Dr. Jerry Osteryoung Executive Director of the Jim Moran Institute for Global Entrepreneurship at Florida State University

 

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Being Ethical Does pay

Let me give you one definition of ethics: It is good to maintain life and to further life; it is bad to damage and destroy life. And this ethic, profound, universal, has the significance of a religion. It is religion. ~ Albert Schweitzer

There is so much press out there exposing the questionable ethics of our businesses. Just look at how deteriorating ethical standards caused the demise of both Enron and WorldCom. Consider all of the companies that recently received bail-out money from the government and, despite the dire financial straits many of them were in, went on to hold lavish meetings or award their staff with unreasonable compensation. Yet another example, Pfizer was recently fined $2.3 billion by the government for its considerable lapse in ethics. They were selling a drug in unapproved markets.

There are plenty more examples of businesses that have faltered ethically, but the purpose of this column is not to discuss diminished ethical standards in business. Rather, the point is to address the question of whether or not ethics and high-principled values pay off. After all, if businesses and corporations are going to change their behavior or adopt high ethical standards, there should be some real payoff besides the feeling that the business is doing the right thing. Of course, just doing the right thing has a very high payoff as well.

{sidebar id=1}Two researchers, concerned about the value of spending money on implementing and promoting a business’ high ethical standards, set up a study to evaluate this very question. In this study, 218 consumers were broken down into three groups, each appraising the same types of products: coffee and t-shirts. The first group was told that the products were manufactured by businesses with high ethical standards. The second group was told that these same products were made by businesses with low ethical standards. Finally, the third (or control) group was not told anything about the products or the businesses that produced them.

Within each group, participants had to state what price they would pay for the products. The results were the same for each product: consumers would pay a higher price for goods produced by firms that had high ethical values. In fact, the consumers in the high ethics group were willing to pay 15 percent more for the products than the consumers in the control group who knew nothing about the ethical environment in which the products were manufactured. That is, the findings of this limited study showed that consumers were willing to pay a premium if they knew the product they were going to buy was made by a business with high ethical standards.

In the low ethics business group, the consumers penalized the companies for their behavior, expressing a willingness to pay 20 percent less than the control group for the same products. As illustrated by this study, the perception of low ethical values by businesses is very costly.

This study made one additional important finding: improving ethical standards or behavior would only raise prices to a certain level. Once this price point was reached, additional ethical behavior did not increase prices.

The overall implication of this study is that having high ethical standards is more than just good feelings. It is also good business as high ethical standards have a positive impact on the price at which firms can sell their products. It just makes sense that consumers want to cast their vote in the marketplace for those firms that are upholding high ethical values, and conversely, will penalize those that do not.

Now go out and make sure your firm has high ethical standards and that this message is passed along to consumers.

You can do this!!

 

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Jerry Osteryoung is the Director of Outreach of the Jim Moran Institute for Global Entrepreneurship in the College of Business at Florida State University; the Jim Moran Professor of Entrepreneurship; and Professor Emeritus of Finance. He was the founding Executive Director of the Jim Moran Institute and served in that position from 1995 through 2008. He can be reached by e-mail at jerry.osteryoung@gmail.com. All of Osteryoung's articles can be found in a searchable form at www.jmi.fsu.edu/Entrepreneurs/Resources/Jerry-s-Articles .

This article originally published on March 10, 2010.

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---

Being Ethical Does pay

Let me give you one definition of ethics: It is good to maintain life and to further life; it is bad to damage and destroy life. And this ethic, profound, universal, has the significance of a religion. It is religion. ~ Albert Schweitzer

There is so much press out there exposing the questionable ethics of our businesses. Just look at how deteriorating ethical standards caused the demise of both Enron and WorldCom. Consider all of the companies that recently received bail-out money from the government and, despite the dire financial straits many of them were in, went on to hold lavish meetings or award their staff with unreasonable compensation. Yet another example, Pfizer was recently fined $2.3 billion by the government for its considerable lapse in ethics. They were selling a drug in unapproved markets.

There are plenty more examples of businesses that have faltered ethically, but the purpose of this column is not to discuss diminished ethical standards in business. Rather, the point is to address the question of whether or not ethics and high-principled values pay off. After all, if businesses and corporations are going to change their behavior or adopt high ethical standards, there should be some real payoff besides the feeling that the business is doing the right thing. Of course, just doing the right thing has a very high payoff as well.

Two researchers, concerned about the value of spending money on implementing and promoting a business’ high ethical standards, set up a study to evaluate this very question. In this study, 218 consumers were broken down into three groups, each appraising the same types of products: coffee and t-shirts. The first group was told that the products were manufactured by businesses with high ethical standards. The second group was told that these same products were made by businesses with low ethical standards. Finally, the third (or control) group was not told anything about the products or the businesses that produced them.

Within each group, participants had to state what price they would pay for the products. The results were the same for each product: consumers would pay a higher price for goods produced by firms that had high ethical values. In fact, the consumers in the high ethics group were willing to pay 15 percent more for the products than the consumers in the control group who knew nothing about the ethical environment in which the products were manufactured. That is, the findings of this limited study showed that consumers were willing to pay a premium if they knew the product they were going to buy was made by a business with high ethical standards.

In the low ethics business group, the consumers penalized the companies for their behavior, expressing a willingness to pay 20 percent less than the control group for the same products. As illustrated by this study, the perception of low ethical values by businesses is very costly.

This study made one additional important finding: improving ethical standards or behavior would only raise prices to a certain level. Once this price point was reached, additional ethical behavior did not increase prices.

The overall implication of this study is that having high ethical standards is more than just good feelings. It is also good business as high ethical standards have a positive impact on the price at which firms can sell their products. It just makes sense that consumers want to cast their vote in the marketplace for those firms that are upholding high ethical values, and conversely, will penalize those that do not.

Now go out and make sure your firm has high ethical standards and that this message is passed along to consumers.

You can do this!!

Jerry Osteryoung is the Director of Outreach of the Jim Moran Institute for Global Entrepreneurship in the College of Business at Florida State University; the Jim Moran Professor of Entrepreneurship; and Professor Emeritus of Finance. He was the founding Executive Director of the Jim Moran Institute and served in that position from 1995 through 2008. He can be reached by e-mail at jerry.osteryoung@gmail.com. All of Osteryoung's articles can be found in a searchable form at www.jmi.fsu.edu/Entrepreneurs/Resources/Jerry-s-Articles.

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