Are business ethics vital for better performance?

Is there any connection between business ethics practised by companies and their performance? Definitely yes, says the New York City think tank, Ethisphere Institute. All 135 companies, which recently made the final cut into the hallowed list of the World’s Most Ethical Companies in 2021, have shown stunning growth in their profit numbers.

A look at the list, which represents companies from 22 countries and 47 industries, reveals that 97 of them are from the U.S., accounting for 72%. India is represented by three domestic companies—Infosys, Tata Steel, and Wipro. Tata Steel and Wipro were the only two in the previous year’s list.

AT&T, Canon, 3M, Dell Technologies, Hewlett Packard, Honeywell, Intel, IBM, LinkedIn, Microsoft, and Salesforce are among the leading companies from the U.S. featured in the list.

While IT services, software and services, and technology account for 13 companies in the list, food, beverage and agriculture account for seven of them. PepsiCo, Kellogg’s, Ingredion (all from the U.S.) have joined hands with other giants such as Grupo Bimbo (Mexico) and illy (Italy).

The Ethisphere list has four companies from the real estate sector. The oil & gas and renewables sector makes its presence felt with three companies, while an equal number of companies from metals, minerals and mining, too, joined the ranks with the rest.

Why is that the Indian participation in the coveted list continues to be so drab? Does India Inc. lack in business ethics?

Nirmal Jain, an Indian billionaire businessman who founded the India Infoline Group, nods in the negative. He believes that a large number of Indian companies are ethical while a few others border on the unethical. “India has an excellent regulatory framework provided by the RBI, SEBI and IRDAI, among others, and several industry watchdogs. There is no question of companies indulging in unethical practices in India,” said Jain.

R.S. Sodhi, managing director, Gujarat Co-operative Milk Marketing Federation (Amul), takes a direct snipe at western companies that function without any social commitment. “A business organisation without any social commitment can never be called ethical. There are many western companies which claim to be ethical but indulge in unethical practices on a daily basis surreptitiously,” he adds.

According to Jain, ethics is the most fundamental aspect of any organisation. “This is the basic, primary requirement. In India, you may come across a few black sheep. But you can’t paint everyone with the same brush,” he says.

Sodhi agrees, adding that business ethics are paramount if you were to build an organisation that lasts centuries.

Of course, for the Indian companies that have already made it to the Ethisphere list, it is time to pop the champagne.

Salil Parekh, chief executive officer and managing director of Infosys, said they were honoured to receive the recognition from the Ethisphere Institute. “Flawless execution with integrity and compliance is the cornerstone of our continued success, and we firmly believe that an integrity-based approach greatly influences business success.” Infosys’ core values are the foundation on which they have built their success over the years, he said in a statement, adding that the Ethisphere list will encourage them to stay committed to operate with high ethical standards and transparency, especially in these unprecedented times.

Wipro said it had been recognised as one of the world’s most ethical companies for the 10th year in succession. Thierry Delaporte, managing director and CEO, said, “Integrity and ethical behaviour are central to Wipro’s culture and embodied in the ‘Spirit of Wipro’. To be named as one of the world’s most ethical companies for the 10th year in a row is a testament to our commitment to business sustainability practices, and transparent standards.”

Tata Steel said it had received the recognition for the 10th time and was one of the only three honourees in the global metals, minerals, and mining industry. “Today, for companies like Tata Steel that have a global footprint, there is a large societal responsibility and therefore following [the] highest level of ethical standards receives topmost priority. The robust internal systems that we have created, including various policies and initiatives, ensure that understanding and maintaining global and regional standards for ethical way of doing business is embraced across the company and around the world,” said T.V. Narendran, CEO and managing director.

Ethisphere says that values-based leadership leads to financial outperformance and the companies were being recognised for their unwavering commitment to business integrity.

Timothy Erblich, chief executive officer of Ethisphere, said the year 2020 brought many hardships for the world. “While addressing various tough challenges, we saw companies not just working towards earning the trust of stakeholders through resilience and a commitment to ethics, transparency, and integrity but advancing their corporate cultures for the greater good.”

The evaluation of world’s most ethical companies is an annual exercise. Each year’s evaluation process considers company programmes information at the time it is submitted by the applicant and considers reputational information available up to December 31 of the year being reviewed.

A company’s final Ethics Quotient (EQ) score is evaluated relative to those of its peers within the context of its structure, size, and operating environment. Those companies demonstrating the strongest application across the methodology receive the designation of being one of the World’s Most Ethical Companies. As applicant companies come from a variety of industries with significant differences in regulatory and operating environments, the overall EQ score is used to understand a company’s performance in the context of similar companies, not to set a floor.

How does Ethisphere evaluate a company’s reputation?

The evaluation of a company’s reputation looks carefully at the perception of the company’s brand among stakeholders. Ethisphere gives an applicant credit for third-party recognitions indicating positive stakeholder perception. For example, it considers awards and accolades garnered as well as inclusion on indices related to governance, ethics and compliance, culture, environmental practices, citizenship, or social responsibility. It offsets the credit given for third-party recognitions with any negative reputational issues faced by an applicant. Specifically, it conducts a review of publicly available information (for instance, public filings and Dow Jones Factiva business information and research tool) to understand any negative perceptions caused by an applicant’s legal compliance, litigation, environmental, or other ethical issues. This review has a five-year look-back period. Ethisphere bases its timing for the look-back period on the timing of an issue’s resolution.

As more Indian companies dream about playing an important role on the global stage, it may be worthwhile to invest some more time and energy in setting up ethical standards for the company, employees, and other stakeholders.