Do nice guys always finish last? Even in the competitive capitalist marketplace, the answer to that question is no. Corporate good guys tend to finish first.
Patricia Aburdene maintains in Megatrends 2010 that “conscious capitalism”—capitalism that is aware of and caters to the public good—is generating greater profits than plain old profit-driven capitalism. Corporations that are good to their employees, good to the environment, and ethically sound outperform corporations that are not.
Many consumers are concerned with ethical issues, such as how corporations impact the environment. That is why “green” firms’ stocks are going up, often outperforming the S&P 500. Going green has improved the bottom line of Wal-Mart, which saves $25 million per year in diesel costs by putting small generators in the cabins of its truck fleets and asking its drivers not to idle their engines. Not only does Wal-Mart save money with this “green” policy, the public relations value is almost incalculable.
Green companies attract consumers who are LOHAS (people who have Lifestyles of Health and Sustainability). LOHAS are, as the New York Times put it, “the biggest market you never heard of.” These are values-driven customers, sometimes also referred to as “conscience consumers.” With the help of the Internet, these kinds of consumers base their billions of dollars of purchases on a firm’s environmental responsibility, its treatment of people and animals, how responsibly it produces and distributes its goods, and how it interacts with the community in which it is situated. Values-driven consumers are willing to go out of their way and pay premium prices for products of companies with socially responsible profiles.
Consumers care about whether a corporation behaves itself or not. With corporate behavior liable to go “viral” at any time—a simple YouTube video by a dissatisfied customer can reach millions of consumers, and cable news is hungry for fodder every news cycle—being on one’s best corporate behavior just makes good business sense.
An unethical firm will sooner or later lose its profits because it has squandered the most valuable commodity in the marketplace: trust. Elaborate contracts, self-protective practices, and armies of attorneys cannot replace trust. Warren Buffet sealed a deal with Wal-Mart with a handshake. He knew he could trust Wal-Mart to have their corporate act together, and they did. Imagine how many billable hours were saved by this simple handshake of trust.
Researcher Paul Zak believes that prosperity in a society is directly related to that society’s level of trust. Where there is trust, there is more investment, more risk-taking, more lending, and more hiring. Societies in which there is high trust are statistically better off economically than societies where there is little trust.
Ethics help to create trust. Thus they create value in a way that no other assets of a company can.
Chiquita Banana was transformed as a corporation—and a profit-making entity—when it decided to regain the trust it had lost in a previous incarnation as United Fruit. United Fruit had a reputation for intervening heavy-handedly in affairs political, economic and military to ensure its profits in the “banana republics” it literally had a hand in creating. The first value Chiquita Banana looked to establish was trust, and the corporation realized it would have to establish trust through ethics like integrity, respect, responsibility, and creating opportunity for its workers. Spending $20 million on improving workers’ wages, working conditions, and benefits, as well as bringing its production practices in line with standards set by the Rainforest Alliance, an NGO concerned with environmental issues, Chiquita actually cut production costs by over $100 million.
It pays to be good.
Ethics are the ultimate value-creating mechanisms, yet they can’t be faked or engineered. There are too many informed consumers, too many watch-dog groups, too many NGOs scrutinizing corporate behavior to hope to get away with ethical compromises or phony ethical declamations. Sound ethics are a company’s best assets, leading to greater long-term growth and profits as what Adam Smith called the “invisible hand” of the market becomes an “invisible handshake” of trust.
Ethical behavior contributes to greater satisfaction in people’s work lives—another invaluable asset. After all, neither work nor life is all about the bottom line.
We are ethical creatures, right down to the little boy in the playground who cries out for justice saying, “He hit me first!” We expect ethical behavior of ourselves and others. When corporations behave in an ethical manner, they enter into a compact with the public that is satisfying for both and thus profitable—the ultimate in “win-win.”