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Abstract Ethics, as a term, is often misunderstood and some companies falsely believe that being ethical is an expensive practice that causes the organization to forego profits. This article explains that this is not true – ethics is about following what is right for society, customers, and stakeholders, while keeping the organization’s long-term vision in mind. Shortcuts and sleazy behavior sometimes pay handsomely, but only for the short term. Organizations must remember that any benefits from lying, cheating, and stealing usually come at the expense of their reputation, brand image, and shareholders. Therefore, leaders and managers should work hard to be ethical and remain that way. It is important for every project to fulfill its social responsibilities and welfare commitments. Ethical companies are more trusted by people and this trust provides higher chances that the organization will remain profitable and continue to grow for many years. Studies show that people are willing to pay a premium for an ethical company’s products and that ethical organizations have continued to survive and grow.

“There is one and only one social responsibility of business – to use it[s]resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” -- Milton Friedman

“Any idiot with a strong enough stomach can make quick money, sometimes a lot of it, by slashing costs and milking customers, employees, or a company’s reputation. But clearly that’s not the way to make a lot of money for a long time. The way to do that is to create so much value that your customers wouldn’t dream of looking for another supplier. Indeed, the idea is to build a value creation system of superior products, service, teamwork, productivity, and cooperation with the buyer.”   -- Thomas Teal in Fortune Magazine

“Ethics is the new competitive environment.”  -- Peter Robinson, CEO, Mountain Equipment Co-op

Ethics, as a term, is often misunderstood in project management. Some project managers believe that being ethical is too expensive for the project and that it may cause them to forego profits. It’s not true. Ethics is all about following what is right for the customers and stakeholders, and keeping the organization’s long-term vision in mind.

The first responsibility of a business or project is to remain profitable and generate revenue for the shareholders, creditors, employees, and society. Based on this, it is an ethical obligation of every project to make profits for itself so that the larger organization can discharge its social responsibilities and welfare commitments. In this sense, it is unethical to not make profits.

It’s not unethical to make profits, but it does matter about the way those profits are earned.

Project managers should not resort to shortcuts and unethical means in order to generate profits because that will be disastrous for the project, client, and the organization in the long run. This can be highly damaging to the social image and brand. Organizations have to answer to shareholders and stakeholders-at-large within their community. For new-age companies, being ethical is becoming an increasingly important component of their business practice, particularly in the era of fast internet, powerful social networks, and smart instruments where opinions and perceptions can flow at lightning speed.

Why Being Ethical Matters Ethisphere, an independent center of research promoting best practices in corporate ethics and compliance, released its 2014 list of the world’s most ethical companies. The list contains many globally recognizable mega-corporations such as T-Mobile USA, Delphi, GAP, Microsoft, Schneider Electric, and more.

Ethisphere defines an ethical company as the following:

The World’s Most Ethical Company honorees not only promote ethical business standards and practices internally, they embed the theory of “conscious capitalism” into everything they do, every employee they hire, and every partner they bring into their network to ensure they deliver long-term value to key stakeholders including customers, suppliers, regulators, and investors. By leading their industries in compliance, corporate governance and social responsibility, the World’s Most Ethical Companies effectively align ethical business practices with performance and shape future industry ethical business standards.

Ethics also play an integral part in the way companies operate. Online communities and social media tend to insist that companies operate transparently. Thus, behaving ethically in business is of the utmost importance for the company’s bottom line. If you take a look at the most profitable and well-known small businesses in your community, you will notice that they generally all have good reviews on sites like Yelp.com, and have a positive image on social media.

The study by Ethisphere observed that it is only ethical organizations that have continued to survive and grow, whereas unethical ones have shown results only as being a “flash in the pan,” quickly growing and, even more quickly, dying and being forgotten.

It is observed that sometimes the ethical violations committed by the project manager/members or organization look profitable. Cheating customers, avoiding taxes, circumventing costly regulations, and undermining competitors can increase profits and shareholder value. But let’s take a pause here and bring in the perspective of time, purely for the business reason of short-term vs. long-term.

Unethical behavior can be extremely profitable in the short run. But a business is supposed to create long-term value for its customers and shareholders and these tricks will not last for that long.

Being ethical in projects and organizations also pays future dividends. If a project manager or business leader is ethical, often the employees or team members feel very safe and secure enough to air their thoughts; hence, making innovation a possibility. Today’s young workforce is very dynamic and full of new-age ideas and, therefore, they feel comfortable joining teams/companies which feed their imagination and ideas. Leaders who are ethical in their practices are the most sought after by the millennial generation.

According to Deloitte's fourth annual Millennial Survey, which includes 7,800 of tomorrow's leaders from 29 countries, the value of strong business ethics is increasing. This stresses the fact that today’s young workforce also prefers to join ethical organizations that they can trust for their future growth.

Ethics and Profits According to the article, “Does Being Ethical Pay?” no project or business, however strong or wealthy it may be at present, can exist on unethical means for very long, or in total disregard to social concerns. Projects that resort to unethical behavior or disregard social welfare, seek their own demise. It is the responsibility of the project manager to create an environment of trust and transparency so that team members can remain ethical and report any suspicion freely.

There are clear examples cited by an experiment conducted by Remi Trudel and June Cotte (2008), that prove that ethical behavior and actions appear to be a wise investment. In other words, if you act in a socially responsible manner and advertise that fact, you may be able to charge slightly more for your products. On the other hand, it appears to be even more important to stay away from goods that are unethically produced. Consumers may still purchase your products, but only at a substantial discount.

In their study, when customers were told of the practices of the companies producing the coffee they bought, they did not mind paying a premium for the company with ethical practices, as opposed to the price where there was no information about the company’s practices. But when customers were told that the company was involved in unethical practices, they punished the product by seeking heavy discounts and the customers were not willing to pay the regular prices. Also, not all customers were even willing to buy the products at all.

Figure 1: Consumer attitudes regarding companies’ ethical practices

The lesson is very clear. Customers who care deeply about high ethical standards are the ones who can deliver the biggest potential profits on ethically-produced goods. There should not be any hesitation in being ethical, as this is a long-term investment in making current and future customers your loyal partners. When companies work ethically, they naturally outpace competitors who are unethically working for expanding profits. It is simply because customers see them as a trusted partner, not only for what they do, but for how it is delivered.

References

1. Deloitte. (2015). The Deloitte millennial survey: Mind the gaps. Retrieved fromhttp://www2.deloitte.com/global/en/pages/about-deloitte/articles/millennialsurvey.html

2. Ethisphere. (2014). Ethisphere announces 2014 world’s most ethical companies. Retrieved fromwww.ethisphere.com/ethisphere-announces-2014-worlds-most-ethical-companies

3. Hosmer, L. (1985). Trust: The connecting link between organizational theory and philosophical ethics. Academy of Management Review, 20(2) 379—403.

4. Jakobs, R. (2014). Why placing ethics over profits pays off. Retrieved fromhttp://www.philips.com/e/innovationmatters/blog/Good_business_Why_placing_ethics_over_profits_pays_off.html

5. Miksen, C. (2012). Ethical issues in maximizing profits. Houston Chronicle. Retrieved fromhttp://smallbusiness.chron.com/ethical-issues-maximizing-profit-34328.html

6. Singer, P. (2009, June 21). Putting ethics before profits. The Guardian. Retrieved fromhttp://www.theguardian.com/commentisfree/2009/jun/21/harvard-mba-business-ethics

7. Teal, T. (2007). Not a fool, not a saint. PUBLICATION. Retrieved from http://classes.bus.oregonstate.edu/fall-07/ba350/REQUIRED%20READINGS/H-Not%20a%20Fool.doc

8. Trudel, R. & Cotte, J. (2008, May 12). Does being ethical pay? The Wall Street Journal. Retrieved fromhttp://www.wsj.com/articles/SB121018735490274425

About the Author Alankar Karpe, PMP, PMI-ACP is a member of the PMI Ethics Member Advisory Group, a global team of experienced volunteers committed to learning, awareness, and discussion about ethics and professional conduct in the project management community. He has more than 14 years of experience and has worked in the areas of strategic consulting, project and portfolio management, manufacturing and service delivery, and managing IT projects across various geographies. He holds a master’s certificate in business analysis from George Washington University and a post-graduate diploma in management from IMDR Pune.