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Friday
May122017

Nichols and Dowden: Improving Ethical Culture by Measuring Stakeholder Trust

Fostering strong ethical cultures within business firms could be the most effective and durable means of controlling the payment of bribes by firms. Creating a strong ethical culture is difficult, but measuring and maximizing stakeholder trust may overcome that difficulty.

Every business firm has a unique culture, which has a very powerful effect on the actions of people associated with that firm -- more powerful even than laws and rules. When the parts of a firm’s culture that have to do with good ethics are strong, then people associate with the firm are substantially less likely to engage in misconduct, including bribery.

Fostering a strong ethical culture is difficult. There is no measure of “goodness.” Proxy measurements that focus on a single behavior, such as the payment of bribes, poorly reflect the underlying culture and are easily manipulated. The uniqueness of each firm’s culture makes measurement even more difficult and also means that there is no single roadmap to the creation of a strong ethical culture.

We have in previous posts suggested that all firms have a general ethical duty to maximize stakeholder trust. As a practical matter, stakeholder trust may serve as a measurable proxy for goodness. Trust is measurable. If the actions that create trust are also actions that reflect an ethical culture, then higher levels of trust would indicate a stronger ethical culture. Moreover, every business firm has hundreds or thousands of stakeholders, and their aggregate impression is likely to be far more accurate than that of a handful of people reporting on a single behavior.

Having a measurable objective -- maximizing stakeholder trust -- might also enable firms to generate their own roadmaps to the creation of a strong ethical culture. Firms have demonstrated that when given a measurable goal they can do so; for example, through the balanced scorecard management tool or the triple bottom line accounting method.

As with any new idea, there are unknowns. The connection between trust and ethicality requires greater understanding. Tools for measuring trust require enhancement. Safeguards against manipulation must be created. Legal counsel, managers, policymakers, and academics will all contribute to future refinement of this idea.

A firm that cares about reducing corruption today, however, would still benefit from measuring and maximizing stakeholder trust. Stakeholder trust offers the most illuminating window into the strength of ethical culture, a strength that will reduce the possibility of corruption.

____

Philip Nichols, Joseph S. Kolodny Professor of Social Responsibility in Business and Professor of Legal Studies and Business Ethics, The Wharton School, University of Pennsylvania.  

Patricia Dowden, President and CEO, Center for Business Ethics and Corporate Governance.

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