LRN Ethics Study: Ethics impact on purchase and investment decisions

In the marketplace, corporate ethical reputations have a clear impact on the purchasing and investment decisions of Americans, but ethical lapses in the workplace put those reputations at risk, according to independent research by LRN, a premier provider of legal, compliance, ethics management and corporate governance solutions.

The results, based upon telephone interviews with more than 2,000 U.S. adults as part of the Opinion Research Corporation CARAVAN® omnibus survey, suggest organizations have a significant incentive to safeguard ethical reputations and strengthen the ethical health of their corporate cultures for business advantage.

"LRN has long believed that corporate cultures that self govern based upon the highest standards of ethical behavior help businesses outperform their peers. We've seen evidence of this within our own customer base," said LRN CEO and chairman Dov Seidman. "Ethical cultures create trust within and outside corporations. Trust encourages appropriate risk taking, which leads to innovation, which propels progress—and ultimately profitability."

Specifically, survey findings indicate:

• Half (50 percent) of Americans who own stocks independent of a 401(k) have at some point decided not to purchase stock in a company because they believed it had questionable ethics.
• Seven in 10 Americans (70 percent) have at some point decided not to purchase products or services from a company because of questionable ethics.
• Nearly half (48 percent) of employed Americans have been in a situation in which they had to make a choice between what they felt was right and what their supervisor expected them to do.
• The majority (77 percent) sought guidance in resolving these ethical dilemmas.
• Ultimately, almost half (49 percent) did what they initially felt was the right thing to do, while 30 percent worked out a compromise, and almost one in 10 did what their supervisor asked despite personal misgivings.

Ethical Reputations in the Marketplace

Corporate ethics also influence purchases. Seventy-two percent of respondents said they preferred to purchase products and services from a company with ethical business practices and higher prices, rather than from one with questionable business practices and lower prices. Only 18 percent indicated they preferred the opposite. Seventy percent of all respondents had already at some point decided not to purchase products or services from a company because they believed it had questionable ethics.

Interestingly, 23 percent of respondents younger than 35 said they would purchase stock in a company that had performed well financially but made bad ethical decisions, compared to 12 percent of adults older than 35. Men (19 percent) were also more likely than women (11 percent) to invest in a company with solid financial performance but questionable past ethics.

Younger respondents, those with lower incomes, and respondents with less education were more likely to value low prices over ethical business practices. Forty percent of 18- to 24-year-olds preferred to purchase products and services from a company with questionable business practices and lower prices rather than the opposite; 32 percent of those with annual incomes under $25,000; and 28 percent of those with a high school education or less.

Ethical Dilemmas in the Workplace

Nearly half (48 percent) of employed respondents said they had been in a situation in which they had to make a choice between what they felt was right and what their supervisor expected them to do. Are employees and supervisors just not clear on ethical standards in the workplace? On the contrary, the vast majority—89 percent—of respondents said they had a clear understanding of their employer's expectations for ethical standards.

Respondents took varying approaches to resolving ethical dilemmas, with three out of four (77 percent) seeking guidance from others:

• 55 percent from supervisors;
• 43 percent from colleagues and peers;
• 41 percent from friends and family outside work; and
• Only 17 percent through formal assistance channels, such as human resources.

One in five (21 percent) made the decision on their own. Adults 45 and older were more likely than younger adults to have made a decision without help (28 percent versus 15 percent of younger adults).

"It's encouraging that employees are talking to others," Seidman observed. "In a healthy culture, you should be able to turn to the person in the cube next to you and find help and support for doing the right thing. At the same time, companies need to be sure employees are turning to informed sources so that the right decisions are being made, and productivity is not constrained."

Ultimately, of the respondents faced with an ethical dilemma:

• 49 percent said they did what they initially thought was right;
• 30 percent worked out a compromise with supervisors;
• Eight percent determined that what their supervisors requested was appropriate and carried it out; and
• Nine percent-almost one in 10-did what their supervisors asked despite personal misgivings, a significant ethical risk that multiplies with a corporation's employee population.

Institutionalizing Ethical Cultures

Though ethical cultures don't develop overnight, Seidman offers four foundational suggestions to help executives foster ethical cultures within their organizations:

• Focus on "how" not just on "what" you do. Across industries, competition is driving organizations to differentiate themselves not just by their products and services, but by how they sell, how they partner, how they deal with customers, and more. Tapping the best of human behavior yields distinct advantages. In practical terms, this means going beyond what is expected and refusing to imperil the company's reputation for short-term gain.
• Ensure ethical leadership at every level. In a 2005 survey by Walker Information, only 58 percent of employees said their senior leaders were ethical. "Tone at the top" is no longer enough. Acting ethically is everyone's responsibility and needs to be emphatically reinforced and rewarded within and beyond the walls of an organization. A company's reputation is only as strong as the weakest member of its supply chain, including vendors, partners, and ventures. It's important to engage this broader community in a commitment to ethical standards.
• Systemize your approach. Just as 50 years ago, organizations did not know how to manage and measure quality and safety within the enterprise, companies today struggle with the management and measurement of ethics, particularly within large, multinational, multi-jurisdictional companies. A business process approach enables companies to not only define the ethics and compliance risks they face on a global basis, it allows them to address and manage those risks in a holistic way to ensure strong ethical health. Training alone is insufficient-an estimated 69 percent of U.S. companies already provide ethical training to employees, according to a 2005 survey by the Ethics Resource.
• Leverage technology to ensure efficiency and effectiveness. Without a platform to capture, manage, extract and access data, individuals are the gatekeepers of information and knowledge, and companies are limited in their ability to assess program status, share best practices, perform benchmark analyses and quickly generate reports for management review. New technologies better inform an organization's governance, risk and compliance efforts by enabling real-time executive insight into the ethical health of the organization.