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Link between ethics and business performance, finds CMI report

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Companies in which leaders act ethically are more sustainable and have better long-term financial performance, according to a report by the Chartered Management Institute (CMI).

The paper, The Moral DNA of Performance, is based on profiling more than 2,500 CMI members. It suggests managers in growing companies are more likely to rate the ethical culture positively than those in declining companies.

More than one-third (37%) of leaders in expanding companies rate their own ethics as high, compared to just 19% in businesses that are shrinking.

The most effective management style is “coaching, visionary and democratic”. Three-quarters of respondents rate this approach as effective, compared to just 18% for a “command and control” method.

In another section of the report, the ethics of small companies are compared with those of larger firms. It reveals only 23% of managers in large companies rate the ethics of the organisation as excellent, while the figure is 59% for smaller companies.

Speaking at the launch of the research in London, the report’s lead author and visiting professor in organisational ethics at Cass Business School Roger Steare said small businesses have an advantage in the ethical space.

“Businesses reflect human groups in that the maximum number of people you can have effective relationships with is about 150,” he said. “If your organisation is larger than that it’s advisable to split it into sub-sections to maintain good ethical standards and working relationships.”

Speaking at the same event, CMI chief executive Ann Francke commented on the fact that, despite some positive results, overall 29% of managers still rate their organisation as mediocre or poor on ethical behaviour. She called for more women to be brought into leadership roles to counter this. 

“The reason a lot [of women] don’t [move into leadership positions] is that they don’t like the culture,” she added. “So they opt out. We need to break this vicious circle to make progress.”