Recent corporate scandals have drawn public attention toward the ethics of firms. Although researchers have demonstrated a small correlation between the ethical activities (broadly speaking, corporate social responsibility) and firm financial performance, it’s not clear how the process works, or even if the relationship is causal one way or the other. New research by Chun (Seoul National University) and colleagues finds that when employees see their company as adhering to higher ethical standards, they become more committed to the company. This commitment in turns spurs organizational citizenship behaviors toward other employees, and these behaviors in turn enhance financial performance.
This research complements previous studies that examine the ethics-performance link through firm reputation or relationships with external stakeholders. By examining the impacts of ethics on employee behaviours, this research provides insights for managers that are especially useful since employees are often the easiest to engage in CSR activities.
“... when employees see their company as adhering to higher ethical standards, they become more committed to the company.”
Chun and colleagues found two things:
- Organizational commitment: The level of an individual’s identification and involvement with his or her employer is the strongest mechanism by which corporate ethics leads to financial rewards. When a company endorses strong ethical guidelines, this offers employees a clear sense of what’s expected of them on the job. Less job ambiguity leads to greater productivity. Furthermore, strong corporate ethics send a strong signal to employees that the company is fair and just, which further increases their sense of loyalty and commitment to the firm.
- Helpful citizenship behaviour: Employees going above and beyond their job descriptions to help each other, such as helping others who are behind on their work—is the second main process that translates corporate ethics into financial performance. This type of citizenship behaviour benefits the bottom line as it means key activities get done (regardless of who’s doing them) and results in more communication across business units.
What can managers do to leverage commitment and helping? First, foster employee ethicality. Use a code of ethics and guidelines in accordance with legal and professional standards in addition to human resource practices such as ethics training and incentivizing ethical behaviours. Second, be patient. Remind yourself that the “bottom line” results may not be immediately apparent because of the subtle channels through which these behaviours work.
To conduct this study, Chun and colleagues conducted a large-scale survey administered by the Korean Research Institute for Vocational Education and Training (KRIVET). The collected data consisted of 6,053 fulltime employees and 247 senior executives of 263 companies. Future research can replicate these results to test the effects of culture on the process described here. Future research can also integrate these findings into an overall model that includes both internal and external stakeholders, and their impacts on firm financial performance.
Chun, Jinseok, Yuhyung Shin, Jin Nam Choi, and Min Soo Kim. (2011) How Does Corporate Ethics Contribute to Firm Performance? The Mediating Role of Collective Organizational Commitment and Organizational Citizenship Behavior. Journal of Management, 20, 1-25.
Bushra Tobah and the NBS team