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Lead Your Team Strategy

A Culture of Ethical Behavior is Essential to Business Success

A Culture of Ethical Behavior is Essential to Business Success
Credit: moomsabuy/Shutterstock

The recent scandal that rocked Wells Fargo is nothing new. Stories of corporate malfeasance often end with civil settlements paid to the U.S. Department of Justice. But how is potential future business impacted when a company is caught with its hand in the cookie jar? New research from the University of Notre Dame suggests what you might already expect: unethical behavior is immensely damaging to a business's future prospects.

A research paper published in the Journal of Applied Psychology, "Do It Well and Do It Right: Impact of Service Climate and Ethical Climate on Business Performance and the Boundary Conditions," examined the intersection between the quality of service a business offers and its adherence to ethical mores by looking into conditions at nearly 200 movie theaters. The findings reveal that quality service and an ethical business plan are essential for long-term business success.

"Both high-quality service and low unethical behaviors are important to predicting business unit performance," Kaifeng Jiang, the lead author of the study and assistant professor of management at the University of Notre Dame's Mendoza College of Business, told Business News Daily. "This is especially so when the market is very competitive, because then the customers have a lot of options and could … switch to another product or service provider."

Through their analysis of the theaters, the researchers determined that a higher quality of service more positively impacted operations when ethical adherence was also high. Conversely, when unethical behavior was commonplace, a high quality of service had a much-diminished impact on the success of business operations.

"While carmakers and banks strive to provide superior customer service, their unethical conduct and the resultant fines inevitably jeopardize customer trust and diminish long-run financial returns," co-author Jasmine Hu, assistant professor of management at the University of Notre Dame's Mendoza College of Business, said in a statement.

The authors cited several key takeaways from their research that could help business owners and managers achieve both high-quality service and a culture of consistently ethical behavior:

  • Service excellence is a necessary, but insufficient, condition for success.
  • Build service and ethical climates that operate in tandem to guide service and ethical behaviors [among employees] without supervision.
  • Take corrective actions before unethical behaviors occur, by periodically measuring employee perceptions of your company's ethical climate.
  • Service and ethical behaviors are most essential within turbulent or competitive markets, with competitive intensity being the most important.

Jiang added that business owners could promote an ethical culture by installing executives and managers who are genuinely dedicated to upholding high ethical standards, as well as establishing a specific code of ethics for employees to follow. He also noted that the context of the industry is everything when it comes to how significantly the company is affected when it marries quality service to a high level of ethics.

Jiang and Hu's co-authors for the report are Hui Liao from the University of Maryland, Ying Hong from Fordham University, and Songbo Liu from Renmin University of China.

Adam C. Uzialko
Adam C. Uzialko

Adam received his Bachelor's degree in Political Science and Journalism & Media Studies at Rutgers University. He worked for a local newspaper and freelanced for several publications after graduating college. He can be reached by email, or follow him on Twitter.