Why is Ethical Management Necessary?

There may be several reasons such as meeting the requirements to take social responsibilities, the appearance of shareholders who pursue ethical values, strengthened efforts for ethical management worldwide, and enhanced company confidence and sovereign credit ratings. However, the ultimate goal is to maintain a sustainable management by enhancing the company’s value.

Comparative Advantage of Ethical Companies

Ethical management is playing a huge role in elevating a company’s market value. According to the 2001 price-earnings ratio of America’s most respected 10 companies, there average rate was 9.7%, exceeding the average -11.9% of S&P 500 companies. This is also applied in Korea, and trustworthy companies’ price-earnings ratio are 2.3 times higher than others in average. According to a recent report by The Federation of Korean Industries, ethical management companies with exclusive departments showed an average stock increase ratio of 41.3% from 2001 to 2003.

Companies exist to earn fair profits

Companies exist to earn profits. However, as products became similarly competitive, consumers have put priority on the characteristics of a company, instead of considering quality, service, and price when making purchasing decisions. Actual market data shows that consumers experienced not purchasing unethical companies’ products, and as these companies’ credit went down, so did their sales and profits. Accordingly, earning profits only became possible by gaining trust among stakeholders, and unethical management can return long-term damage to companies.

Work Efficiency and Competitiveness

Ethical management contributes to enhancing work efficiency and competitiveness. It was generally found that companies which made unjust work or decision makings showed high absent-without-leave and turnover rates. The more unmoral a company is, the more employees’ morals lack, leading to low productivity. Also, unethical irregularities of individuals in an organization where ethical standards have not taken place leads to cost burden and the lack of competitiveness of a company. However, when a company gains trust, employees can work efficiently and precisely. Also, various costs can be reduced, leading to enhanced productivity. The ultimate goal of ethical management exceeds the meaning of not committing irregularities, and is aimed to implement transparent management according to global standards. When trust is gained from ethical management, customers put faith on the company, leading to maximized profits.