Transcript No Slide Title

Business Ethics and Brand
Management:
Do Good Brands need Ethics?
Andrew Gustafson
Professor of Business Ethics and Society,
Creighton University
January 10, 2008
Business Ethics???
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Business needs ethics to thrive:
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Trust is foundational to contracts
Customer Satisfaction/loyalty
Happy Employees = productive employees
Transparency is essential to development
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
2. 2002 ethical consumption in the UK
was worth £19.86bn in 2002
(Co-operative Bank EP Index, 2003)
Consumers Care about Ethics
Co-operative Bank
Ethical Consumerism Report
• 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)
The “Ethics Factor”
• In developed competitive markets,
many companies distinguish
themselves by positioning their brand
as ‘ethical’ or ‘socially concerned’
Ethics Rankings
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The 100 Best Corporate Citizens list ranks
firms based on eight categories:
Shareholders
community
governance
diversity
employees
environment
human rights
product
Business Ethics 100 Best Corporate
Citizens 2007
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1. Green Mountain Coffee
2. Advanced Micro Devices
3. NIKE
4. Motorola
5. Intel Corporation
6. IBM Inc.
7. Agilent Technologies
8. Timberland
9. Starbucks
10. General Mills
11. Salesforce.com, Inc.
12. Applied Materials
13. Texas Instruments
14. Herman Miller
15. Rockwell Collins
16. Interface,
17. Steelcase
18. Dell Inc.
19. Cisco
20. Lam Research
21. Johnson & Johnson
22. Adobe Systems Inc.
23. Kimberly-Clark Corp
24. Gaiam, Inc.
Business Ethics 100 Best Corporate
Citizens 2007
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25Gap, Inc. (The)
26Chaparral Steel
27Pitney Bowes, Inc.
28Freddie Mac
29Google, Inc.
303M Company
31Heartland Financial USA
32Chicago Mercantile Ex
33Southwest Airlines Co.
34Eastman Kodak
35Cummins, Inc.
36American Express
37Northwest Natural Gas
38Wainwright Bank & Trust
39United Parcel Service
40Microsoft
41Chittenden, Inc
42PepsiCo, Inc.
43Energy Conversion Devices
44McGraw-Hill
45Ecolab
46Wells Fargo
47Autodesk
48Xilinx,
49Xerox Corporation
50TradeStation Group
51Kellogg Company
Most Ethically Perceived Brands
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United Kingdom
United States
Germany
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..
14. 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:
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Corporate Scandals—United States
- Enron
- Tyco
- Adelphia
- Xerox
- Rite-Aid
- Martha Stewart
- ImClone
- K-Mart
- Boeing
- WorldCom
Corporate Scandals-- Europe
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- Mannesmann
- ELF
- Royal Dutch Shell
- VW
- ABB
- France Telecom
- ABN-Ambro
- Heidelberg Cement
- Ahold
- Bank of Italy
- Siemens
- Daimler-Chrysler
- Parmalat
These Scandals cost $
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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
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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
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48% Insured
2 yr wait for ins.
66% paid by walmart
50% Turnover
$7.50-11.45/hr
82% Insured
6 month wait
92% paid by costco
92% Turnover
$10.50-17/hr
Strong Moral Leadership
• “CEO leads troubled Tyco into
turnaround”
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Ed Breen, CEO
• Fired Management
• Fired Board
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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
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.
The End