One of the most powerful arguments for including ethics and social responsibility in the strategic planning process is the evidence of a link between ethics, social responsibility, and financial performance.58 An ethical climate calls for organizational members to incorporate the interests of all stakeholders, including customers, in their decisions and actions. Hence, employees working in an ethical climate will make an extra effort to better understand the demands and concerns of customers. One study found that ethical climate is associated with employee commitment to quality and intra-firm trust.Employee commitment to the firm, customer loyalty, and profitability have also been linked to increased social responsibility. These findings emphasize the role of an ethical climate in building a strong competitive position. For example, Burgerville, a regional fast food chain from Washington State, realized significant cost savings, decreased employee turnover, and higher sales after it began to cover 90 percent of healthcare costs for all employees who work over 20 hours per week. Burgerville has found that, while initial costs can be high, being ethical and taking care of its workers does pay off in the end.
As employees perceive an improvement in the ethical climate of their firm, their commitment to the achievement of high-quality standards also increases. They become more willing to personally support the quality initiatives of the firm. These employees often discuss quality-related issues with others both inside and outside of the firm, and gain a sense of personal accomplishment from providing quality goods and services. These employees exhibit effort beyond both expectations and requirements in order to supply quality products in their particular job or area of responsibility. Conversely, employees who work in less ethical climates have less commitment to providing such quality. These employees tend to work only for the pay, take longer breaks, and are anxious to leave work every day.
As employees perceive an improvement in the ethical climate of their firm, their commitment to the achievement of high-quality standards also increases. They become more willing to personally support the quality initiatives of the firm. These employees often discuss quality-related issues with others both inside and outside of the firm, and gain a sense of personal accomplishment from providing quality goods and services. These employees exhibit effort beyond both expectations and requirements in order to supply quality products in their particular job or area of responsibility. Conversely, employees who work in less ethical climates have less commitment to providing such quality. These employees tend to work only for the pay, take longer breaks, and are anxious to leave work every day.
Stakeholder Orientation
A natural progress from a market orientation is to view all stakeholders as important. The degree to which a firm understands and addresses stakeholder demands can be referred to as a stakeholder orientation. This orientation contains three sets of activities: (1) the organization-wide generation of data about stakeholder groups and assessment of the firm’s effects on these groups, (2) the distribution of this information throughout the firm, and (3) the organization’s responsiveness as a whole to this intelligence. This is very similar to the step involved in a market orientation, but the firm becomes more concerned about all stakeholders, including employees, suppliers, shareholders, regulators, and the community.
Generating data about stakeholders begins with identifying the stakeholders who are relevant to the firm. Relevant stakeholder communities should be analyzed on the basis of the power that each enjoys as well as by the ties between them. Next, the firm should characterize the concerns about the business’s conduct that each relevant stakeholder group shares. This information can be derived from formal research, including surveys, focus groups, Internet searches, or press reviews. The responsiveness of the organization to stakeholder intelligence consists of the initiatives that the firm adopts to ensure that it abides by or exceeds stakeholder expectations and has a positive impact on stakeholder issues. Such activities are likely to be specific to a particular stakeholder group (for example, family-friendly work schedules) or to a particular stakeholder issue (for example, pollution-reduction programs). These processes typically involve the participation of theconcerned stakeholder groups. Kraft, for example, includes special-interest groups anduniversity representatives in its programs to become sensitized to present and future ethicalissues.
A stakeholder orientation can be viewed as a continuum in that firms are likely to adopt the concept to varying degrees. To gauge a given firm’s stakeholder orientation, it is necessary to evaluate the extent to which the firm adopts behaviors that typify both the generation and dissemination of stakeholder intelligence and responsiveness to it. A given organization may generate and disseminate more intelligence about certain stakeholder communities than about others and, as a result, may respond to that intelligence differently.
Marketing Financial Performance
A climate of ethics and social responsibility also creates a large measure of trust among a firm’s stakeholders and enhances the reputation of the firm in a positive direction. The most important contributing factor to gaining trust is the perception that the firm and its employees will not sacrifice their standards of integrity.In an ethical work climate, employees can reasonably expect to be treated with respect and consideration by their coworkers and superiors. Furthermore, trusting relationships with key external stakeholders can contribute to greater efficiencies and productivity in the supply chain, as well as a stronger sense of loyalty among the firm’s customers. Customers want to develop relationships with firms that provide quality products and engage in socially responsible conduct.
Research indicates a strong association between social responsibility and customer loyalty in that customers are likely to keep buying from firms perceived as doing the right thing. Research by the brand and marketing agency BBMG revealed that about three out of four Americans prefer to buy goods and services from firms that are socially responsible and good corporate citizens.
Further, a direct association exists between corporate social responsibility and customer satisfaction, profits, and market value. In a survey of consumers, 80 percent indicated that when quality and price are similar among competitors, they would be more likely to buy from the company associated with a particular cause. Young adults aged 18 to 25 are especially likely to take a company’s citizenship efforts into account when making not only purchasing but also employment and investment decisions. One explanation for these observations may be that good-citizen firms are responsive to customers’ concerns and have a sense of dedication to treating them fairly. By gauging customer satisfaction, continuously improving the quality and safety of products, and by making customer information easily accessible and understandable, ethical and socially responsible firms are more likely to serve customers’ needs satisfactorily.
Further, a direct association exists between corporate social responsibility and customer satisfaction, profits, and market value. In a survey of consumers, 80 percent indicated that when quality and price are similar among competitors, they would be more likely to buy from the company associated with a particular cause. Young adults aged 18 to 25 are especially likely to take a company’s citizenship efforts into account when making not only purchasing but also employment and investment decisions. One explanation for these observations may be that good-citizen firms are responsive to customers’ concerns and have a sense of dedication to treating them fairly. By gauging customer satisfaction, continuously improving the quality and safety of products, and by making customer information easily accessible and understandable, ethical and socially responsible firms are more likely to serve customers’ needs satisfactorily.
Recognition is growing that the long-term value of conducting business in an ethical and socially responsible manner far outweighs short-term costs.67 To demonstrate the financial benefits of ethical companies, the Ethisphere Institute compared the stock prices of the World’s Most Ethical (WME) companies with companies listed on Standard & Poor’s (S&P) 500 index. As Exhibit 8.6 reveals, the stock returns of WME companies surpasses those of the S&P 500
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