Why do some firms behave ethically? While there is a moral case that can be made for doing good and going beyond the minimum required by law, there is also a business case that can be made for ethical decisions in business. This article explores the business case for ethical decision-making.
Reason 1: Help attract and retain employees
One of the first benefits that come from doing good is that it can help attract and retain employees. Employees like to feel like they are working for a company that places a high standard on decisions – practicing good behaviors that can benefit the community and society at large.
This can be particularly true with your most valuable employees – those employees that have lots of options for where they could work. Having a good reputation for CSR and ethical behavior can help attract such employees and help encourage them to remain with the firm.
Reason 2: Improve the firm's reputation and attract customers
Another business case justification that can be made for going above and beyond with CSR and related ethical issues is that it can help attract customers. Particularly B2C customers can have a preference for buying from firms that are seen to be doing good – whose reputation lives up to the type of firms that the customer wants to buy from.
Reason 3: Help develop some goodwill in the local community
CSR and other actions that benefit the local area may also buy the firm some goodwill with the local community This can have intangible benefits, such as making it easier for the firm to do business in the area, the more the firm is seen as a valuable contributor to the area.
Reason 4: Reduce the likelihood of regulatory scrutiny or legal issues
CSR may also reduce the likelihood that a firm faces legal or regulatory scrutiny for its practices. IF the company can illustrate that it is self-regulating – going above and beyond the legal minimum required behaviors – then it may offset the need for further intervention into the company’s practices.
Reason 5: Potentially be a buffer against mistakes or accidents
Finally, building up a reputation for doing good can potentially be a buffer against criticism should the firm have a mistake or accident that goes against its values. It is potentially easier to convey that a one-off instance was unintentional when the firm already has a good reputation than it is if the firm has a much more mediocre track record when it comes to CSR and related areas.