The Cost of Poor Ethics
“Customers, suppliers, and employees seek to work with companies that sustain a strong reputation built not only on the quality of a company’s products and services but also on the trust that in every interaction, a company will do the right thing,” says Charles Szews, CEO of Oshkosh Corp (Szews, 2015).
Conversely, these stakeholders may think twice before doing business with companies that have poor reputations for quality and/or ethics. A recent report confirms this to be true for employees and potential employees (CR Magazine, 2015).
Corporate Responsibility (CR) Magazine released the findings of its annual corporate reputation survey in late October. The survey results indicate that corporate reputation continues to have a significant impact on how attractive a company appears to potential recruits and on the expense of talent acquisition and retention.
The findings, as reported:
- Candidates remain reticent to join organizations that have a bad reputation, and among those willing to join, a significant pay increase is needed as enticement.
- Alternatively, they can be tempted by a significantly lower lift in pay offered by a company with a good reputation than a bad reputation.
- 77% of people in 2015, if unemployed, are unlikely to accept a job offer from a company with a bad reputation, consistent since 2012.
- Gender has a financial impact on the decision to take a job with a company with a damaged reputation. In 2015, only 58% of females would leave their current employer, significantly lower than the 75% of males.
- Both females and males would require a 57% increase in pay. The youngest, who tend to be the most junior workers, are the least concerned about corporate reputation, while the more experienced workers are the least likely to take a job with a “reputationally challenged” company.
- 74% feel it important to choose to work for a company whose CEO is involved in corporate responsibility (CR) and/or environmental issues.
The implications of a bad reputation remain consistent year-over-year, says CR Magazine.
- Companies with bad reputations face increased recruiting costs due to the greater difficulty to source, offer, and on-board new hires. This is particularly true when recruiting females and experienced workers.
- However, the youngest workers are the least concerned with reputation, as 77% of Millennials (18-34) are willing to take a job with a company that has a damaged reputation. Companies with such reputations may have fewer obstacles in recruiting to this group.
- While recruiting expense increases are in the millions of dollars, this great expense is dwarfed by the billions of salary cost differential. The cost of recruiting and salaries added to any expenses associated with a reputation damaged by discriminatory practices or environmental scandal, in particular, can be disastrous to a company’s bottom line.
- Conversely, companies with good reputations enjoy greater consideration among potential candidates, far lower costs to on-board those candidates and potentially greater retention among employees.
- For three-quarters of the greater talent pool, a CEO perceived to be active in CR and environmental issues impacts recruiting. This reputation should be maximized when building the employer brand or against competitors whose reputations may be weaker.
- Organizations suffering from damaged reputations should expect greater employment-related costs and difficulty in attracting and retaining talent than competitors with strong reputations.
- Companies that have poor ethical cultures and reputations will likely pay a cost in recruiting and retaining talented employees. Companies that have strong ethical cultures and good reputations will benefit.
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Corporate Responsibility (CR) Magazine. “The cost of a bad reputation: The Impacts of Corporate Reputation on Talent Acquisition,” survey findings, October 2015.
Szews, Charles. “Trust Plays Big Role in Corporate Culture,” National DefenseMagazine, Ethics Corner column, September 2015. http://www.nationaldefensemagazine.org/archive/2015/September/Pages/TrustPlaysBigRoleinCorporateCulture.aspx