Business Ethics, Brand Management, and Creative Capitalism:

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Business Ethics, Brand Management, and Creative
Capitalism Do Good Companies Do Well
Financially? Andrew Gustafson Professor of
Business Ethics and Society, Creighton
University October 2, 2008
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Business Ethics???

• Business needs ethics to thrive
• Trust is foundational to contracts
• Customer Satisfaction/loyalty
• Happy Employees productive employees
• Transparency is essential to development
• Unethical practices ultimately undermine business
• Globalization requires some common values
• Many Customers want ethical businesses

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Business Its purpose/goal

• The purpose of business is to make me money, and
  increase stockholder value
• (Milton Friedman)

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What is Ethics?

• Minimal What we shouldnt do
• Dont steal, dont kill, dont 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

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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.

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Question

• Does Ethical perception play any role in a
  Brands performance?
• --In other words
• Do Customers really buy products according to the
  ethics of companies??

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Answer Yes.

• Boycotts by ethical shoppers cost big brands at
  least 2.6bn a year
• 2002 ethical consumption in the UK was worth
  19.86bn in 2002
• (Co-operative Bank EP Index, 2003)

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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)

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The Ethics Factor

• In developed competitive markets, many companies
  distinguish themselves by positioning their brand
  as ethical or socially concerned

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Ethics Rankings

• The 100 Best Corporate Citizens list ranks firms
  based on eight categories 
• Shareholders
• community
• governance
• diversity
• employees
• environment
• human rights
• product

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Business Ethics 100 Best Corporate Citizens 2007

• 1. Green Mountain Coffee 13. Texas Instruments
• 2. Advanced Micro Devices 14. Herman Miller
• 3. NIKE 15. Rockwell Collins
• 4. Motorola 16. Interface,
• 5. Intel Corporation 17. Steelcase
• 6. IBM Inc. 18. Dell Inc.
• 7. Agilent Technologies 19. Cisco
• 8. Timberland 20. Lam Research
• 9. Starbucks 21. Johnson Johnson
• 10. General Mills 22. Adobe Systems Inc.
• 11. Salesforce.com, Inc. 23. Kimberly-Clark Corp
• 12. Applied Materials 24. Gaiam, Inc.

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Business Ethics 100 Best Corporate Citizens 2007

• 25Gap, Inc. (The) 39United Parcel Service
• 26Chaparral Steel 40Microsoft
• 27Pitney Bowes, Inc. 41Chittenden, Inc
• 28Freddie Mac 42PepsiCo, Inc.
• 29Google, Inc. 43Energy Conversion Devices
• 303M Company 44McGraw-Hill
• 31Heartland Financial USA 45Ecolab
• 32Chicago Mercantile Ex 46Wells Fargo
• 33Southwest Airlines Co. 47Autodesk
• 34Eastman Kodak 48Xilinx,
• 35Cummins, Inc. 49Xerox Corporation
• 36American Express 50TradeStation Group
• 37Northwest Natural Gas 51Kellogg Company
• 38Wainwright Bank Trust

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Most Ethically Perceived Brands

• 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. Kelloggs 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. Sainsburys 10. LEVI 10. Bio Produkte
• 11. Innocent 10. Starbucks 10. Body Shop
• 12. Waitrose 12. Ben Jerrys 10. Hipp
• 13. Clipper Tea 12. Dell 10. Mercedes
• 14. Asda.. 14. Campbells 10. Wrangler

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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

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Unethical Behavior Costs Companies

• Corporate ScandalsUnited States
• - Enron
• - Tyco
• - Adelphia
• - Xerox
• - Rite-Aid
• - Martha Stewart
• - ImClone
• - K-Mart
• - Boeing
• - WorldCom

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Corporate Scandals-- Europe

• - Mannesmann
• - ELF
• - Royal Dutch Shell
• - VW
• - ABB
• - France Telecom
• - ABN-Ambro
• - Heidelberg Cement
• - Ahold
• - Bank of Italy
• - Siemens
• - Daimler-Chrysler
• - Parmalat

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These Scandals cost

• 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)

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Results of Recent Scandals

• Investors have become more demanding about
  transparency
• Consumers have become more demanding about
  corporate behaviors (accounting, environment,
  production methods, etc)
• In U.S., government has become involved to ease
  investors concerns more regulation for
  business!!

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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.

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• Some Examples

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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)

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Example CocaCola

• Coke is proactively redesigning its bottle to
  reduce material use and pledging to recycle 100
  of bottles sold in the US.
• Results
• Reduce Material Costs 10
• Improve Public Relations/Image with Public

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Ethical Production

• Nike was criticized for sweatshop labor issues in
  East Asia, and many consumers boycotted Nike.

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Nikes Response

• Nike responded to these criticisms, changed some
  of their production arrangements, and returned
  to the list of the 100 most ethical companies
  list

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Treatment of Customers
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Financial Honesty and Transparency

• Bad Example

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Financial Honesty and Transparency

• Wells Fargo Bank is known for its disclosure of
  financial data.

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Treatment of Workers

• Costco is well known for its great treatment of
  employees

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vs

• 48 Insured 82 Insured
• 2 yr wait for ins. 6 month wait
• 66 paid by walmart 92 paid by costco
• 50 Turnover 92 Turnover
• 7.50-11.45/hr 10.50-17/hr

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Strong Moral Leadership

• CEO leads troubled Tyco into turnaround
• Ed Breen, CEO
• Fired Management
• Fired Board

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• What Causes Unethical Behavior?
• Irrational exuberance uninhibited self-interest
• Arrogance
• Fraud
• Conflicts-of-interest
• Preferential treatment
• Accounting arbitrage
• Failure of independent auditors
• Failure of analysts
• Failure of rating agencies
• Failure of regulators
• Failure of board oversight
• Culture of greed

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Corporate Culture and Performance Starbucks Nord
stroms FedEx Southwest Airlines Costco Intel Googl
e

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Corporate Philanthropy

• Donating time, money and resources to the needy.
• A. Volunteer opportunities Habitat for Humanity
  workdays (M.0., etc)
• B. Support FNB to Loves Art Jazz Museum,
  Heartland America Park

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Directed Philanthropy

• Directed Philanthropy
• Companies give towards specific aligned needs

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Conagra

• Supports effort to eliminate hunger
• company.conagrafoods.com/phoenix.zhtml?c202310p
  foundation

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Union Pacific

• Gives to small towns its trains go through.
• http//www.up.com/found/index.shtml

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Mutual of Omaha

• Supports efforts to eliminate drug use
• www.mutualofomahafoundation.org/

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Creative Capitalism

• Bill Gates Creative Capitalism Business, NGOs
  and Government work together to stretch the reach
  of market forces by producing opportunities to
  make money solving the problems of poverty etc in
  the world.

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• Directs brainpower and marketpower of companies
  to solve world problems, particularly for the
  poor who have less of a market-voice.

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RED campaign

• www.joinred.com/Home.aspx

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The Risks of Doing Business The risks of doing
business have never been greater!

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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.

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Defining Trust What is trust?

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Defining Trust Trust is the expectation that
the faith one places in someone or some
institution will be honored.

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Earning Trust The Trust and Reputation of a
Brand is slowly built, and easily lost.

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How to encourage ethics

• External Sanctions
• Positive (evaluation criteria, bonuses)
• Negative Regulations, Rules Enforcement
• Internal Sanctions
• Establishing a corporate culture through vision
  and leadership

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Defining Culture What is culture?

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Defining Corporate Culture A system of
shared values.

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Defining Corporate Culture What is
corporate culture?

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Defining Corporate Culture The underlying
assumptions, beliefs, attitudes and expectations
shared by an organization.

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Defining Corporate Culture The way we do
things around here.

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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.

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The End