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Ethics is worth an equity premium

In 2018, 135 honorees were recognized as the worlds most ethical companies. These companies span 24 countries and 57 industries. This year’s honorees hold record-level involvement with their stakeholders and their communities around the world. From measuring and improving culture, to leading authentically and committing to transparency, diversity and inclusion.

Being ethical pays off.

What is an ethics premium?

Research has found that, when indexed, listed World’s Most Ethical Companies outperformed the U.S. Large Cap Index over five years by 10.72% and over three years by 4.88% on average. The organisation which conducted this research, Ethisphere, refers to this as the Ethics Premium.

Why do ethical companies perform better?

Easier Accounting

Imagine a business owner who keeps four sets of books: one for the government, one for his bankers, one for his family, and one that reflected the true economics of his business. It is exhausting!

The fact is that massaging the numbers, cooking the books or otherwise bending the truth is both confusing and expensive. “The truth shall set you free” is more than a platitude. It’s an expression of how much easier it is to run your business when you use real numbers and honest accounting.

Better Branding

Even greedy business owners have a conscience. They’re not sociopaths; they’re just misguided. The good news is that if they cease their shenanigans and do what’s right going forward, they will feel better about their business.

Feeling better about the business has marketing advantages. First, the ethical business owner is a confident business owner. It’s easier to brag when there’s nothing to hide. And honesty generates passion. The owner believes in the business and wants to tell the world. So, when ethical behavior generates both confidence and passion, you have a business owner who inspires trust. Trust with employees, suppliers and customers. What better way to improve brand than by creating trust?

 

Improved Bottom Line

Customer satisfaction is important. Instant feedback loop driven by modern technology can allow businesses to quickly learn customers satisfactions fairly quickly. With products like Angie’s List, Yelp, TripAdvisor and myriad any unethical practice is quickly exposed to the public. Bad behavior will be very quickly exposed.

Alternatively, when customers are happy, word also gets around quickly. The business is then rewarded with good ratings and referrals that ultimately boosts the bottom line.

Better Health and Better Decisions

Running a business is stressful enough as it is. The fear of being caught exacerbates the situation. Higher stress levels result in poorer energy and bad money-making decisions. So much energy is being focused on hiding the shady side that owner’s health deteriorates and employee energy gets dispersed.

Imagine making accounting easier, expanding your brand, adding to your bottom line simply through doing the right thing. Good ethics pays.

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