Contrary to popular belief, ethical decision making often leads to wealth and success in business.
Two of the world’s three richest men; Microsoft (NASDAQ: MSFT) founder Bill Gates and Berkshire Hathaway (NYSE: BRK.A) CEO Warren Buffett are famous for their integrity. Notably, Buffett is donating most of his $88.8 billion fortune to charity.
Specifically, in June 2019 Buffett announced plans to donate $3.6 billion worth of Berkshire Hathaway (NYSE: BRK.B) stock to the Bill and Melinda Gates Foundation and three other charities. In fact, Bloomberg estimates Buffett has donated $34 billion since making a pledge to give all of his money away in 2006.
Meanwhile, Bill Gates is totally committed to giving away nearly all of his $103.7 billion fortune, Vox reports. Furthermore, Gates and his wife Melinda, have already given away $45 billion.
Thus, Gates could be the world’s richest man if he was not committed to charity. Instead, Amazon (NASDAQ: AMZN) CEO Jeff Bezos is the world’s richest man because of Gates’ ethics.
10 Great Examples of Ethical Decision Making In Business Summary
- Costco’s Decision To Pay Fair Wages
- Volkswagen’s Strategy to Reduce its Workforce Without Layoffs
- Best Buy’s Commitment to Sustainability
- Woolworth’s gets out of liquor and gambling
- CVS Health Stops selling tobacco
- Chick-fil-A Pays for Employee Education
- McDonald’s invests in Employee Skills and Animal Rights
- Chipotle Mexican Grill commits to animal welfare
- Musk Dumps Trump
- Nike stands by Colin Kaepernick
Fortunately, there are many examples of how ethical decision making can help a business make money.
1. Costco’s Decision To Pay Fair Wages
Costco Wholesale (NASDAQ: COST) is one of the biggest successes in American retail. Impressively, reported $34.74 billion in quarterly revenues that grew at a rate of 7.35% on 12 May 2019. Moreover, Costco’s stock was trading at an impressive $269.14 a share on 3 July 2019.
Much of Costco’s success comes from the high level of customer service offered by satisfied employees. One reason why Costco can attract high-quality employees is its willingness to pay higher than average wages.
For example, Costco raised its base wage from $13 an hour to $14 an hour in 2018, to $15 an hour in 2019, Fortune reports. In contrast, the average retail worker in America makes between $7.25 and $9 an hour, job-applications.com reports. Meanwhile, the average U.S. retail department manager makes $11 to $12 an hour.
Costco succeeds because it can attract the best workers. Additionally, Costco avoids labor trouble; high turnover, and conflict because its employees are happier.
2. Volkswagen’s Strategy to Reduce its Workforce Without Layoffs
Volkswagen AG (GR: VOW) is following a historic German policy of reducing its workforce without layoffs.
To explain, Volkswagen cuts the workforce by not filling empty jobs. For instance, Volkswagen does not hire replacements for retiring workers. Consequently, Volkswagen can eliminate up to 7,000 positions and could save €5.9 billion ($6.7 billion), Reuters reports.
However, existing workers in Volkswagen’s German operations will not face layoffs for 10 years, The Associated Press claims. No layoffs is a smart policy because it increases worker morale.
In fact, workers remaining after a layoff experienced a 20% decline in job performance, a review of 20 companies indicates, The Harvard Business Review reports. Moreover, the same study by the University of Texas’s Deepak Datta shows layoffs had a negative impact on stock performance.
Additionally, profitability declined after layoffs at most companies, Datta reports. Finally, researchers from three universities found companies that layoff workers are twice as likely to file for bankruptcy. The research comes from the University of Tennessee, Baylor University, and Auburn University.
Layoffs are Bad for Business
One reason why profitability declines after layoffs could be worker morale.
After layoffs, remaining working suffered a 41% decline in job satisfaction, a 36% decline in company loyalty and a 20% decline in job performance. This research comes from Magnus Sverke and Johnny Hellgren of Stockholm University and Katharina Näswall of University of Canterbury.
Layoffs also discourage productivity and creativity, a study by Teresa Amabile of Harvard Business School indicates. When a Fortune 500 tech firm cut its staff by 15%, the number of new inventions it patented fell by 24%.
Finally, workers are more likely to quit after seeing colleagues laid off. Downsizing a workforce by 1% leads to a 31% increase in voluntary turnover in the next year, Charlie Trevor of University of Wisconsin–Madison and Anthony Nyberg of University of South Carolina found.
Thus, Volkswagen is smart not to layoff workers. However, history indicates the company could still suffer serious losses from a smaller workforce. Consequently, layoffs are both unethical and very bad for business.
3. Best Buy’s Commitment to Sustainability
Barron’s named electronics retailer Best Buy (NYSE: BBY) “America’s most sustainable company” in February 2019. Best Buy CEO Hubert Joly is committed to reducing his company’s environmental impact by reducing waste.
For instance, Best Buy’s Geek Squad customer service team members drive Toyota Prius hybrid cars, Retail Dive reports. Consequently, Best Buy claims to have “saved 140,000 gallons of gas, the carbon equivalent of taking 263 cars off of the road for a year.”
Moreover, Best Buy encourages customers not to throw electronics away by having the Geek Squad service products. Furthermore, Best Buy claims to have collected two billion pounds of unwanted electronics and appliances for recycling.
In addition, Best Buy operates Teen Tech Centers that teach disadvantaged young Americans basic technology skills. Teen Tech Centers help Best Buy grow its labor force by creating trained employees, Retail Dive reports. In addition, Teen Tech Centers help reduce unemployment in America which has a serious shortage of vocational education.
Ethics are paying off at Best Buy in the form of survival. Notably, Best Buy is the only national electronics chain left in the United States. Its most famous competitor Radio Shack went out of business in 2017. Other competitors like Circuit City are also long gone.
Other US brick and mortar electronics retailers were unable to compete with Amazon (NASDAQ: AMZN) and discounters like Walmart. However, Best Buy recorded annual revenues of $42.879 billion and a gross profit of $9.961 billion in February 2019. Moreover, Best Buy’s stock was trading at $71.97 a share on 3 July 2019.
Best Buy shows ethical decision making is vital for a company’s survival. This company’s commitment to ethics and customers services is helping it survive America’s retail apocalypse.
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4. Woolworth’s gets out of liquor and gambling.
Australia’s largest grocer Woolworths Group Limited (OTCMKTS: WOLWF) plans to stop selling liquor and sell its gambling operations.
Specifically, Woolworths will sell its liquor stores, pubs, and hotel division which operates poker machines, The Conversation reports. To clarify, poker machines are what Americans call slot machines and British label fruit machines.
Woolworths will lose revenues by making its gambling, pub, liquor, and hotel operations into a separate company. However, the company’s reputation could benefit. Australian mothers have criticized Woolworth’s for its investments outside groceries.
The sale is part of Woolworths commitment to family-friendly values. Those values go beyond opposition to drinking and gambling. Woolworths no longer gives out plastic bags and gives free fruit to kids to encourage healthy eating.
Australia’s Woolworths Group has no connections with the legendary British and American discount store operator Woolworths. Britain’s Woolworth Group and America’s F.W. Woolworth Company have been defunct for decades.
5. CVS Health Stops selling tobacco
American drug store and health insurance giant CVS Health (NYE: CVS) stopped selling tobacco products in 2014.
CVS stopped selling cigarettes and other tobacco products in September 2014. Interestingly, American cigarette sales fell by 1% in states where CVS had a 15% or greater share of the pharmacy market, a press release claims.
Importantly, CVS bases the press release on a 2016 peer-reviewed scientific paper in The American Journal of Public Health. CVS Health estimates 95 million packs of cigarettes were sold as a result of its decision. However, CVS made some money because nicotine patch sales grew by 4% at its stores.
Interestingly, CVS has been doing well since it quit selling tobacco. In fact, CVS, is now one of America’s largest grocers with a 3.9% share of the US grocery market, Market Mad House estimates. Consequently, CVS is America’s fourth largest grocer without tobacco.
Additionally, CVS Health had enough money to buy the giant American health insurance company Aetna for $69 billion in October 2018, The New York Times reports. Plus, CVS recorded revenues of $194.579 billion and a gross profit of $31.538 billion for 2018. In contrast, CVS reported a gross profit of $23.367 billion and revenues of $139.367 billion for 2014.
Therefore, CVS Health is bigger and more profitable than ever without tobacco. CVS Health demonstrates ethical decision making and risk-taking can pay off.
6. Chick-fil-A Pays for Employee Education
The American fast-food chain will pay up to $25,000 in tuition assistance to employees. Moreover, Chick-fil-A claims to have paid $75 million in tuition to 53,000 employees, Restaurant Business estimates.
Interestingly, 90% of employees who receive the tuition claim they will will keep working for the company, Chick-fil-A claims. Moreover, 60% of the tuition recipients claim they could not have attended college without company help. Plus, 20% of Chick-fil-A scholarship recipients say they are the first in their families to attend college.
Treating employees well is paying off for Chick-fil-A, the chicken sandwich emporium is now America’s third-largest fast-food brand. For instance, Chick-fil-A’s sales grew by $1.1 billion in 2017; twice the growth rate of Wendy’s and Burger King combined.
Consequently, Restaurant Business labels, Chick-fil-A as McDonald’s biggest American competitor with over 2,200 locations. Interestingly, the average Chick-fil-A store generates $4 million a year, Restaurant Business estimates.
7. McDonald’s invests in Employee Skills and Animal Rights
Taking an interest in employee well being could end a labor shortage at McDonald’s (NYSE: MCD). When faced with a labor shortage in the United States recently, the fast giant surveyed 6,500 of its workers to see what was wrong, QSR Magazine reports.
When the survey found younger workers lack basic worker attributes; including teamwork, customer service, and responsibility, McDonald’s decided to help them. The company launched an Archways to Opportunity education and career advice program.
For instance, McDonald’s now offers free career and academic advising services for all employees. In the program, an adviser with a master’s level degree will offer career counseling to employees.
Additionally, McDonald’s more than tripled its employee tuition assistance from $700 a year to $2,500 a year in March 2018. In addition, managers can now receive up to $3,000 a year in tuition assistance, a press release indicates.
Plus, the company now offers tuition assistance to employees after just 90 days of work. Additionally, McDonald’s employees who work as little as 15 hours a week can receive tuition assistance. Finally, McDonald’s plans to spend $150 million on employee education assistance over the next five years.
Nor is it just employees, McDonald’s treats well. McDonald’s USA plans to use 100% cage-free eggs in its Egg McMuffins by 2025. A press release claims, the company is trying to source two billion cage-free eggs a year. Thus, McDonald’s is committed to animal rights and employees.
Ethics pay at McDonald’s; the fast giant reports a gross profit of $10.786 billion on revenues of $21.0252 billion for 2018. However, ethics are not fueling revenue growth. Revenue growth at McDonald’s shrank by 7.87% in 2018, Stockrow estimates. Only time will tell if ethical behavior can help McDonald’s survive in a difficult fast-food market.
8. Chipotle Mexican Grill commits to animal welfare
McDonald’s interest in animal welfare is driven by evolving practices at a successful competitor. In particular, Chipotle Mexican Grill (NYSE: CMG) wins awards for its efforts to buy ethically-raised meat.
For example, Chipotle won the Good Sow Commendation in Pig Welfare from Compassion in World Farming. Chipotle is the only American company to win a Compassion in World Farming award in 2019, a press release states.
Specifically, Chipotle refuses to buy pork from farmers that confine pregnant and growing pigs in small crates. In addition, Chipotle works with animal welfare organizations to improve treatment of livestock. For instance, the Human Society of the United States helped Chipotle draw up animal welfare practices to improve chicken living conditions.
Chipotle is one of the biggest success stories in American fast food. In fact, Chipotle Mexican Grill reports an 8.68% revenue growth rate for 2018.
However, Chipotle demonstrates how ethical commitments can create controversy. In 2018, a former Chipotle restaurant manager posted allegations the company buys eggs from inhumane factory farms online.
Consequently, animal rights activists are accusing Chipotle of false advertising. Chipotle shows how ethical commitments create risks for companies. Chipotle learned when you adopt higher standards; customers will judge you by those standards.
9. Musk Dumps Trump
One entrepreneur who discovered the cost of ethical commitments the hard way is Elon Musk. The Tesla Motors (NASDAQ: TSLA) and SpaceX CEO had to choose between ethics and a potentially valuable political relationship.
In 2017, Musk found himself caught between his ethical opposition to global warming, and a growing friendship with new US President Donald J. Trump (R-New York). The Trump relationship could have been invaluable to Musk; because the US government is one of the biggest customers for his SpaceX rockets. In addition, SpaceX uses NASA and US Air Force facilities to launch its rockets.
However, Musk was caught in a difficult position when Trump decided to pull the US out of the Paris Agreement on Climate Change on 1 June 2017. Musk; a firm believer in Climate Change decided to leave two White House advisory councils, Business Insider reports. Leaving Trump’s White House made sense for Trump because it ended Trump opponents’ well-publicized campaign to boycott Tesla.
Since then, Musk has faced an investigation and contempt of court charges from the US Securities and Exchange Commission (SEC) over his Twitter use, The Verge reports. Moreover, Trump’s tariffs on Chinese electronics could threaten Tesla’s driving car-program, TechCrunch reports.
There is no evidence Trump is behind the tariffs or the SEC action. Yet, cynics will wonder if the famously vindictive Trump is punishing Musk for leaving; and interviews about how Trump screwed him.
However, Musk’s ethical commitment to electric vehicles is proving costly. Tesla Motors reported a -$976 million annual loss for 2018.
10. Nike stands by Colin Kaepernick
Another example of the controversy ethical stands can generate is the athletic shoe manufacturer Nike’s decision to stand by controversial American football player Colin Kaepernick.
Nike is paying Kaepernick millions to participate in its latest “Just Do it Campaign.” The company even plans to give Kaepernick his own branded line of shoes, Bleacher Report claims.
However, Kaepernick has not played in America’s National Football League (NFL) since 2016. Kaepernick claims NFL owners blacklisted him for protesting during the national anthem in 2016. To clarify, Kaepernick; who is black like most NFL players, was protesting police killings of African-American men.
Kaepernick claims NFL owners refuse to hire him for political reasons. Notably, as quarterback Kaepernick took the San Francisco Giants to the 2013 Super Bow or NFL championship. However, since 2016 Kaepernick has been a regular target of nasty tweets from President Trump.
Sticking with Kaepernick is ethical for Nike because it demonstrates the company’s commitment to free speech, diversity, human rights, and the US Constitution. However, the controversy could enhance Kaepernick’s star power and generate tens of millions of dollars worth of free publicity for Nike. For instance, hundreds of media outlets will publish, broadcast, and post pictures of Nike’s Kaepernick merchandise for free.
Statista estimates Nike’s brand value grew from $28.03 billion in 2018 to $32.421 billion in 2019. Notably, Kaepernick became an official Nike brand ambassador in Fall 2018. Thus, Kaepernick could have added $4.391 billion in value to the Nike brand.
In the meantime, Nike is making money. Nike made a gross profit of $15.956 billion on revenues of $36.397 billion in 2018. Moreover, Nike’s revenues grew at a rate of 5.96% in 2018.
Only time will tell if Nike can make money with Kaepernick; however, the player continues to generate controversy. For instance, he asked Nike to stop marketing sneakers with an American Revolutionary War flag on them.
Kaepernick thinks the flag is offensive because most of America’s Founding Fathers refused to free their slaves. Not surprisingly, the controversy is causing some Americans to question Nike and Kaepernick’s patriotism.
The Cost of Ethics
The potential risks and benefits from taking an ethical stand can be high for companies. Ethical stands with political and philosophical implications can have a high cost; as the Musk and Kaepernick examples show.
However, companies like Costco, Chipotle, and CVS demonstrate that ethics can pay off in business.