Ethical Business: A Smart Business Strategy

There are many benefits of ethical business practices. Consumers are increasingly basing their purchasing decisions on brands’ ethical values – such as human rights and gender equality. The time is now for businesses of all sizes to review their ESG (environmental, social and governance) and sustainability standards and make some positive changes. 

Close the gap 

Ethical companies – or those claiming to be – should not overlook the gender pay gap issue.  According to global UN data, women make 77 cents for every dollar earned by men¹. For women with children, the gap is even wider.

“This stubborn inequality in the average wages between men and women persists in all countries and across all sectors, because women’s work is under-valued and women tend to be concentrated in different jobs than men,” the UN said². It highlighted a national minimal wage as a key policy governments can adopt to address the issue.

For businesses which encourage diversity at leadership level (indeed, at all levels), there are benefits. A study by McKinsey found that companies with gender diversity are 21% more likely to experience above-average profitability³.

It’s your corporate social responsibility

ESG compliance is not only good for society, but can deliver bottom-line business benefits like better staff recruitment and retention, managing risk in supply chains, driving innovation and productivity, and opening up new markets. Furthermore, many government contracts are awarded only after a full audit of a company’s Corporate Social Responsibility.

Take the sustainable surfwear brand Finisterre. Although its ethos is heartfelt and sincere, its brand values also reflect the interests of its consumers. Surfers have an intimate relationship with nature, are intimately connected by social media and will refuse to buy into brands that aren’t committed to preserving the environment.

You can tell a company by the company it keeps

In this era of instant communication, it’s impossible to bury a scandal. When a decade-long culture of sexual harassment and intimidation emerged at a vastly influential US news channel, an advertiser boycott was quickly organized, leading to many millions of dollars of lost revenue. A climate in which mainstream brands are unwilling to be associated with controversial, even toxic organizations has led to clean-up operations in all walks of life, from entertainment to politics and business. And it’s not enough to pay lip service to ethics.

Perception is nine-tenths of the law

Whether you’re a small operator or a vast multinational, consumers are liable to take what they perceive as your ethical business practices more seriously than the Corporate Social Responsibility section of your website. If you’re a ubiquitous high street burger brand, you’ll have to spend many millions to persuade the public that you’re a wholesome restaurant chain, in the face of relentless campaigning from environmentalists, animal rights campaigners, labor relations activists and dietitians. It's not just older brands that need to beware grass-roots campaigning in the modern world of social media activism. Tech brands like Airbnb and Uber, tiny startups just a short while ago, have already had to expensively defend their reputations against vast online scrutiny. 

No whitewash. No greenwash

The visibility of your business is hugely important. If you make a product with no high street presence, with a name that isn’t consumer-facing, that doesn’t rely on public sector contracts or funding from the financial sector, you might get away with an unethical business plan. If you’re a big name with a big presence, you’d better be good. Either that, or spend a fortune persuading the public that you have their interests at heart. And even that might not work.

In the energy sector, such campaigning has been termed ‘greenwashing’ and it can be very expensive. Even after a US$200m rebranding campaign tried to convince the world that one of the biggest oil companies was a major investor in green causes, a single oil spill reminded the public that the core business had changed very little. In short, ethical business cannot just be a branding exercise – it is the nature of business in the modern world. Nowadays, companies rightly have to justify how they make money and prove their profits are not detrimental to the people and the planet as a whole. To be successful, you’ve got to be ethical.

In the age of social media, nothing is undercover

When hiring new staff, you might think it’s a smart ethical business practice to take a peak at a candidate’s presence on social media beforehand, to ensure they’re one of the good guys. Although there’s nothing unethical about following someone on Twitter or Instagram, demanding that potential recruits divulge their social media passwords is, with few exceptions, a definite no-no. Ironically, the power and reach of social media could mean that attempts to do so might prove extremely expensive.

Proving your ethical credentials

Before allocating their investment funds, portfolio managers need ways to evaluate a company’s ethical business practices and ESG compliance. Third parties like the Ethisphere Institute can act as an intermediary, so that investors don’t have to do their own investigations. Their process involves asking companies to answer a detailed survey and submit an application fee, in order to be accredited as ‘ethical’ and receive an Ethics Quotient score.

They will also look at its corporate governance and its attitudes to insider trading, bribery, discrimination, corporate social responsibility and fiduciary responsibilities before approving a company for investment.

So, whether you're a start-up or an expanding business, it's vital to make sure you have an ethical business culture and a clear strategy to keep it that way. Because when people search for your company's brand name, you'll want scandal to be nowhere near it.

Ethical business FAQs

What is an ethical business?

An ethical business is one which considers the impact of its actions (including production) on the environment and people. It will integrate – and live by – a set of moral principles, policies and values to ensure its relationship with the wider world is a positive one.

What are the benefits of ethical business practices?

Brand reputation: Consumers are becoming more concerned with the impact of their purchasing decisions. Demonstrating positive ethical business practices will help you attract loyal customers.

Increased sales: A study by McKinsey found that products that made one or more ESG (Environmental, Social and Governance)-related claims on their packaging outperformed products that made none⁴.

Staff retention: Ethical business practices could help you attract and retain staff. Research from Deloitte found that “purpose-driven companies” had 40% higher levels of workforce retention than their competitors.

What steps can I take to run an ethical business?

• Consider what matters to your customers. What questions do they ask your business about its practices? Perhaps they’re particularly concerned with the sustainability of your manufacturing processes, for example, which could direct your business on a path to working with renewable energy and materials.
  
• Ensure your business is adhering to all industry and trade laws and regulations. Scheduling an ESG compliance audit will help you with this.
  
• Ask your staff for feedback and ideas on which areas of the business need improvement. They deserve to work in an environment that fosters a culture of equality, respect, and kindness.  
  
• Ensure your suppliers are committed to ethical codes of conduct, too, such as compliance with labor laws and paying their staff the minimum wage.
  
• Commit to a culture of transparency with stakeholders, partners and customers. Display your business’s ethical code of conduct clearly on your website.
  

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