{"id":1399,"date":"2019-12-17T14:25:25","date_gmt":"2019-12-17T01:25:25","guid":{"rendered":"https:\/\/www.reportitnow.co.nz\/?p=1399"},"modified":"2019-12-17T14:25:25","modified_gmt":"2019-12-17T01:25:25","slug":"are-ethical-companies-more-profitable","status":"publish","type":"post","link":"https:\/\/reportitnow-global.com\/uk\/are-ethical-companies-more-profitable\/","title":{"rendered":"Are ethical companies more profitable?"},"content":{"rendered":"

Once considered the realm of naive idealism, growing research shows a correlation between ethical behaviour and real McCoy profits. <\/i><\/b>\u00a0<\/span><\/p>\n

A lot goes into making a company profitable: Smart business strategies, productive employees, market conditions. There are a lot of things that contribute to the financial ups and downs of being in business.\u00a0<\/span><\/p>\n

But what about ethics<\/em>? Apart from the moral and legal obligations to act properly when doing business, could there be a potential profit motive as well?\u00a0<\/span><\/p>\n

A growing body of research says yes.\u00a0<\/span><\/p>\n

The landmark <\/span>Institute of Business Ethics<\/span><\/a>\u2019 report, <\/span>Does Business Ethics Pay<\/span><\/i><\/a>, is one of the most influential studies into the profitability of ethics.\u00a0<\/span><\/p>\n

The study found a positive relationship between the mere <\/span>existence<\/span><\/i> of a business\u2019s code of ethics and profitability itself.\u00a0<\/span><\/p>\n

\u201cRegarding financial performance… it was found that those companies in the sample with a code of ethics…out performed a similar sized group who said they did not have a code.\u201d<\/span><\/p>\n

\u201cCompanies with a code of ethics generated significantly more Economic Value Added and Market Value Added…than those without codes.\u201d<\/span><\/p>\n

Not only were profits greater for companies with a code of ethics, but those companies were less volatile as well.\u00a0<\/span><\/p>\n

\u201cCompanies with a code of ethics experienced far less P\/E ratio (price-earnings ratio) volatility over a four year period, than those without them. This suggests that they may be a more secure investment in the longer term. Other research has suggested that a stable P\/E ratio tends to attract capital at below average cost; having a code may be said to be a significant indicator of consistent management.\u201d\u00a0<\/span><\/p>\n

The data also indicated that those companies with \u201can explicit commitment to doing business ethically\u201d produce profit\/turnover ratios at 18% higher than those without a similar commitment.\u00a0<\/span><\/p>\n

\u201cThe general conclusion from this study is that there is strong evidence to indicate that…companies with codes of ethics, e.g. those who are explicit about business ethics, out-perform in financial and other indicators those companies who say they do not have a code.\u201d<\/span><\/p>\n

\u201cHaving a code of business ethics might, therefore, be said to be one hallmark of a well managed company.\u201d<\/span><\/p>\n

Similar <\/span>studies<\/span><\/a> have now been conducted and report <\/span>similar findings<\/span><\/a>: being ethical pays.\u00a0<\/span><\/p>\n

That makes sense. After all, unethical behaviour – such as fraud, dishonesty and bribery – can be expensive. But perhaps more importantly, a commitment to ethics produces positive benefits that permeate the culture of the company and the environment it\u2019s operating in.\u00a0<\/span><\/p>\n

Simply put:<\/span><\/p>\n