Good CSR and a strong corporate moral compass can drive financial performance through better employee engagement and commitment to your firm.
Your firm’s level of commitment to good ethics and corporate citizenship may be what’s encouraging (or hindering) employee morale.
Recent corporate scandals have drawn public attention toward business ethics. Though research shows 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 Jinseok Chun (Seoul National University) and colleagues finds that when employees see their company adhering to higher ethical standards, they commit more openly to their role and the firm. This commitment in turns spurs organizational citizenship behaviours towards other employees, and these behaviours additionally enhance financial performance.
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 full time employees and 247 senior executives across 263 companies. This research complements previous studies that examine the ethics-performance link through firm reputation or relationships with external stakeholders, and identified two key messages on how to speak to employees’ moral compasses.
Two Ways Strong Ethics Helps Employees Engage
1. 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 sound ethical guidelines, it offers employees a clear sense of what is expected of them on the job. Less job ambiguity leads to greater productivity. Furthermore, good 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.
2. 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; it ensures key activities get done (regardless of who’s doing them), and results in more communication across business units.
How Managers Can Leverage Commitment
By examining the impacts of ethics on employee behaviours, this research provides useful insights for managers, especially since employees are often the easiest to engage in CSR activities.
First, managers can 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.
Future research can replicate these results to test the effects of culture on the CSR-performance relationship. 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, J., Shin, Y., Choi, J.N., and Kim, M.S. 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.