April 9, 2015
Being ethical does not guarantee business success. In 35 years as an ethics consultant, I have seen many companies hurt by less ethical competitors. But I have also seen ethical companies succeed. Some succeed through sheer luck. But most succeed because they pursue a conscious strategy that incorporates their ethics. Ethics becomes part of the competitive advantage that enables them to succeed.
When I talk about a conscious strategy incorporating ethics, I am not thinking of a formal (written) strategic plan. Many organizations do not have formal strategic plans. But whether or not there is a formal plan, successful companies employ certain strategies to compete effectively. It is among these competitive strategies that ethics finds a place.
I identify five competitive strategies common to companies that are successful and ethical on a sustained basis. None of these strategies considered alone guarantees ethical success. However, each strategy increases your chances of combined ethical and market success.
While this seems obvious, the customer is often the forgotten player when it comes to ethics. Talking about customers seems dull compared to talking about global warming or genetically designed food. However, unless you provide good value to your customers, ethics is not part of your business strategy. You may have a great environmental record, but if you stay in business by ripping off your customers, you are not doing business ethically. A car company may care about the environment, but when it sells cars with a known safety problem, its ethics have spoken. In ethics, it all starts with a good value proposition for customers.
A wise adage says, “Lie down with dogs, wake up with fleas.” If you want to do business ethically, choose business partners that do business ethically. Even though your business partners are independent businesses, you assume responsibility for their actions when you choose to work with them. It does a company no good to blame a mistake on a contractor; you cannot outsource responsibility. It is widely recognized that managing relationships with business partners is a key to competitive success today. An ethics strategy and a good business strategy converge with both requiring a careful look at business partners, although through somewhat different lenses.
Jan Carlzon, former CEO of SAS airlines, used the phrase “moments of truth” to describe those times when the employees of a company have direct contact with its customers. Carlzon’s point was that if you treat customers fairly in each moment of truth, you will win the battle for customer loyalty. And you will only win these moments of truth if each and every employee knows how you expect them to handle such moments. The same can be said for ethics. If everyone in your company treats the company’s constituents ethically each time an employee has direct contact with them, the company will earn a lasting reputation for ethics. And this will only happen if each and every employee knows your ethical expectations for them.
If you are committed to ethics, you probably believe that the company’s ethical stance provides a benefit to its customers. It is not enough to just hope that your customers will notice this. It is up to you to define that benefit and make it apparent to your customers. For example, if you take the extra time to ensure that your products or services fit the customer’s needs, make this effort a part of what distinguishes you in the market place. Nordstrom has made a simple ethical commitment a cornerstone of its reputation. That commitment is to treat customers making a return the same as customers making a new purchase. The benefit to customers need not be something earth shaking; it just needs to be something customers will recognize.
I once worked with a CEO who temporarily suspended all of his company’s significant operations in Mexico because he couldn’t find a way for his managers to uphold the company’s ethics while doing business there. This is an extreme example of an important practice, which is looking at business opportunities in terms of their ethical implications. While this is especially important internationally, there are also business opportunities domestically that are hard to pursue ethically. For example, it is particularly difficult to pursue an ethics strategy in a market in which competition is based entirely on price. The time to exercise ethical judgment is when you are considering an opportunity as opposed to when you are in the middle of regretting it.
Pursuing an ethics strategy is as complex as pursuing any other strategy that depends on an intangible value, whether it be excellence, superior customer service, or innovation. But it is not more complex and it does not exclude these other strategies. What it does take is the ability to integrate ethics into a competitive strategy that is otherwise sound. In other words, ethics is like any other important corporate value; it won’t show up unless you make it your business to have it show up.