses alike.
Measuring the Impact of Ethics on Business Profitability
For individuals, the stakes are personal and impactful.The Ethical Advantage,published by Deloitte, highlights how ethical environments contribute to improved mental and physical health, shielding people from the ‘moral injury’ that unethical decisions inflict. The distinction is more pronounced in mental health, where a mere 10% boost in the perception of others’ ethical behaviour can lead to a 1% enhancement in personal mental health perceptions.
The business case for ethical conduct is equally robust. Unethical behaviour not only tarnishes moral standing but also correlates with inferior financial performance. This assertion is backed by data from the RepTrak Governance Index, which found a positive correlation between ethical perceptions and return on assets. Improving a company’s score on the Governance Index by one standard deviation could enhance return on assets by about 7%, or a remarkable 50% for firms within the study’s sample.
Moreover, the ripple effects of ethical behaviour on wages and productivity are undeniable. A 10% uptick in regional ethical behaviour can boost individual wages by 2.7% to 6.6%, potentially augmenting aggregate wages across the economy by around $23 billion.
In sum, the evidence is irrefutable: ethical business practices are not merely a moral obligation but a cornerstone for economic prosperity and societal well-being. As we march forward, let’s champion ethical leadership and decision-making, not just as a strategy for success, but as a commitment to the greater good.