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Ethics and profits: oxymoron or path to business sustainability?

Companies that are bad at environmental management are bad at managing everything. Not surprisingly, they are less profitable than their industry peers. As a bright-eyed young sewage scientist in 1990, I discovered this in an article that analysed the performance of the firms in the Fortune 500 list to find out if there were any features that made the good ones stand out – and the bad.

What fascinated me was that the stragglers amongst America’s biggest listed companies – those with the lowest share value and return to investors – were not only more likely to be polluters, they were also more likely to have extremely bad staff relations, very poor customer relations, problem with the tax department, problems with their lenders and insurers and more … all of which contributed to their poor financial performance.

This single piece of information gave me a fascination with business and set me on a path of discovery. The following year in 1991, New Zealand’s Resource Management Act was passed, amalgamating many separate pieces of environmental legislation. It meant that as well as dealing with water and soil pollution, the team at the environmental regulatory body where I then worked were also able to deal with air pollution. We were eagerly looking forward to working with new industries to improve their environmental performance – and it took us only a few months to realize that all our water polluters were air polluters, too: it was a sorry pageant of the same old names that cropped up on our pollution radar.

Over recent years more and more evidence has come my way through my work and reading to confirm that companies that are good performers in any one area tend to be all-round good performers – and that sadly, the opposite is also true.

In the wake of the global financial debacle, this debate is refocusing on ethics, those attitudes and practices that underlie how we run our businesses, yet are very often implicit and unexamined.  Crises trigger such periodic bouts of conscience-examination, and perhaps what they also do is focus the rest of us on the comments that will invariably have been made by astute observers.

One such commentary is Marianne Jenning’s book ‘The seven signs of ethical collapse‘, which came out of a long period of analyzing what allowed organizations’ ethical performance to progressively decline. She describes antidotes to each sign, so I guess the challenge is to embed the positive and holistic model into standard organizational (as well as business) practice.

And businesses that do this, consciously or not, do outperform their peers’ financial performance, as is shown by the analysis of the world’s most ethical companies by the Ethisphere Institute.

A bright side of the current financial fiasco?

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