Business Ethics, Brand Management, and Creative Capitalism: Do Good Companies Do Well Financially? Andrew Gustafson Professor of Business Ethics and Society, Creighton University October 2, 2008

Business Ethics??? Business needs ethics to thrive: 1.Trust is foundational to contracts 2.Customer Satisfaction/loyalty 3.Happy Employees = productive employees 4.Transparency is essential to development 5.Unethical practices ultimately undermine business 6.Globalization requires some common values 7.Many Customers want ethical businesses

Business: Its purpose/goal The purpose of business is to make me money, and increase stockholder value (Milton Friedman)

What is Ethics? Minimal: What we shouldn’t do Don’t steal, don’t kill, don’t lie Better: What we should do (justice) Be fair, Be honest, Fulfill duties, work hard Best: What we could do to make things excellent for all of us… Create a Beautiful World

Is Ethical Business Profitable? Positioning your brand as having an ethical reputation can be quite profitable. Many researchers have done empirical research which shows that ethical behavior does not harm the company, and often helps the company make more money.

Question: Does Ethical perception play any role in a Brand’s performance? --In other words— Do Customers really buy products according to the ethics of companies??

Answer: Yes. 1.Boycotts by ethical shoppers cost big brands at least £2.6bn a year ethical consumption in the UK was worth £19.86bn in 2002 (Co-operative Bank EP Index, 2003)

Consumers Care about Ethics In 2002 every household in the UK spent an average £366 in line with their ethical values In 2006 they spent £664 (+ 81 per cent) Co-operative Bank Ethical Consumerism Report

The “Ethics Factor” In developed competitive markets, many companies distinguish themselves by positioning their brand as ‘ethical’ or ‘socially concerned’

Ethics Rankings The 100 Best Corporate Citizens list ranks firms based on eight categories: 1. Shareholders 2. community 3. governance 4. diversity 5. employees 6. environment 7. human rights 8. product

Business Ethics 100 Best Corporate Citizens Green Mountain Coffee 13. Texas Instruments 2. Advanced Micro Devices 14. Herman Miller 3. NIKE15. Rockwell Collins 4. Motorola16. Interface, 5. Intel Corporation 17. Steelcase 6. IBM Inc.18. Dell Inc. 7. Agilent Technologies 19. Cisco 8. Timberland 20. Lam Research 9. Starbucks 21. Johnson & Johnson 10. General Mills 22. Adobe Systems Inc. 11. Salesforce.com, Inc. 23. Kimberly-Clark Corp 12. Applied Materials 24. Gaiam, Inc.

Business Ethics 100 Best Corporate Citizens Gap, Inc. (The) 39United Parcel Service 26Chaparral Steel 40Microsoft 27Pitney Bowes, Inc. 41Chittenden, Inc 28Freddie Mac 42PepsiCo, Inc. 29Google, Inc. 43Energy Conversion Devices 303M Company 44McGraw-Hill 31Heartland Financial USA45Ecolab 32Chicago Mercantile Ex46Wells Fargo 33Southwest Airlines Co. 47Autodesk 34Eastman Kodak 48Xilinx, 35Cummins, Inc. 49Xerox Corporation 36American Express 50TradeStation Group 37Northwest Natural Gas 51Kellogg Company 38Wainwright Bank & Trust

Most Ethically Perceived Brands United KingdomUnited StatesGermany 1. Co-op 1. Coca Cola 1. Adidas 2. Body Shop 2. Kraft 2. Nike 3. Marks Spencer 3. Procter Gamble 2. Puma 4. Traidcraft 4 Johnson & Johnson 4. BMW 5. Cafédirect 4. Kellogg’s 5. Demeter 6. Ecover 4. Nike 5. gepa 7. Green Black 4. Sony 7. VW 7. Tesco 8. Ford 8. Sony 9. Oxfam 8. Toyota 8. Trigema 10. Sainsbury’s 10. LEVI 10. Bio Produkte 11. Innocent 10. Starbucks 10. Body Shop 12. Waitrose 12. Ben Jerry’s 10. Hipp 13. Clipper Tea 12. Dell 10. Mercedes 14. Asda Campbell’s 10. Wrangler

BIG Brands want Ethical Brands Cadbury Schweppes bought Green & Black's, a niche but fast growing UK-based organic and fair trade chocolate firm. Nestlé launched Fairtrade certified Partners' Blend coffee Kraft Foods introduced their Kenco Sustainable Development coffee brand

Unethical Behavior Costs Companies: Corporate Scandals—United States - Enron - Tyco - Adelphia - Xerox - Rite-Aid - Martha Stewart - ImClone - K-Mart - Boeing - WorldCom

Corporate Scandals-- Europe - Mannesmann - ELF - Royal Dutch Shell - VW - ABB - France Telecom - ABN-Ambro - Heidelberg Cement - Ahold - Bank of Italy - Siemens - Daimler-Chrysler - Parmalat

These Scandals cost $ Settlements - AIG ($1.6B) - Time Warner-AOL ($510M) - KPMG ($465M) - Adelphia ($715M) - Tyco ($750M) - HCA ($1.7B) - Prudential ($600M) - Tenet ($325M) Marsh McLennan ($850M) Cardinal Health ($600M)

Results of Recent Scandals a.Investors have become more demanding about transparency b.Consumers have become more demanding about corporate behaviors (accounting, environment, production methods, etc) c.In U.S., government has become involved to ease investors’ concerns– more regulation for business!!

What Can Be Done? There are a number of ways to improve the ethical image of your brand. Superficial changes are not enough, and authentic ethical commitment of a brand is displayed in real action on the part of companies in order to have real effect.

Some Examples

Environmentally “green” “Today, social norms regarding the environment are changing and consumers are increasingly holding brands accountable for what they do … As a result, more and more companies are making investment decisions that incorporate brand impact and brand risk into their equations.” (David Wigder)

Example: CocaCola Coke is proactively redesigning its bottle to reduce material use and pledging to recycle 100% of bottles sold in the US. Results: 1.Reduce Material Costs 10% 2.Improve Public Relations/Image with Public

Ethical Production Nike was criticized for sweatshop labor issues in East Asia, and many consumers boycotted Nike.

Nike’s Response Nike responded to these criticisms, changed some of their production arrangements, and returned to the list of the “100 most ethical companies” list

Treatment of Customers

Financial Honesty and Transparency Bad Example:

Financial Honesty and Transparency Wells Fargo Bank is known for its disclosure of financial data.

Treatment of Workers Costco is well known for its great treatment of employees

vs 48% Insured82% Insured 2 yr wait for ins.6 month wait 66% paid by walmart92% paid by costco 50% Turnover92% Turnover $ /hr$ /hr

Strong Moral Leadership “CEO leads troubled Tyco into turnaround” Ed Breen, CEO Fired Management Fired Board

What Causes Unethical Behavior? 1.Irrational exuberance + uninhibited self-interest 2.Arrogance 3.Fraud 4.Conflicts-of-interest 5.Preferential treatment 6.Accounting arbitrage 7.Failure of independent auditors 8.Failure of analysts 9.Failure of rating agencies 10.Failure of regulators 11.Failure of board oversight 12.Culture of greed

Corporate Culture and Performance Starbucks Nordstroms FedEx Southwest Airlines Costco Intel Google

Corporate Philanthropy Donating time, money and resources to the needy. A.Volunteer opportunities: Habitat for Humanity workdays (M.0., etc) B. Support: FNB to Loves Art & Jazz Museum, Heartland America Park

Directed Philanthropy Directed Philanthropy: Companies give towards specific aligned needs

Conagra Supports effort to eliminate hunger company.conagrafoods.com/phoenix.z html?c=202310&p=foundation

Union Pacific Gives to small towns its trains go through.

Mutual of Omaha Supports efforts to eliminate drug use

Creative Capitalism Bill Gates: Creative Capitalism: Business, NGOs and Government work together to stretch the reach of market forces by producing opportunities to make money solving the problems of poverty etc in the world.

Directs brainpower and marketpower of companies to solve world problems, particularly for the poor who have less of a market-voice.

RED campaign

The Risks of Doing Business The risks of doing business have never been greater!

Development Requires Some Ethics Business Ethics became especially important in the U.S. after the recent scandals Most Business Schools in the U.S. offer or require a specific business ethics class In a healthy competitive market, trust is essential.

Defining Trust What is trust?

Defining Trust Trust is the expectation that the faith one places in someone or some institution will be honored.

Earning Trust The Trust and Reputation of a Brand is slowly built, and easily lost.

How to encourage ethics: External Sanctions: –Positive: (evaluation criteria, bonuses) –Negative: Regulations, Rules & Enforcement Internal Sanctions: –Establishing a corporate culture through vision and leadership

Defining Culture What is culture?

Defining Corporate Culture “A system of shared values.”

Defining Corporate Culture What is “corporate culture?”

Defining Corporate Culture “The underlying assumptions, beliefs, attitudes and expectations shared by an organization.”

Defining Corporate Culture “The way we do things around here.”

Conclusions Business Ethics is important for Brands Consumers concerns are driving the demand for ethical and socially conscientious behavior by companies Moral business can be very profitable Intentional development of Corporate Culture works best.

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