Do Ethical Ranking Translate to Sales?

Do companies that are ranked high on ethics get more sales as a result. The answer is yes, but it is a bit more complicated that that. Studies have shown that companies that are ranked highly on reputation do better financially than companies with poor reputations. Ethics and reputation are quite different. Ethics means acting on a "higher order". Reputation means exceeding stakeholder expectations and being distinguished from ones peers and competitors. Reputation can be measure; ethics are much harder to measure and often depend on the perspective of the person doing the assessment.

For example, I have seen a number of so-called ethics rankings that will not include pharmaceutical companies because they engage in animal testing. This is an ideological perspective on ethics. The FDA and other health organizations globally require that drugs be tested on animals and they often specify the animal. It is far better, in my opinion, to test a drug on an animal than on a human before releasing. But, that is not the opinion of PETA and other such organizations. They have a different perspective on what is an what is not ethical.

To me, corporate ethics is the perspective that guides an organization to respect and balance the needs and interests of its multiple stakeholders. It is a facet of reputation, not the same.

Business ethics do translate into more sales, but in an indirect way. People often say that they want to do business with more ethical companies, but it usually means "all things being equal", which they rarely are. Actual behavior is much more difficult to track. Will someone actually not do business with a company that they judge to be unethical? Many people believe that the oil companies are unethical, but they continue to fill their cars with gas. There is no alternative. Some people may hate their local cable companies and think that they are unethical, but they continue to watch TV--once again, there is little choice. When choice becomes greater, we look for reasons to buy and not to buy.

While we know that reputation can translate into greater sales, lowered cost of capital, etc., ethics is a bit more difficult to track. Heinz was the first company to take a position of "dolphin free tuna", requiring that fisherman catching tuna for its Starkist brand not kill dolphins in the process. They were applauded, but there was no increase in tuna sales. Unilver's Dove brand soap created the "Campaign for Inner Beauty" to help talk to young girls whose body image was being shaped by standards of Hollywood and Madison Avenue. They were applauded but the campaign did not increase sales of Dove. The campaigns, however, spoke volumes about the philosophy of business of these brands and increased their value longer-term in the eyes of many.

Sales may be the wrong measure of what companies are looking for. The real measure is perceived value, and that will translate into higher prices, not necessarily more sales. Sales tracks volume; perceived value can move based upon an appeal to a niche market that, if it is a "bell-weather", could increase the overall value of the product or organization. We will see the results in better recruiting, greater support from outside interest groups, retention of top talent, etc.

There is a great and compelling reason for companies to act ethically and to build their reputations. Asking if this will result in direct contribution to sales is a short-term question to a longer-term process. The key, though, is to be ethical, not to brag about it. Once again, we find that if one lives their brand, they will build their reputation.