Business Ethics and Efficiency Relationship

Executive Summary

This report aims at finding out whether practicing strong business ethics and good corporate social responsibility has an impact on business efficiency and employee satisfaction. These two concepts provide a coherent framework that is used to explore the relationships within the business and the communities in which they are operating. The findings indicate that companies with strong business ethics and social responsibility have increased efficiency hence greater performance. In addition, businesses with greater business ethics and socially responsible practices have enhanced customer satisfaction, which in turn add more value to the company shareholders. In this sense, socially responsible behaviors take into consideration ethical behaviors being practiced by the firm. The concept encompasses all those practices that the firms undertake to increase their efficiency in the management of their resources as well as enhancing good relations with their customers, employees, as well as shareholders.

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Introduction

Corporate social responsibility together with strong business ethics remains critical to the company’s growth and development. Most businesses agree that promoting good ethical standards and social responsiveness is one of the key successes (Starcher, 2010). The reason is that social responsibility and strong business effect have a direct influence on company efficiency, reputation, as well as employees’ relationships. Incorporating strong business ethics as well as social responsibility in the company mission and vision statement is the beginning of promoting these values in the company general conduct and practices (McWilliams & Siegel, 2000). In addition, the human resources must design put programs in their employment procedures and train employees the importance of having strong business ethics.

Several research findings indicate that having strong business ethics and practicing social responsibilities promote trust among the company stakeholders, which in turn increases employees’ efficiency and productivity. Strong business ethics also promotes the efficient and effective use of the company’s resources (Miller, 2011). The relationship between corporate social responsibilities has also been found to be direct. This means that companies practicing social responsibilities have a good reputation. Good reputation results in increases profits as well as long-term benefits to the company. Moreover, a good reputation increases public confidence in the company and its products and services leading to increased sales (Miller, 2011).

Therefore, it is critical for the company or any other business to start practicing good business ethics and social responsibility in the formative stages to build reputations as early as possible. The research findings indicate that businesses that have grown have difficulties in building their reputations particularly those that already have a bad public image (Fukami & Groove, 1997). Companies with bad reputations are struggling to increase their efforts on social responsibilities but the bad public view remains. It is therefore advisable for the companies to start at the right time to build public trust, which in most cases is difficult to attain.

Research Findings

The effect business ethics and social responsibility have on business reputation and performance

Companies have currently increased their investments in ethical practices as well as integrating corporate social responsibility in their business strategic planning practices. This indicates how important companies are in shaping not only the life of their stakeholders but also the life of the communities in which they are operating (Griffin & Mahon, 1997). In fact, the significance of ethics and CSR in business is widely acknowledged. In as much there have been many empirical studies looking into the economic cost of CSR and moral corporate actions; the outcome is not the same. Apparently, there is no positive connection between moral corporate activities and achievements. In essence, firms will always strive to behave ethically and practice corporate social responsibility simply because these are inherently right things despite the financial consequences (Griffin & Mahon, 1997). In other words, there might be many reasons why firms behave ethically and practice corporate social responsibility.

Regardless of these reasons, one thing comes out. Corporate social responsibility and ethical behaviors increase the efficiency and performance of the firm in the market place (McWilliams & Siegel, 2000). The reason is that these values have a positive effect on the firm’s products thereby increasing their market value. Moreover, ethical behavior increases the firm’s financial performance (Griffin & Mahon, 1997). In fact, many research findings indicate that practicing socially responsible and ethical behaviors leads to superior financial performance as well as the increased stock market value premium to the firm. Superior financial performance encompasses greater profitability, efficiency, and lower cost of capital (Waddock & Graves, 1997). Other studies have also shown a positive relationship between ethical behaviors and the firm’s reputation.

Though several characteristics are attributed to ethical behaviors and corporate governance, reputation, customer satisfaction, and workplace quality have clearly been depicted. Firms with good ethical behaviors and practicing social responsibilities have been found to be financially stable compared to those firms with ethical scandals (Waddock & Graves, 1997). While evaluating financial performance, Griffin and Mahon (1997) assert that ethical considerations increase profitability, growth, and operations efficiency. Within the industry benchmarks, firms with historical ethical practices in their financial controls and measures significantly outperform their competitors (Griffin & Mahon, 1997). The indication is that ethical practices directly relate to increased profitability, growth, and operational efficiency.

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In another study, ethical firms have also been found to less risky. In essence, firms with ethical standards in their code of conduct have their future anticipated earnings less discounted compared with firms without ethical considerations. Griffin and Mahon (1997) have used balance sheet liquidity measures, composite bankruptcy predictions, and advantage scores to measure the efficiency in financial management and the level of riskiness in the firm with ethical conduct. Moreover, McWilliams and Siegel (2000) used measures in the income statement that captures the variability in sales, income, and cash flows to measure financial management efficiency and the firms’ risk. The conclusion made was that moral conducts reduces threats facing the business. The reason is that moral accomplishments and good corporate governance enhance operational efficiency, and improved economic practice.

Corporate ethical behaviors and social responsibility practices also help firms create value-relevant intangible assets particularly the structural assets (Waddock & Graves, 1997). In fact, these insubstantial resources are ensuing from moral associations the firm have with outside parties. In other words, CSR and moral actions is a way through which the firm’s transactional outlays are abridged.

Corporate social responsibility and the company reputation

The company reputation goes along with high performance of the firm. Therefore, firms with high performance strategies normally have good reputations. Researches indicate that firms with good reputations are also socially responsible (Starcher, 2009). In other words, there is a strong correlation between the firm reputation and socially responsible practices. Moreover, the relationship between the firm’s reputation and ethical behaviors is direct. In some researches, those firms that already have tainted business practices have difficulties in building their reputations. This indicates the need for firms to start building their reputations in the former stages through appropriate ethical behaviors as well as adopting socially responsible practices (Rushton, 2002).

The effect of business ethics and corporate social responsibility on employees, investors and customers

The researches indicate that majority of businesses are currently fully integrating the needs of all their stakeholders into their corporate strategies. Incorporating the interest of employees, customers and shareholders into the corporate strategies is beneficial to the firm not only in the general growth and expansion but also in the profit generation (Starcher, 2010). The management task is to seek an optimal balance while responding to the diverse needs of various groups and constituencies affected by decisions that are being made. That is not only customers, investors and customers but also other stakeholders including suppliers and communities in which the firm operates (Starcher, 2010). Through the consideration of societal actors and not only the financial interests, the assumption is that the enterprise has a social responsibility. The interest of the stakeholders provides key dimensions of social responsibility that managers must take into consideration in order to remain relevant in the modern market place.

The CSR and the customers

The most important dimension is how the firm social responsibility practices affect its relationship with its customers. According to Ballou, Godwin, and Shortridge (2003), attention is now being shifted from producers to consumers. Internationalization of firms and globalization has introduced forces that have moved power from the goods manufacturers to customers who consume goods. In fact, putting customer first is the norm of today’s business practices (Ballou et al., 2003). The researches indicate that a practice that emphasizes on the customer satisfaction ensures lasting relation and enhances company performances. A social responsibility that enhances the needs of the customers distinguishes the company and leads to its success. Many companies have incorporated customer’s relations social responsibilities in their business strategies to enhance their market capabilities (Fukami & Groove, 1997). Successful companies always built long-lasting relations with customers through the emphasis on the customer needs and offering quality and reliable services.

According to Fukami and Groove (1997), companies that have passion for their customers are always successful. The correlation of those activities that enhances customer satisfaction with the company success is direct. That is adopting ethical and a socially responsible practice that takes into account customer perspective is critical to the company success. In fact Starcher (2010) have mentioned cultural shift in the firms activities towards customer satisfaction. Generally, firms have to take into consideration customer perspective in all its operative activities including production, research, engineering, finance selling, and marketing.

Rushton 2002) assert that firms that spend money time and on identifying the needs of the customers and on offering quality and reliable services are more profitable. That is firms with successful quality programs have ten percent cost advantage over their competitors. This means that they have less rework, good time management, lower cost all of which contributes to increased customer retention (Rushton, 2002). There is also direct correlation between superior quality and increased market share. Moreover, superior quality is also directly linked to greater returns on investments. The implications are that those activities of the firm emphasizing on quality enhances greater relationship with customers.

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Other surveys indicate that socially responsible activities within the firm’s management such as adopting cross-functional teams, group work, and single sourcing differentiate most successful companies. Moreover, the recent surveys indicate that what differentiates the best performing companies is the relationship they have with their customers (Starcher, 2009). In essence, company managers are now focusing on understanding their customers in order to improve their company value proposition as well as to identify new markets.

CSR and employees

Researches indicate that socially responsible companies are doing extra to provide meaningful work to their employees, and help their employees develop and realize their potential. Such companies strive to provide fair wages, safe and healthy work environment. In addition, such companies cultivate respect in their work environment. In fact socially responsible management and HR policies often includes employees empowerment, better dissemination of information throughout the company, increased balance between work, family affairs and leisure (Ballou et al., 2003). Moreover, socially responsible management and human resources policies enhances greater diversity in the workforce, incessant skills development and training, concerns with the employability as well as job security for all employees.

Recent surveys also indicate that profit sharing as well as share ownership increases the employee’s motivation and productivity and decreases turnover (Amir & Lev, 2003). There is also increasing evidence that practices that offer higher quality of life and more meaningful work impact directly on the firm’s profits through enhanced productivity. In addition, it enhances greater innovation among employees, higher reliability and quality as well as more skillful and committed employees at all levels (Ballou et al., 2003). Furthermore, it has been found that companies caring for their employees results in increased customer satisfaction. In other words, employee’s loyalty directly relates to customer loyalty.

Several studies have also found direct relationship between superior human resources practices policies and financial performance (Amir & Lev, 2003). The studies indicate that companies with flattened hierarchies pushed down responsibilities, empowered workers, share information, trained and educated workers and treated employees as partners are high performers in the market place (Amir & Lev, 2003).

CSR and investors

Researches indicate that developing good relations with shareholders add more value to the firm. Therefore, a practice that enhances this relationship is critical for the continuity of the firm. Visionary companies have adopted these core values in their business strategies (Fukami & Groove, 1997). Other researches indicate that successful companies must show beyond returns and be environmentally and socially responsible. Such companies show the need to invest for future growth and sustainability of their businesses (Fukami & Groove, 1997). Therefore, they must invest in the environment in which they operate.

Moreover, putting moral consideration on investment decisions results in sustainability of the company. The survey results indicate that companies investing in ethical and socially responsible behaviors normally last longer and contribute into building more and just societies and at the same time not compromising on the returns on their investments (Amir & Lev, 2003). Researches also indicate that considering shareholders while in major business decisions is important for the continuity of the company.

Besides, findings show that there is a direct correlation between the firms’ enhanced performance and investor’s consideration in major decisions of the firm. Further, there is evidence that there is a positive correlation between the firm’s share performance and socially responsible behaviors (Ballou et al., 2003). That is stocks of those firms that practice ethical socially responsible activities are high performing. Thus putting investments in ethical and socially responsible activities enhances the firm’s performance, which in turn increases the shareholder’s value (Amir & Lev, 2003).

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Recommendations

Generally, firms should practice ethical behaviors and socially responsible practices that enhance their efficiency in the use of resources. In addition, ethical corporate behaviors and social responsiveness by firms are directly associated with superior financial and operational performance. The reason is that ethical behaviors and social responsibility practices increase the firm’s reputation and consumer confidence in the firm’s products thus enabling firms to realize greater revenues. In addition, some attributes also enable firms to realize lower downstream and upstream costs. Other benefits associated with ethical and social responsibility practices include reduced cost of debt and equity capital lowering risks to the firm.

In addition, to be successful, companies and their managers must spend a lot of time and money on their customers, retain their customers, and prioritize research and development activities. Focusing on customers is another way of being ethical and socially responsible. In fact, there has been increasing evidence that ethical conduct, consciousness in environmental and social responsiveness makes a difference in the customer purchasing decisions on the company products. In other words, consumers are increasingly becoming aware of how products they purchase are being manufactured. Unethical and irresponsible social behavior will have a negative influence on the purchasing decisions of the customers. Therefore, it is critical for the company to value their customer needs while focusing on ethical and socially responsible behaviors. In essence, the purpose of the company is to focus on customer satisfaction and profit is the reward.

In addition, business organizations should also put into consideration the relationships they have with their employees. The reason is that the firm’s human resources practices that offer a higher quality of life and more meaningful work impact directly on the firm’s profits through enhanced productivity. Moreover, these practices enhance greater innovation among employees, higher reliability and quality

Lastly, firms should enhance their relationship with their shareholders. This is critical for the continuity of the business. Further, this relationship is essential for the firm’s future growth and sustainability. Therefore, investing in ethical and socially responsible activities improves the firm’s performance, which in turn increases the shareholder’s value.

Conclusion

Firms are not constrained to work justly and to be excellent communal public rather; corporations have to do the exact thing in order to be well organized and economically higher to their counteract parts in the matching commerce. From the researches, the results are very clear. Firms have no choice but to behave responsibly, ethically in order to enhance their performances and to be financially stable. Moreover, to remain relevant in the market place firms must practice corporate social responsibilities and behave ethically. The benefits of financial and operation performances are associated with being identified as an ethically and socially responsible corporation.

In order to achieve greater profits, all the activities of the firm must focus on customer satisfaction. The focus on the customers will provide the company with an enhanced competitive advantage. The implication is that ethical behavior must be incorporated in all activities of the firm such as honesty in specifications, product description, advertising, and all dealings with the customers. generally, investing in ethical and socially responsible behaviors normally last longer and contribute to building more and just societies and contributing more to the returns on investments.

References

Amir, E. & Lev, B. (2003). Do financial analysts get intangibles? European Accounting Review, 12(4), 635-659.

Ballou, B., Godwin, N. & Shortridge, R. (2003). Firm value and employee attitudes on workplace quality. Accounting Horizons, 17(3), 329-341.

Fukami, C. & Groove, H. (1997). Market value of firm reputation and executive compensation structure. Journal of Applied Corporate Finance, 5(2), 42-58.

Griffin, J. & Mahon, J. (1997). The corporate social performance and corporate financial performance debate: Twenty-five years of incomparable research. Business and Society, 36(1), 5-31.

McWilliams, A. & Siegel, D. (2000). Corporate social responsibility and financial performance: Correlation or misspecifications? Strategic Management Journal, 21(5), 603-609.

Miller, L. (2011). The high-performance organization. European Business Forum, 6(2), 73-79.

Rushton, K. (2002). Business ethics: A sustainable approach. European Review, 11(2), 137-139.

Starcher, G. (2009). Socially responsible enterprise restructuring. European Business Forum, 16(2), 213-246.

Starcher, G. (2010). Towards a new paradigm of management. European Business Forum, 32(6), 23-46.

Waddock, S. & Graves, S. (1997). The corporate social performance – Financial performance link. Strategic Management Journal, 18(4), 303-319.

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