Business Ethics and Brand Management:

Do Good Brands need Ethics?

Andrew GustafsonProfessor of Business Ethics and Society,

Creighton University

January 10, 2008

Business Ethics???Business Ethics???

• Business needs ethics to thrive:

1. Trust is foundational to contracts2. Customer Satisfaction/loyalty3. Happy Employees = productive employees4. Transparency is essential to development5. Unethical practices ultimately undermine

business6. Globalization requires some common values7. Many Customers want ethical businesses

Business: Its purpose/goalBusiness: Its purpose/goal

The purpose of business is to make me money, and increase stockholder value

(Milton Friedman)

What is Ethics?What is Ethics?

• Minimal: What we shouldn’t do • Don’t steal, don’t kill, don’t 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

Is Ethical Business Profitable?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.

Question:Question:

• Does Ethical perception play any role in a Brand’s performance?

--In other words—

• Do Customers really buy products according to the ethics of companies??

Answer: Yes.Answer: Yes.

1. Boycotts by ethical shoppers cost big brands at least £2.6bn a year

2. 2002 ethical consumption in the UK was worth £19.86bn in 2002

(Co-operative Bank EP Index, 2003)

Consumers Care about EthicsConsumers Care about Ethics

• 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)

Co-operative Bank Ethical Consumerism Report

The “Ethics Factor”The “Ethics Factor”

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

Ethics Rankings Ethics Rankings

• The 100 Best Corporate Citizens list ranks firms based on eight categories: 

1. Shareholders2. community3. governance4. diversity5. employees6. environment7. human rights8. product

Business Ethics 100 Best Corporate Citizens 2007

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.

Business Ethics 100 Best Corporate Citizens 2007

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

Most Ethically Perceived BrandsMost Ethically Perceived Brands

• United KingdomUnited 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. Kellogg’s 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. Sainsbury’s 10. LEVI 10. Bio Produkte • 11. Innocent 10. Starbucks 10. Body Shop • 12. Waitrose 12. Ben Jerry’s 10. Hipp • 13. Clipper Tea 12. Dell 10. Mercedes • 14. Asda.. 14. Campbell’s 10. Wrangler

BIG Brands want Ethical BrandsBIG 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

Unethical Behavior Costs Companies:Unethical Behavior Costs Companies:

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

Corporate Scandals-- EuropeCorporate Scandals-- Europe

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

These Scandals cost $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)

Results of Recent ScandalsResults of Recent Scandals

a. Investors have become more demanding about transparency

b. Consumers have become more demanding about corporate behaviors (accounting, environment, production methods, etc)

c. In U.S., government has become involved to ease investors’ concerns– more regulation for business!!

What Can Be Done?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.

Some Examples

Environmentally “green”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)

Example: CocaColaExample: CocaCola

• Coke is proactively redesigning its bottle to reduce material use and pledging to recycle 100% of bottles sold in the US.

• Results:

1. Reduce Material Costs 10%

2. Improve Public Relations/Image with Public

Ethical ProductionEthical Production

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

Nike’s ResponseNike’s Response

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

Treatment of CustomersTreatment of Customers

Financial Honesty and TransparencyFinancial Honesty and Transparency

• Bad Example:

Financial Honesty and TransparencyFinancial Honesty and Transparency

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

Treatment of WorkersTreatment of Workers

• Costco is well known for its great treatment of employees

vsvs

• 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

Strong Moral LeadershipStrong Moral Leadership

• “CEO leads troubled Tyco into turnaround”

• Ed Breen, CEO

• Fired Management

• Fired Board

•

What Causes Unethical Behavior?

1. Irrational exuberance + uninhibited self-interest

2. Arrogance3. Fraud4. Conflicts-of-interest5. Preferential treatment6. Accounting arbitrage7. Failure of independent auditors8. Failure of analysts9. Failure of rating agencies10.Failure of regulators11.Failure of board oversight12.Culture of greed

Corporate Culture and Performance

StarbucksNordstroms

FedExSouthwest Airlines

CostcoIntel

Google

The Risks of Doing Business

The risks of doing business have never been greater!

Development Requires Some EthicsDevelopment 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.

Defining Trust

What is trust?

Defining Trust

Trust is the expectation that the faith one places in

someone or some institution will be honored.

Earning Trust

The Trust and Reputation of a

Brand is slowly built, and easily lost.

How to encourage ethics:How to encourage ethics:

• External Sanctions: – Positive: (evaluation criteria, bonuses)– Negative: Regulations, Rules & Enforcement

• Internal Sanctions:– Establishing a corporate culture through vision and

leadership

Defining Culture

What is culture?

Defining Corporate Culture

“A system of shared values.”

Defining Corporate Culture

What is “corporate culture?”

Defining Corporate Culture

“The underlying assumptions, beliefs,

attitudes and expectations shared by an organization.”

Defining Corporate Culture

“The way we do things around here.”

ConclusionsConclusions

• 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.

The EndThe End