The Next Decade of Corporate Ethics

The Next Decade of Corporate Ethics
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The company of the future is defined by one thing: radical transparency. To attain an open and transparent culture, the most important decision American companies can make today is who to hire, fire, promote and reward. The human capital choices made in 2016 will have a direct impact on which companies ultimately continue to exist 10, 20 and even 50 years from now.

Fifteen years since WorldCom, Enron and Arthur Andersen imploded, and nearly a decade since the onset of the Financial Crisis, corporate ethics - or in some cases the lack thereof - is beginning to emerge as a performance differentiator. Forty-nine percent of attendees at the 2016 Global Ethics Summit earlier this month said that the immediacy of social media has had an extreme impact on company accountability. Firms that have effectively adapted to this new marketplace, under 24/7 scrutiny by the media, consumers and investors, have begun to gain an advantage.

For those companies that have not yet adopted a mantra of transparency, they are now at a pivotal junction. They must move beyond typical compliance standards to build and facilitate an ethical culture within their organizations that would stand up to outside scrutiny. But will they?

The imperative for this new ethical mandate is clear. Our research shows that firms that rank among the World's Most Ethical Companies outperformed the S&P 500 last year by 3.3 percent. Additionally, as we saw in the Financial Crisis, in many cases these firms will outlast their competitors. Ensuring that an organization fits within this class of ethical corporations requires a long-term strategy intricately linked to talent at all levels to implement and sustain.

The good news for companies is that Millennials, the largest generation to enter the workforce since the Baby Boomers, are actively looking to work for and patronize firms with transparent, ethical operations. According to 84 percent of executives in attendance at the 2016 Global Ethics Summit, Millennials are in some cases willing to pay more for goods and services from a company that is recognized as a good corporate citizen.

Beyond just exerting their purchasing power, when considering where they want to work, the Deloitte Millennial Survey 2016 found that this generation of new hires is less fixated on a company's financial performance and more interested in a business's potential to do good. One in four Millennials said ethics, trust, integrity and honesty are essential values to supporting business success, on par with those who reported employee satisfaction as an important value for companies to affirm. In addition, the 2015 ACSR study by the insurance company, Aflac, showed that 69 percent of consumers are likely to purchase stock in a company well-known for its ethical standards and that 75 percent of consumers confirmed that they would be happier to work for a company with a strong CSR program.

Attracting talent with an ethically-led value proposition requires an environment in which upstanding business practices and leadership tactics are continually implemented and nurtured. Several examples of how this environment can be successfully fostered can be seen in the practices of Voya Financial (NYSE:VOYA), Aflac Incorporated (NYSE:AFL), U.S. Bancorp (NYSE:USB) and Ford (NYSE:F). All of these firms operate within highly scrutinized industries, and yet each has been able to construct an open and transparent culture in its own way.

In the case of Voya Financial, a retirement company that serves 13 million customers across the United States, a culture of ethics and corporate responsibility is reflected in its approach to corporate governance. As a new company that went public in 2013, Voya designed board diversity into its DNA. Today, four of Voya's nine independent directors are women and its board represents a diversity of gender, ethnicity, age and skills. Voya made a purposeful decision to create a truly diverse board because its leaders saw it as critical to business success and cultural transformation.

Ethical business practices in the financial services industry can also be seen in the cases of Aflac and U.S. Bank. Aflac errs on the side of overdisclosure with its clients, employees and investors. In 2008, Aflac became the first U.S. publicly traded company to hold a say on pay vote, giving shareholders a voice in the executive pay process. In 2009, when questions arose regarding some of Aflac's investments in struggling economies, which impacted the company's stock price, Aflac chose to publicize its investments on its website and to issue a press release driving investors to insights on the corporation and its practices. This dedication to transparency was rewarded. Aflac's stock price rebounded.

U.S. Bank has embraced a straightforward, easy-to-understand, and transparent approach to client communications that is reflected in its products and services. This approach allows U.S. Bank to deliver banking products and services that demonstrate that it is the most trusted choice in the banking industry. In addition, the bank's leadership is passionate about the role of banks within its communities and is proud to fulfill the local banker role across the U.S. even while being the fifth largest commercial bank in the country.

Beyond the financial services sector, Ford Motor Company is a leader in ethics among automakers. Under Executive Chairman Bill Ford, the company first introduced its framework for investing in sustainability. Over the last several years, this investment has paid off and enabled Ford to further its commitment to ethical operations. In fact, for the month of February, Ford U.S. sales rose 18 percent year-over-year and its European sales also rose 18 percent for the best February performance in six years.

Implementing ethical operating standards over the last decade has proven to be a make-or-break factor for many companies, ultimately ensuring their survival and growth during one of the most difficult periods in global economic history. But the next stage of evolution for ethical companies is the infusion of an ethical culture, moving beyond the box checking exercises of compliance to improve corporate behavior in a way that positively impacts the world.

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