Ethical and Profitable Decisions

By Steve McKinney
President, McKinney Consulting, Inc.

Making ethical decisions is just good business sense.

Ethics is not just about moral vision. Making ethical decisions is just good business sense.  All business is based upon trust, reliability, and predictability.  Those companies that make ethical decisions excel in all these points. Ethical decision making is profitable decision making. What causes corporate misconduct? Corporate misconduct is a simple misunderstanding of the corporation's best interests. 

Luckily, we have Ambrose Bierce to guide us through this sober topic.  All of my quotes will be from this American writer of the 19th Century. Without knowing it, he had a lot to say on the topic of Ethics. Bierce was a no-nonsense man, with a sterling reputation as a writer and an intellectual, who lived his life without pretension. Some of his quotes are humorous, but by the end of this article, I hope you will understand why I chose him.

Corporation, n. An ingenious device for obtaining individual profit without individual responsibility. -- Ambrose Bierce

If we are speaking legally, then yes, it’s true and that is what a corporation is designed for. And it is ingenious! But is it true in other senses too? If so, then we have a problem. I really love this particular quote because it nicely sums up the issue at hand. From what Bierce has written it seems as if the very root and trunk of modern business is unethical by design. Certainly the corporations have been very useful for the economic development of the world, but ask yourself this question. If it didn't already exist, in today's world, with today's environment, would we be able to invent it? It's food for thought. He would be shocked to know the questionable integrity that exists today. Check out this survey of students Rutgers University:

Questionable Integrity

Did You Cheat to Get Into Graduate School?  “Yes”

43% Liberal Arts
52% Education
63% Law and Medicine
75% Business

Source: Rutgers University survey of students

Another Study on Honesty

• Responses 50,000 college students at 69 schools
•  26% of business majors admitted to serious cheating on exams
•  54% admitted to cheating on written assignments
•  Journalism majors were worse with 27% admitting to cheating on exams.
•  The most honest—students in the sciences (19% reported cheating on tests)
•  Author observes “cheating has increased since he began doing surveys 15 years ago”
•  He partly blames technology—makes it easier to cheat

“Biz Majors Get an F for Honesty” by Donald McCabe published on February 6, 2006, by the Center for Academic Integrity

It's sad but ethics is one of those nasty words no one wants to hear. Ethics is still seen to be a murky, complicated, painful, contentious concept that is given much lip service and then neatly swept under the rug at the first site of a quota.

Conservative, n. A statesman enamored of existing evils, as opposed to a Liberal, who wants to replace them with new ones. -- Ambrose Bierce

Ethics doesn't have to be this way. It doesn't have to be the thing that always associated with breaking the status quo, revolution in the company, and 'cleaning things up'. These are all reactionary things; things you do when something is not working well. Ethics and ethical decision making are still today painted as corporate trade-offs. What are we giving up for this big group hug? Ethical programs cover so many areas of potential corporate activity, from environmentalism to diversity in hiring.

Egotist, n. A person of low taste, more interested in himself than in me. -- Ambrose Bierce

It seems the questions of right and wrong have gotten no easier for individuals or for organizations. Ethics is too difficult for scientists, and it is too difficult for me. So I am not going to talk about it. Instead, I'm going to talk only about what I know something about - trust, reliability, and predictability, the carrots and sticks of the market.

I don't think it needs to be difficult and complicated. I think we need look no further than our own selves, our physical and mental health, and that of everyone around us to realize that ethical decision making in business is in our own self-interest. It is good for us. It may be true that it is about moral decision making, choosing between right and wrong, but it is also true that morals and being moral are by definition in our self-interest. Behavior that is destructive to us, or not in our long term self-interest, is never called moral for long. What we define as moral and ethical may not be always fun, but it is never bad for us.

Income, n. The natural and rational gauge and measure of respectability. -- Ambrose Bierce

My premise is this: Companies are learning this lesson - Being ethical, making ethical decisions positively affects the bottom line. Sure the argument can be made that the individual calculations of production, operations, and finance, in an 'all else being equal' environment, can sometimes lead us to believe that we can do better by trying to put one over on the market, by cheating just a little bit. Don't buy it. The simple fact is, all else is never equal. The market is never fooled for long, and the market's retribution is more costly than any potential money saved.

Acquaintance, n. A person whom we know well enough to borrow from, but not well enough to lend to. -- Ambrose Bierce

Trust is the basis of all society and the grease of the machine we call the market. Without trust, nothing would run. We can sign contracts with partners, customers, and suppliers all day, and none of them would matter much because none of them would truly cover us. In reality, we only want to sign contracts with people we trust. We don't sign contracts believing that each one we sign will be tested in court. The cost of having to resort to arbitration or civil court for each contract we sign would be ruinous. We sign a contract hoping and believing that it will not be necessary to ever test its legal validity. Many of the contracts we sign we don't even read because we believe in the ethicality of the person or organization that has entered into the agreement with us.

Bad Ethics Increases Transaction Costs

Increased costs for Security, lawyers, regulators delays
Interest, duplication, testing etc..

Source: Hill & Albrecht, Marriott School of Business

What is the Cost of Lack of Integrity in the US?

Employee fraud   $400 B
Time theft    $230 B
Industrial espionage  $200 B
Counterfeiting   $200 B
Employee dishonesty  $120 B
Identity theft   $  50 B

(Quoted in Stephen R. Covey’s preface to Business with Integrity, p. xx)

Truly trust is important for an organization that seeks to build revenue, market share, or net income. Companies without trust are more expensive to do business with. Modern global corporations use a variety of mechanisms to show the market they are trustworthy, including branding. Companies without brands trusted by the market must be checked thoroughly to ensure that what the company professes to be true is in fact true. This checking process is expensive. In economics, the price of learning about the product, company, and total value is called transactions cost, and all companies, consciously or not, seek to minimize it. Companies without trust therefore become less attractive to do business with because they are more expensive to partner with or buy from. Companies with trust, reliability, and predictability, become preferred partners and suppliers. They attract more friends..

Steven B. McKinney is the founder and president of McKinney Consulting Inc., who has over 12 years of experience as an Executive Search Consultant & is a Certified Master Coach. He serves on several boards including the American Chamber of Commerce-Korea and was bestowed Honorary Citizen of Seoul in 2007. Prior to the establishment of McKinney Consulting he had over 10 years of senior leadership experience in athletic footwear company giants, Adidas, Reebok and Converse etc.

About McKinney Consulting: McKinney Consulting is an executive search firm (sometimes simplified as executive recruiters or headhunters) which has placed hundreds of bi-lingual middle-senior level executives for multinational companies in Korea & Asia and was established in 2001. McKinney Consulting is a member of the Association of Executive Search Consultants (AESC). In addition, McKinney Consulting provides behavioral-based coaching services with scientifically developed tools in coaching executives and businesses to excellence and success. McKinney Consulting coaches are members of the International Coaching Council. Also, McKinney offers Talent Management services such as the outsourcing of candidates and payroll services etc.