Executive compensation rates during employee layoffs. Let’s say a company is struggling during an
economic downturn and must lay off a portion of its workforce. Does the CEO of the company take his or her
annual raise or take a pay cut when others are losing their jobs? One could say that to take a raise is unethical
because the CEO should also sacrifice some pay for the good of the company.
Fair compensation for employees. Paying employees minimum wage, or just above minimum wage, is not
always fair compensation. In most regions, the cost of living has not been adjusted in years, meaning that
people are surviving on less money. Ethics can make a difference here.
Ethical business practices, guided by a corporate set of standards, can have many positive outcomes, including
recruitment and retention improvement, better relationships with customers, and positive PR. In 2015, Dan
Price, CEO of the Seattle payment processing firm Gravity Payments, voluntarily took a huge pay cut and
vowed to raise his employees’ wages to $70,000. This move was great for the company, which claims that
revenues and profits skyrocketed, and they experienced a 91 percent employee retention rate over the last few
years.
On the opposite side, unethical business behaviors can have a negative impact on any business. Even if an
unethical decision is made by a single member of the executive team, it can have far-reaching repercussions.
Some possible results of unethical business actions may include:
Poor company reputation. In an increasingly transparent world, unethical decisions made by businesspeople
become permanent stains on the company. Social networks have become sounding boards for anything
deemed unethical or politically incorrect, and everyone from disgruntled employees to dissatisfied customers
can rate companies on public company review websites.
Negative employee relations. If employees continually see a discrepancy between what’s expected of them
and how leadership behaves, this contrast can create serious problems in the management of employees.
Some employees may become disengaged, while others will stop working as hard. After all, if the same rules
don’t apply to everyone, why even bother? The downside to negative employee relations is that the entire
company becomes less productive, less responsive to customers, and less profitable.
Recruitment and retention problems. Once a company has developed a negative reputation, it can be
difficult to recruit new talent, let alone retain the talent that’s already there. Disengaged employees who grow
tired of the double standards will leave. This attrition can impact customers who then have to deal with less
experienced and less interested employees, who are already overworked and frustrated.
Company credibility lost. Customers are savvy enough to follow what’s going on from an ethics standpoint. If
they hear of a problem, they begin to question the actions of every person at the company. For example, if a
member of the board is accepting expensive gifts from clients in exchange for favorable pricing of materials,
this situation could set off major alarms for other customers, and even vendors. The company can expect to
lose business if this unethical behavior continues.
As you can see, poor ethics can quickly spiral downward, destroying every aspect of the business and making it
very difficult to compete. It’s critical for every business to pay attention to ethical standards and continually
remind employees at all levels that their behavior has an impact on the entire organization.
History of Corporate Governance
The concept of corporate governance is relatively new compared to the entire history of free trade and
business formation. There was likely some “code of honor” followed by businesses in the past, but it wasn’t
Chapter 3 Business Ethics and Social Responsibility
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