Do Business Ethics Matter? Getting a Competitive Advantage
April 12th | 2016
Jessica Nordell

Asking The Right Questions About Ethics

Ethics. It’s an intimidating word, one that often seems tangled up between our hopes for how people or society will operate and how they actually do. Oftentimes there’s an attempt to distinguish between “morals” and “ethics,” with an understanding that the former are deeply held personal convictions, whereas the latter are a set of principles or rules that are agreed
to in the collective space. By that definition, the “ethics” that one agrees to live by may not always represent his or her individual 
beliefs. When 
it comes to 
deciding what
 to do in that 
situation, we have to ask ourselves what matters.

That we follow the rules above all else? Or that we rewrite the rules in order to do what we think is right? And is it enough to simply follow the rules, or are we obligated to stand for something greater?

These are big questions in business. Every day, we see brands whose purpose drives them to tackle the tough job of trying to rewrite the rules, to shape their industry around what they feel is right. These companies have become forces that change industries, from food to transportation to labor. For people at the helm of businesses today, ethics create new and difficult questions. How can you stay on top of the changes consumers are demanding, or even get ahead of them? A new generation is growing up, one that expects companies to be more philanthropic and transparent than ever. There’s no time like the present to start considering these questions.

If there is one thing to be learned from a study of traditional ethical models and their applications, it’s that nothing can be decided without context. When applying a theory to a short answer question on an exam, it’s easy to know what to do. But in the business world, there are a dozen layers of context, complexity and consideration for every choice. Making what seems like a small change often requires years of deliberation into how the change will affect sourcing, ingredients, innovation and communications, among other factors.

An exercise in weighing the potential outcomes and intentions involved in ethical decision-making can help us begin to make
 sense of what we ought to do.

Business Ethics As A Competitive Advantage

It’s an electric moment to talk about ethics. We’re all sputtering from a seeming onslaught of violations: Volkswagen’s disclosures of emissions fakery, General Motors’ faulty ignitions and the revelations that Exxon internally confirmed global climate change more than 30 years ago. Beyond that, we’re still feeling the reverberations of shady subprime dealings that brought the economy
to its knees in the not-too-distant past.

At the same time, we’re watching a new generation of workers thunder into the workplace. These millennial (and, soon, Gen Z) workers believe strongly in the “triple bottom line” (people, planet, profit). They are confident that business can be an ethical force in the world, and they want to work for businesses that make a positive difference. In fact, 73 percent of them felt businesses should make “doing good” a central part of their strategy.

This means that what’s to come is a complete overhaul of the relationship between ethics and business. Until now, business ethics have been used for compliance (adhering to professional standards of conduct, like being truthful, or obeying the law) or as a do-good bonus (donating to an arts organization). Ethics were either a list of boxes to check off or, like advertising, a “layer” on top of a business’s primary strategies.

But coming generations expect something entirely different from business: an approach that considers not only the value the business drives for itself, but also for its community, its stakeholders and the world. In this model, consideration for the larger world is part of a company’s central strategy. And in this new incarnation of business ethics, the kinds of flagrant ethical lapses we’ve seen historically will have no opportunity to take root, because they would violate this core strategy.

Some might call this a return to “stakeholder capitalism”—the way companies in this country operated 60 years ago. But it’s actually something entirely new. In the new ethics, we’ll be beholden to the world beyond our immediate communities, because our globalized economy demands it.

We see this approach being carried out in Brazil-based Natura, a cosmetics company
 that considers the value of every product from economic, environmental and social perspectives. It ensures sustainable sourcing, promotes a transparent relationship with stakeholders and celebrates women through its Truly Beautiful Woman initiative—conceived a decade before Dove’s Real Beauty campaign. Natura rejects 
the idea that market demands outweigh the needs of its stakeholders. And its profitability demonstrates the value of this approach: Natura grew fourfold during Alessandro Carlucci’s 10 years as CEO.

Natura was also the first publicly traded company to become an official “benefit corporation,” whose legally defined goals are both profit and positive impact on the environment and society. Making these goals legally binding puts ethics 
in a standing far beyond the average corporate responsibility statement. Other for-profit
 benefit corporations include King Arthur Flour, Kickstarter, Warby Parker and Method. Patagonia, one of the first benefit corporations, is now taking this legal mandate to provide for social good to an unsolved problem in the apparel industry: labor trafficking and exploitation at deep levels of its supply chain.

But is it important to change our approach to ethics because it’s the “right thing to do,” or because it’s the profitable thing to do? The real question is: does it matter?

Is it the right thing to do, or the profitable thing to do?

The real question is: does it matter?

One can certainly do well by doing good: Natura and fellow benefit corporations bear this out. Sustainable approaches can be cost-effective. And profits matter to the viability of any company. But so, many argue, do social goals. We have seen that a single-minded emphasis on profit 
can have disastrous consequences for all of us (e.g., the 2008 financial collapse). Questioning the motivation behind the new ethics may be academic. As Carlucci said, what’s at stake is the very existence of the company: “In the long term, companies that don’t have goals aligned with society are going to disappear.”

Ultimately, to answer the question of why all of this matters, we need to borrow a phrase from improv comedy: “Yes, and.” In improv, players build on one another’s words and actions and add information until a scene is fully realized. In this case, yes, it’s the right thing to do – and it's profitable. Yes, it’s the right thing to do—and it’s pragmatic. Yes it’s the right thing to do—and it’s necessary. Sociologist Juliet Schor takes Carlucci’s warning one step further: “If we don’t get corporations’ goals aligned with society, one or the other of those entities is ultimately going to be unsustainable, either corporations 
or society.”

And finally, yes, it’s the right thing to do—and it matters to employees. What’s truly remarkable 
is the impact this approach to doing business
 has on a company’s internal culture. We’ve seen clients light up like fireflies when we start talking about the real, positive impact their company can have on culture and the world. Employees want permission to make a positive impact on the world through the work they do. When a company builds societal goals into its strategy, employees are excited to come to work. They matter.

Do businesses have the capacity to make transformational change for stakeholders inside and out? On this point, we’re right there with Gen Z. It’s not only where we should be headed; it’s where we must be headed.