Do business ethics matter?
Photo: Kristopher Psarakis. Source: Morguefile
People say they care about whether a business is ethical. But do they mean it? 2016 was seemingly a bad year for business ethics. Wells Fargo systematically signed customers up for accounts they didn’t know about, and then fired employees who complained about the practice. VW admitted that they criminally deceived emissions tests in their diesel vehicles – and may have been copied in this by Chrysler. Drug-maker Mylan hiked the price for its life-saving EpiPen by over 400%, provoking outrage.
But Wells Fargo still takes deposits; VW is still selling diesel cars and trucks; and Mylan is still selling their devices. Apart from some uncomfortable headlines and a temporary stock-blip, these cheaters don’t seem to be paying much of a price for their professional misdeeds. In the light of the Enron scandal, three quarters of American consumers said they would rather deal with an ethical company, even if it meant paying higher prices. But given our passion for rooting out bargains, this resolution probably lasted just until we saw an alluring price tag.
People may want to do business with ethical companies, but the difficulties of changing banks or selling your car or switching drugs make it hard to follow through. There’s a lot of inertia when it comes to our behavior. So do companies get a free pass? Are high ethical standards a luxury item—reserved for elite firms that can afford them?
The real cost of a bad ethical environment comes down the road. It’s hard to attract the best workers when you have a reputation for skating on ethical thin ice. We all need meaning in our lives: we want to work for something that’s bigger than ourselves, and we need to believe that what we’re doing is a force for good. Wells Fargo may not have lost many accounts due to their ethical shenanigans, but it’s a lot harder for them to hire good people, now. Top performers always have employment options. Aside from legal and career risks, why would you choose to work where you’re forced to feel bad about what you do? And if a company can’t attract talented employees, it’s in a bad place.
Photo: Gerd Altmann. Source: Pixabay
Ethical dilemmas are far from rare. Nearly half of American workers say that at some point they’ve had to choose between what their boss ordered and what they thought was right. Supreme Court Justice Potter Stewart once said that ethics is knowing the difference between what you have a right to do and what is right to do.
By building an ethical culture, companies are building for the future. In the long run, we all may be dead. But our ethical choices will have lasting consequences.
Douglas R. Tengdin, CFA
Chief Investment Officer