Is “being good” good for business?

April 24, 2015 Sarah Beckett

 

While profitability continues to be a key driver for organizations in the private sector, success is no longer being measured solely in terms of financial gains—and the shift is affecting the way talent is managed.

In 1987, when Wall Street’s Gordon Gekko delivered his famous “Greed is Good” speech, it seemed as though the profit motive had reached its peak.

Yet a quick look at the numbers shows that nearly 30 years later, it’s reached new heights. In the 80s, the CEO-to-worker pay ratio was 42:1. Today, it exceeds 354:1.1 And the 2008 financial crisis was fueled by corporate profiteering on a scale that Gekko himself could hardly have imagined.

But at the same time, an increasing number of organizations are changing directions and replacing profitability with a different end-goal. Corporations across virtually every sector—pharma, healthcare, technology, banking, finance, and many more—are increasingly replacing a single bottom line with a triple version that considers social and environmental impact alongside profitability. While it may seem counterintuitive, there are many reasons for this about-face.

Integrity drives success

Both B2B and B2C consumers are increasingly making purchasing decisions by examining what’s in their hearts as well as their wallets. For example, 45% of consumers under 34 years old say they’re more likely to do repeat business with an LGBT-friendly company.2

Studies show that trusted brands are more resilient than those with lower levels of consumer trust.3 One study even found that the three-year total return to shareholders was almost three times higher at companies with high trust levels.4

Overall, trust and loyalty are powerful indicators of a company’s ability to sustain profitability and demonstrate value over the longer term. Companies that plan in increments of five, 10 or more years are recognizing the crucial role values have to play in sustainable success at the corporate and individual level.

Linking integrity and compensation

And this kind of culture change is transforming the way companies manage talent.

In a high-profile example of this trend, Novartis recently elected to uncouple compensation from profitability and align it with behaviors that demonstrate integrity and transparency. For Novartis, the impetus to pursue integrity at every level came from an increasing lack of trust in the pharmaceutical industry. The space in which Novartis operates has been rocked by what they term a “crisis of trust,” with many players being accused of serious ethical breaches and a general lack of transparency.

Novartis is meeting the challenge head on by prioritizing integrity among the values and behaviors Novartis employees and leaders are expected to uphold. And they’re putting their money where their value are—linking integrity-based behaviors directly to compensation.

Strong values drive strong profits

According to the latest research, companies like Novartis that put values ahead of profit are on the right track.

When KRW International, a Minneapolis-based leadership consultancy, looked at CEOs whose employees rated them highest on key character traits such as integrity, responsibility, forgiveness, and compassion, they found that those companies delivered five times the return on assets compared to companies led by CEOs with low character ratings.5

Measuring values with competencies

For some organizations, measuring new dimensions in workplace performance requires new tools. Soft skills and values such as integrity and compassion are more abstract than technical proficiencies, which can make it difficult to identify measures that result in objective, consistent, and meaningful employee evaluations.

As a result, more organizations are turning to competency-based talent management. Competencies such as “exemplifying integrity,” “acting with empathy and compassion,” and “ensuring accountability” provide an objective set of criteria for measuring values-based performance in the workplace. With clear behavioral measures in place, the task of measuring and supporting intangible qualities such as organizational values becomes more manageable.

Learn more about HRSG’s values-based, transformational leadership competencies.

1 http://topincomes.g-mond.parisschoolofeconomics.eu/
2 https://www.thinkwithgoogle.com/features/lgbt-advertising-brands-taking-stance-on-issues.html
3 Does brand trust matter to brand equity? Elena Delgado-Ballester and Jose´ Luis Munuera-Alema´n Marketing Department, University of Murcia, Murcia, Spain. Journal of Product & Brand Management 14/3 (2005) 187–196 © Emerald Group Publishing Limited.
4 http://www.blindspot.ca/PDFs/HumanCapitalIndex.pdf
5 https://hbr.org/2015/04/measuring-the-return-on-character?utm_campaign=Socialflow&utm_source=Socialf

photo credit: contemplativechristian via Flikr

About the Author

Sarah Beckett

Sarah is an experienced marketer with over 10 years experience. She drives HRSG brand marketing strategy and the implementation of all related programs.

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