Building a positive and ethical reputation requires a firm to:

What makes for good business ethics? We give you a few examples and their payoffs, plus proven ways to ensure that ethical conduct holds sway at your company.

OVERVIEW [top]

Good ethics make good business sense. Your company stands to profit from a reputation for acting with honesty and integrity.

Environics International recently surveyed 25,000 people in 23 countries; 50% said they "pay attention" to the social behavior of companies. One in five said they'd protested poor social performance by speaking out against the companies or refusing to buy their products.

Bottom line: Your policies and actions are under constant scrutiny and assessment by those who can make or break your business. Can you afford not to do the right thing?

In this Quick-Read you will find:

  • How to choose an ethical course of action.
  • Ways to do right by your employees.
  • Tips for treating customers ethically.

SOLUTION [top]

Having a code of ethics helps your company define and maintain standards of acceptable behavior. A good ethical framework can help guide your company through times of increased stress, such as rapid growth or organizational change, and decreases your firm's susceptibility to misconduct. Ensuring ethical practices in the workplace, such as with personnel policies, can stave off expensive litigation or fines in the future. Last but not least, it can translate to great PR for your business.

What makes for good business ethics? A few examples:

  • Treat your employees well. Pay fair wages, and keep your promises. Act quickly to put an end to any kind of harassment, and show the same high level of respect for all your employees. Payoff: Low turnover, high employee motivation and productivity. Commitment to growing your company.

  • Be honest in all business dealings. Pay suppliers the amount agreed upon, and on time. Be fair with customers, not over-charging and not inflating the quality or potential of your products or services. Payoff: A sterling reputation that will help sustain your company even when times are tough.

  • Be socially responsible. Don't pollute the environment; recycle when possible. Heed protests of company policy or actions. Give back to the community through charity fund-raising or other worthy causes. Payoff: Goodwill that enhances your reputation as a positive force in the community.

  • Back up your products and services. Provide what you promise on your service contracts and in your advertising. Example: A Canadian roofing company won't accept payment on roof replacement or repair until after a rainfall proves the roof doesn't leak. Payoff: Repeat business as customers learn they can trust you not to cheat them — and these people tell their friends.

Here are two proven ways to ensure that ethical conduct holds sway at your company:

  1. Adopt a code of ethics. This is a formal statement that sets standards of behavior for everyone in the company. Your code can range widely, from confidentiality (keeping trade secrets) to dealing with sexual harassment. Specify any penalties for violations. If the company goals in your long-range plan are respected and referred to frequently, add following the ethics code to them.

  2. Do a quick "ethics check" when necessary. If you're not sure whether a decision or action would be ethical, ask yourself:

    • Is it legal? Would I be violating federal, state or municipal law?

    • Is it in accordance with company policy?

    • Is it fair? Would anyone lose out?

    • Would I be proud of my action? How would I feel if my family and friends read about it on the front page of the newspaper?

    • How would our customers react? Would they be more inclined to trust us, or feel cheated or betrayed?
REAL-LIFE EXAMPLE [top]

"Honesty in dealing with our customers" is paramount at RMI, wholesale distributors of gas equipment in Lee, Mass., says Jim Creer, manager of operations and materials. "We'll honor the price we've negotiated with a customer — even if we've mistakenly given a price that cuts the profit margin for us," says Creer. The goodwill generated by such a policy is priceless.

RMI also "fesses up" when orders are messed up somehow. "The wrong item might be shipped to a customer and then we discover someone here made an error putting the order into the system," says Creer. Denial of responsibility — often the first reaction when a company errs — doesn't wash at RMI.

"We'll admit our mistake right away," says Creer, "and take responsibility for getting back the wrong item and making sure the customer gets the right product at no extra charge."

Though they may never say it outright, "customers fully appreciate being treated with integrity. They prove it by their long-term loyalty to a company that doesn't dodge responsibility — and quickly rectifies its mistakes."

DO IT [top]

  1. Model the ethical behavior you expect of your employees. Treat them with honesty and respect if you want them to give one another — and your customers — the same treatment.

  2. Provide employees with opportunities for personal and professional growth. Tailor incentives to individual needs.

  3. Educate employees about ethics. Use hypothetical situations: "What would you do if a valued customer kept making suggestive remarks to a junior staffer?"

  4. Empower employees to treat customers right. Don't criticize good ethical decisions made on the front line, such as taking returns from loyal customers who don't have receipts.

  5. Make sure employees are aware of your code of ethics. Encourage them to discuss ethical concerns with you or another designated individual. Take those concerns seriously, and ensure confidentiality. Consider an anonymous survey of the entire staff asking them to define the organization's ethical strengths and weaknesses.

  6. Share your code of ethics with customers. Invite them to be open regarding any doubts they have about the integrity of your company and employees. Don't react defensively.

  7. Reward ethical behavior. This can be done through raises, bonuses and employee recognition awards.
RESOURCES [top]

Books

Good, the Bad, and Your Business: Choosing Right When Ethical Dilemmas Pull You Apart by Jeff Seglin (John Wiley & Sons, 2000). Seglin, a popular writer for Inc, provides ethical perspective through a series of anecdotes.

A Better Way to Think about Business: How Personal Integrity Leads to Corporate Success by Robert C. Solomon (Oxford University Press, 1999). Solomon does not prescribe action so much as ruminate on integrity in the business setting.

Eighty Exemplary Ethics Statements compiled by Patrick E. Murphy (Notre Dame Press, 1998).

Managing Business Ethics: Straight Talk About How to Do It Right, 2nd ed. by Linda K Trevino and Katherine A. Nelson (Wiley, 1999). Managing Business Ethics is a textbook that offers more prescriptive advice than most books on business ethics.


Article

"The Values That Sustain Entrepreneurs" by Ray Smilor

Internet Sites

Fast Company: Social Justice

Ethics and Conflict of Interest

Resolving Real-Life Ethical Dilemmas

Ethics Today


Article Contributors

Writer: Kathleen Conroy

Building a positive and ethical reputation requires a firm to:

Photo by: Sto

Corporate image, or reputation, describes the manner in which a company, its activities, and its products or services are perceived by outsiders. In a competitive business climate, many businesses actively work to create and communicate a positive image to their customers, shareholders, the financial community, and the general public. A company that mismanages or ignores its image is likely to encounter a variety of problems. "Reputation problems grow like weeds in a garden," Davis Young wrote in his book Building Your Company's Good Name. "Direct and indirect costs escalate geometrically."

Some of the warning signs that a business might have an image problem include high employee turnover, the disappearance of major customers, a drop in stock value, and poor relationships with vendors or government officials. If an image problem is left unaddressed, a company might find many of its costs of doing business rising dramatically, including the costs of product development, sales support, employee wages, and shareholder dividends. In addition, since the majority of consumers base their purchase decisions at least partly on trust, current and future sales levels are likely to suffer as well.

In businesses of all sizes, it is vital that managers recognize the importance of creating and maintaining a strong image, and that they also make employees aware of it. Corporate image begins within the offices of a company's managers. It should be based on the development of good company policies, rather than on controlling the damage caused by bad company policies. Young recommends that business owners and managers take the following steps toward improving their companies' image: focus on the firm's long-term reputation; base actions on substantive policies; insist on candor in all business dealings; and uphold the stakeholders' right to know. After all, he notes, a good corporate image can take years to build and only moments to destroy.

IMPORTANCE OF CORPORATE IMAGE

Several factors have contributed to the increasing importance of corporate image in recent years. For example, the business climate in the United States has become one of environmental complexity and change. This has forced many business enterprises to significantly alter their strategies to better compete and survive. The acceleration of product life cycles is another vital dimension of the turbulent business environment. Globalization has been still another catalyst in the rise of corporate image programs, as companies have sought ways to spread their reputations to distant markets. A related factor is that as a corporation expands its operations internationally, or even domestically, through acquisitions, there is a danger that its geographically dispersed business units will project dissimilar or contrary images to the detriment of corporate synergy.

A final factor stimulating the current interest in corporate image is society's growing expectation that corporations be socially responsible. Many of today's consumers consider the environmental and social image of firms in making their purchasing decisions. Some companies have recognized this reality and reaped tremendous benefits by conducting themselves in a socially and environmentally responsible manner. Some of these companies act out of genuine altruism, while others act out of a simple recognition of the business benefits of such behavior.

THEORY OF CORPORATE IMAGE

In the process of managing corporate image, the fundamental variables are: corporate identity, corporate communication, corporate image, and feedback. Corporate identity is the reality of the corporation—the unique, individual personality of the company that differentiates it from other companies. Corporate communication is the aggregate of sources, messages, and media by which the corporation conveys its uniqueness or brand to its various audiences. Corporate image is in the eye of the beholder—the impression of the overall corporation held by its several audiences.

The objective in managing corporate image is to communicate the company's identity to those audiences or constituencies that are important to the firm, in such a way that they develop and maintain a favorable view of the company. This process involves fashioning a positive identity, communicating this identity to significant audiences, and obtaining feedback from the audiences to be sure that the message is interpreted positively. An unsatisfactory image can be improved by modifying corporate communication, re-shaping the corporate identity, or both.

CORPORATE IDENTITY Corporate identity—the reality and uniqueness of the organization—may be broken down into four component parts: corporate strategy, corporate culture, organizational design, and operations. Strategy is the overall plan that determines the company's product/market scope and the policies and programs it chooses to compete in its chosen markets. Corporate culture is the shared values and beliefs that the organization's members hold in common as they relate to each other, their jobs, and the organization. It defines what the firm's personnel believe is important and unimportant, and explains to a large degree why the organization behaves the way it does.

Organizational design refers to the fundamental choices top managers make in developing the pattern of organizational relationships. It encompasses issues such as whether basic tasks should be organized by function or product division, the company's overall configuration, the degree of decentralization, the number of staff personnel, the design of jobs, and the internal systems and procedures. Operations, the fourth and final component of corporate identity, is the aggregate of activities the firm engages in to effect its strategy. These activities become part of the reality of the corporation and can influence its identity in a wide variety of ways.

CORPORATE IMAGE Corporate image is the reputation of the firm with the various audiences that are important to it. These groups that have a stake in the company are known as stakeholders. Stakeholders are affected by the actions of the company and, in turn, their actions can affect the company. Consequently, its image in the eyes of its stakeholders is important to the company. The principal stakeholders with which most large corporations must be concerned are: customers, distributors and retailers, financial institutions and analysts, shareholders, government regulatory agencies, social action organizations, the general public, and employees.

The image that stakeholders have of the company will influence their willingness to either provide or withhold support. Thus, if customers develop a negative perception of a company or its products, its sales and profits assuredly will decline. Government regulatory latory agencies, another important set of stakeholders, are required by law to monitor and regulate firms for specific, publicly defined purposes. Nevertheless, these agencies have considerable discretion in how they interpret and apply the law. Where they have a positive perception of the firm, they are likely to be much less censorious.

Obviously, each of the various stakeholder groups is likely to have a somewhat different perception of the corporation because each is concerned primarily with a different facet of its operation. Thus, consumers are principally interested in the price, quality, and reliability of the company's products and services. Financial institutions are concerned with financial structure and performance. Employees are mainly concerned with wages, working conditions, and personnel policies. Logically, then, a company should tailor its communication to each stakeholder group individually to address the special concerns of that group.

However, maintaining a consistent image among the several stakeholder groups is also vital. Although it is prudent to stress different facets of the firm's identity to its various publics, the firm should avoid projecting an inconsistent image, because the concerns and memberships of different stakeholder groups often overlap. For instance, the financial community and the shareholders would have many of the same financial and strategic concerns about the company. In fact, many shareholders rely heavily on the advice of experts from financial institutions. Similarly, both employees and the general public have an interest in the overall prestige of the firm and the reputation of its products. A social action group's criticism, whether economically effective or not, is bound to influence some customers and affect the company's public reputation. A regulatory agency such as OSHA would focus narrowly on the firm's safety record and policies, but the company's employees and their labor unions also have a stake in these matters.

CORPORATECOMMUNICATION Corporate communication provides the link between corporate identity and corporate image. It should be defined in the broadest possible sense, because companies communicate identities in many different ways. Communication can include almost anything the company does, from the way telephones are answered to the involvement of company employees in community affairs. Some of the principal sources of corporate communication include company and product names and logos, formal statements (mission statements, credos, codes of ethics, annual reports, advertising copy, and company slogans), and behavior during important events. These events encompass scheduled events such as open houses and anniversary sales as well as unscheduled events such as lawsuits or negative press coverage.

FEEDBACK Feedback is essential to the management of corporate image. Business owners and managers need accurate information on how they and their company are perceived if they are to make sound decisions. Ideally, feedback should be continuous. As a practical matter, continuous feedback can be elicited from salespeople, clients, employees, and other local business owners. Based on such input, modifications may be made in the company's communication methods or, if warranted, a formal study of the corporate image may be initiated. In addition to systematically utilizing internal sources, it is prudent to undertake a serious review of the business's reputation (both internally and externally) on a regular basis.

Balmer, John M.T. "Building Societies: Change, Strategy and Corporate Identity." Journal of General Management . Winter 1991.

——. "The BBC's Corporate Identity: Myth, Paradox, and Reality." Journal of General Management . Spring 1994.

Ind, Nicholas. Corporate Image . Kogan Page, 1992.

Olins, Wally. Corporate Identity: Making Business Strategy Visible through Design . Harvard Business School Press, 1990.

"Reputation Keeps Business Buoyant." Marketing. May 27,1999.

Schindler, Esther. "Define 'Reputation.' " Smart Reseller. January 10, 2000.

Young, Davis. Building Your Company's Good Name: How to Create and Project the Reputation Your Organization Wants and Deserves. AMACOM, 1996.