Companies Led By Moral Bosses Are Actually More Profitable

Good character is good for business.
Three businesspeople working together in their office
Three businesspeople working together in their office

Good character also means good business, according to a new study.

Conducted by leadership consulting firm KRW International, the study found a link between a business' performance and the integrity of its CEO. Firms where employees rated the CEO's moral principles highly performed better than firms whose top executive had a lower character rating.

“I was unprepared to discover how robust the connection really is,” KRW founder Fred Kiel said, per the Harvard Business Review, which first reported on the study.

The report highlighted 10 leaders who excelled across the board. These rockstar execs -- Kiel calls them “virtuoso CEOs” -- include Dale Larson, CEO and president of Larson Manufacturing Company, Sally Jewell, a former CEO of outdoor retailer REI, and Charles Sorenson, CEO and president of Intermountain Healthcare. They were seen as standing up for the right issues, expressing concern for others, showing empathy and moving past mistakes. And they got high marks for their vision, strategy and accountability.

By contrast, the 10 individuals who scored lowest in KRW's study seemed to twist the truth for their advantage, avoid blame and be preoccupied with their personal financial gain.

The researchers compiled their data by asking employees at 84 U.S. companies and nonprofits to rate their CEOs and managers on four key moral principles: integrity, responsibility, forgiveness and compassion. They then lined up those responses with the firms’ financial results and examined whether there appeared to be an impact on profitability.

Businesses helmed by an exec with a positive character score saw an average return on assets of 9.35 percent over a two-year span. Companies with a CEO who scored lower, on the other hand, had an average ROA of just 1.93 percent.

Interestingly, the low-rated leaders gave themselves better assessments than their employees did, while virtuoso CEOs gave themselves lower scores than their employees did.

Employees aren't the only ones who recognize the importance of having an upright leader, however. Other execs have chimed in on the issue. Marillyn Hewson, president and CEO of aerospace and defense firm Lockheed Martin, wrote in a LinkedIn post that a leader can build trust by showing a commitment to integrity and values, as well as being transparent about the company's strategy.

"It’s important to communicate that the commitment to integrity, respect and excellence starts at the top -- and even more important to demonstrate that commitment through decisions and actions," Hewson wrote. "Show employees that you are embracing your values, and you’ll go a long way towards building trust."

And in fact, it's been shown that profits follow when employers treat their workers well. Companies that offer great pay and benefits and help workers reduce stress have fewer staff turnovers and can even outperform the S&P 500 stock index.

You can read more about Kiel’s study in his book Return on Character, out April 7 from the Harvard Business Review Press.

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