Chapter 10 Business Ethics and Organizational Performance

Relationship of Business Ethics to Performance customers, employees, and investors are major concerns for firms that want to develop loyalty and competitive advantage – goal is to increase customer dependence on the company & to provide products in an environment of mutual respect & perceived fairness – create satisfying relationships with employees – support relationships with investors based on trust, dependability, & commitment

Trust as a Component of Business Ethics trust is defined as a virtue that creates a predisposition to place confidence in the behavior of others while taking the risk that the expected behavior will be performed employees must share a common vision of trust trust is the ‘glue’ that holds organizations together trust is essential for maintaining long term relationships between business & consumers

Ethics Contributes to Organizational Quality an organizational commitment to quality causes employees to be more willing to support quality initiatives & discuss ethical issues employee’s commitment to quality has a positive effect on a firm’s competitive position, an ethical work climate should have a positive effect on the financial bottom line

Ethics Contributes to Customer Satisfaction consumers respond positively to socially concerned businesses – being good can be extremely profitable customer satisfaction dictates business success a strong organizational ethical climate often places the customer’s interests first research shows a strong relationship between ethical behavior & customer satisfaction

Ethics Contributes to Employee Commitment employee commitment comes from employee’s who believe their future is tied to that of the organization & their willingness to make personal sacrifices for the organization – the more dedication on the part of the company, the greater the employee dedication – concerns include a safe work environment, competitive salaries & benefit packages, & fulfillment of contractual obligations

Ethics Contributes to Profits corporate concern for ethical conduct is increasingly being integrated with strategic planning to maximize profitability corporate citizenship is positively associated with: – return on investment & assets – sales growth many studies have found a positive relationship between citizenship & performance

The Role of Ethics in the Economic Performance of Nations societal institutions that promote trust are important for the economic well-being of society trust is the extent to which individuals identify with or have a sense of community conducting business in an ethical & responsible manner generates trust & promotes productivity & innovation reputation matters greatly in business