Ethics Contribute to the Value of a Company

 

There are incremental steps in the process of value creation. Many of these are directed at influencing consumers’ perceived value of a company’s brand. Perceived value is the worth of a product or service in the mind of the consumer. For the most part, consumers are unaware of the true cost of the products they buy; instead, they simply have an internal feeling for how much certain products are worth to them.

This explains why people sleep on the street to be among the earliest in Apple Stores for the privilege of purchasing a new I Phone. It’s why BMW Automobiles and Rolex Watches have achieved a status that allows them to charge near the top end of the market where loyal consumers stand ready to pay, exemplifying brand devotion.

Trust Drives Value

A company with a positive reputation is deemed worthy of doing business with. “Business-worthiness” can be seen as synonymous with trustworthiness, studies repeatedly show trust is a foundational component for companies to thrive. Consumers want to buy from, people want to work for, vendors want to supply, and communities want to embrace these companies. Trust also drives value.

During the last 15 years, researchers have estimated that the trust premium for ethical companies ranges from half of stock value to three-quarters of stock value. In a recent survey by the World Economic Forum, three-fifths of chief executives said they believed corporate brand and reputation represented more than 40% of their company’s market capitalization.

Consider that three decades ago as much as 95% of the average corporation’s value consisted of tangible assets, according to a report by Thomson Reuters and Interbrand. Today 75% of that average corporation’s value is intangible. In other words, a business’s most valuable asset is its good name, its brand and reputation. (Bringham, 2010)

Non-Direct Labor

Current day processes of bringing goods and services to consumers encompass a significant amount of non-direct labor. Much of these efforts are directed at increasing perceived value of the brand. This includes sales and marketing, brand development and maintenance, customer service, financing options and incentives, and other functions not directly involved in the production and delivery of the product or service.

Non-direct labor contributes heavily to the reputation of the firm. A firm’s reputation, both good and bad, is created in many ways. Functional components such as the product’s reliability, pricing, customer service, or quality help to form the reputation. It is generally the combination of many non-direct and direct labor factors the provide the sum of a firm’s reputation.

Ethics in the Equation

The ethics of a firm are weigh heavily in this mix. Good.To.Grow reports that 64% of consumers want to buy from socially responsible companies.  The Guardian reported that 62% of millennials want to work for a company that makes a positive contribution to society. Workspan reports 82% of employees at all ages said they would take less pay to work for a company with ethical business practices.

The consumer, employee (or future employee), supplier, shareholder, and community are likely, or can easily become, aware of a company’s reputation. A firm committed to establishing an ethical reputation, as a part of their brand management, recognizes the direct correlation to its value.

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