Unethical Behavior Worsens Productivity

“Nobody . . . should have any doubts of the linkages between poor ethics in the workplace and low productivity . . . When workers don’t trust each other and their supervisors, then morale is low, stress is high and output is undermined.”  – Kenneth C. Frazier (2003 National Business Ethics Survey) Consider:

  • Companies without a code of ethics do worse. In one study they generated significantly less economic value added (EVA) and market value added (MVA) than those with a code, experienced more P/E volatility, and showed a decline in average return on capital employed, while those with a code of ethics showed a 50 percent increase.  (Does Business Ethics Pay?)
  • Companies with ethics programs showed up to three times greater market value added than companies lacking them (Curtis C. Verschoor, “Corporate Performance Is Closely Linked to a strong Ethical Commitment,” Business and society Review, Winter 1999).
  • Firms not explicitly committed to ethical dealings had worse profit/turnover ratios, 15 percent lower than others (Does Business Ethics Pay?)
  • Employee dissatisfaction translates into lower profits.
  • Workers less generous with their time are less productive. Others help them less and they have lower social standings (Francis J. Flynn, “How Much Should I give and How Often? The Effects of Generosity and Frequency of Favor Exchange on Social Status and Productivity,” Academy of Management Journal, vol. 48, no. 5, 2003, pp. 539-553)

Unethical Behavior Worsens Performance of the Highly Skilled

Highly skilled employees show the greatest drop in productivity – as much as 25 percent – because of others’ unethical behavior. (P.E. Varca and M. James Valutis, “The Relationship of Ability and Satisfaction to Job Performance,” Applied Psychology: An International Review, v. 42, no. 3, 1993, pp. 2656-275) These people are the linchpin of the firm, contributing the most to its revenues and reputation.  (“The Hidden Costs of Organizational Dishonesty”) The highly skilled can also switch jobs more easily.