Ethics and trust get a good deal of airtime in business discussions. But in spite of the lip service paid to ethical behaviour, people are hard-pressed to tell you why it makes good business sense. Either they feel it’s necessary purely because the repercussions of being caught behaving unethically are so serious, or they fall back on a moral explanation, believing “it’s the right thing to do”.
Laurance Kuper, MD of Competitive Strategy, has a different take. Kuper’s daily work involves one-to-one discussions with CEOs to help them identify sources of sustainable business edge and, as he states, “Ethics is a much neglected source of competitive advantage.” It’s a powerful statement.
And what’s different about Kuper is that he has researched and can provide concrete examples of the competitive edge that ethical behaviour gives to an organisation. His Masters thesis, which was subsequently published as a book, Ethics in Leadership,explores the practical business benefits of ethics.
Kuper emphasises the business – not the moral or theological – case for ethics. And, according to him, it’s a strong one. With the current crisis of trust in business, proving yourself honest can give you an enormous competitive edge.
It sounds simple and logical enough, so why doesn’t everyone do it? As Kuper points out, there are different types of trust and the right kind is difficult to cultivate. On the one hand, there’s predictive trust, which is based on the mutual self-interest of both parties and forms the basis of contractual business relationships:
“I scratch your back, you scratch mine.” What Kuper calls ethical trust is somewhat different: “This is based not on self-interest or deriving an immediate personal benefit, but on doing the right thing for the group.” A good example of ethical trust is blood donation – people choose to do it not because they derive a personal benefit, but because they believe it’s for the good of the community.
It’s a kind of trust that hinges on people feeling as if they are part of a group, Kuper elaborates. Building this sense of belonging is a tough task for leaders but, if they manage it, the rewards are rich. “All of a sudden stakeholders have a non-transactional commitment to the business.
Employees no longer ask what the business will do for them if they go the extra mile. And when there is conflict between the interests of various stakeholders one group is more willing to take a back seat if they believe it’s for the good of the company.”But does this really play itself out in the dog-eat-dog world of business?
Kuper says yes, and has a ready example to prove his point. “When Pick ‘n Pay experienced the poisoning scare, instead of staying away from stores, customers flocked to support the company. The shareprice went up. People felt such a strong connection with the company – because of the sense of trust – that they stood by it. Putting self-interest aside,they did what was good for the group.”
Kuper’s list of benefits is a long one: “Trust breeds common understanding and motivation. People know what the business stands for and have a guide for behaviour, so they stop ‘delegating’ decisions upwards and are able to sort out problems at the coalface.
This means the business leader is free to focus on strategic issues. Co-operation goes up and pride grows. With this comes a sense of self-governance; policing goes down as a result. Trust attracts and holds talent so you can get and keep good staff, clients and investors.
It also builds a forgiveness factor when people know they can rely on you to do what you promise. Customer loyalty increases exponentially.” Ultimately, transaction costs are lowered, making the business more profitable and more sustainable.
For entrepreneurs, there is a specific advantage to building an ethical business. As Kuper points out, entrepreneurs have strong self-expression needs and short time horizons; they are driven to get a business up and running and then expand to other operations.
“The benefit of embedded values, and the trust that enables them to exist, is that the organisation can survive with less attention from the entrepreneur, so they can focus on expansion.” In an environment where everyone is looking for the competitive edge, trust may just prove to be the ultimate “it” factor in your business.