The Financial Impact of Ethical Transgressions
With the news reporting about ethical transgressions on a near daily basis, sadly, corporate trust is at an all-time low. Consumers tend to distrust large firms, and vendors look for other contracts that are more reliable. The public thinks businesses are only concerned with profits and will do whatever it takes to meet the bottom-line. In the end, these ethical transgressions hurt the company’s financial objectives.
While these opinions are frequent, the actual rate of corporate fraud is not as high, but the public opinion still dominates. Corporations that conduct less than ethical behavior impacts other companies in the long run. Here are some areas where unethical conduct impacts a company’s financial objectives.
Legal Costs Hurt The Company’s Profit Margin
Federal and state governments have rules governing proper business operations, and, in some cases, violating these regulations are punishable by fines or imprisonment. Industries affecting public health and safety are regulated more, but all incorporated entities and limited liability companies have some form of restrictions.
These businesses must diligently safeguard against fraud, poor quality, and other misconduct. In a best-case scenario, violations can cost millions in unplanned legal costs. Recent reports even place the cost to U.S. businesses at $50 billion. The worse-case scenario is criminal charges and subsequent litigation.
Profits Disappear When Employee Performance Decreases
Employees are the backbone of every business. They often serve as first point of contact and deal with major ethical decisions on a daily basis. Your staff’s commitment to ethical guideline adherence is critical to meeting business objectives. The company’s culture needs to match its ethics program. Employees who think ethics are not important are a liability.
Some employees will cut corners and rush to meet unattainable deadlines. Others may feel the push to make more money. Ignoring quality guidelines and procedures results in faulty products and services. This can cause expensive recalls or even consumer injuries. Both are detrimental to profit margins.
Consumers Avoid Companies With Poor Credibility
Your first impression often is your last. While this remains true, maintaining a good impression is a lifelong component and crucial to operating an effective business. Failing to meet ethical demands, repeatedly pushing out poor quality products, and news scandals hurt the company’s image.
This image is what consumers look for when selecting a brand. It only takes one customer’s opinion to make or break your business. If you’re not concerned by one customer who has a bad opinion about your company, think again. Recent reports show businesses can lose 22 percent of potential clientele with just one negative review online.
Preventing Unethical Behavior
Often a lack of ethics appears because of poor planning and faults elsewhere in the business. Preventing unethical conduct requires clear communication of expectations. Set realistic goals for employees. Don’t ask them to reach unattainable goals. This only promotes bad behavior. Employees that take shortcuts often is a sign of executives not understanding the staffing needs.
Dedicate a system to monitor employee performance. Just don’t stop with junior managers and staff. Analyze every team member from the janitors to the CEO. Everyone needs to know the importance of ethical conduct. Consider implementing a whistleblower program. Most fraudulent conduct occurs off the radar but is often observed by someone scared to report it. Offer an equitable solution that protects the whistleblower and investigates the seriousness of the complaint.
Ethical Advocate helps businesses protect their company by providing hotline solutions and training. Learn more about how a whistleblower program can save your company money.