Virtuous Companies Perform Better

by Carl Robinson, Ph.D., copyright 2004

Does organizational “virtuousness” pay? Does treating your employees with respect improve performance or just make them soft?

Some other questions I’ve heard include, "How do you help executives change their behavior when they have been successful being a jerk?” Why would they change their behavior if it has worked for them for so many years?

Judging by the current press on Tyco, Enron and World Com, etc., you’d believe most executives are crooks or jerks. However, most business people are honest and treat people with respect…they just don’t get the same press as a Martha Stewart does. Our media distorts the picture because it primarily reports what sells well…scandal. Can you imagine this front page headline: “X Company Receives Award for Being Virtuous and Successful.” Maybe once in a great while you’ll see something on a middle section but, as soon as Martha or “The Donald – You’re Fired,” reappear…off from even that page Virtuous Company X will go.

The answer to the question about how do you change behavior is, “it ain't easy,” and I don't mean to be flippant. It is hard work and requires sufficient motivation and dedication on the executive’s part. Motivation usually comes from either enlightened self-interest or fear, but usually both are necessary.

You have to use the carrot (enlightened self-interest) and the stick (fear) to get people to change entrenched behaviors. One very powerful carrot (and you have to use several usually) is to provide them with information/research that shows there is a better way. The stick, of course, is the threat of job loss which usually works as a prime motivator (except for some Microsoft millionaires who aren't afraid to loose their jobs. "I don't need this," as one derailed MS executive said to me as he walked out of my office never to return).

The Carrot Approach

I want to concentrate on the carrot side of the equation for this briefing and summarize some recent research from Kim Cameron, Ph.D. at the University of Michigan Business School who found that "virtuous firms perform better." One of my executive coaching clients introduced me to Dr. Cameron’s work after he learned about it at a leadership training sponsored by his company (refer to Dr. Cameron’s book through my website). Dr. Cameron’s research gives credence to the idea that if you treat people well and act with integrity, you should achieve higher performance (profitability). It’s a concept most people like to believe in yet the data supporting the assumption has been minimal. Dr. Cameron's research gives ethical business practices hope. You don’t have to be a lying, conniving or abusive jerk to succeed.

Dr. Cameron found that companies perceived as trusting, compassionate and high in integrity perform better and have higher profits than less virtuous firms even when downsizing. “We found that a positive association exists between the extent to which organizations foster and facilitate virtuousness and the performance of organizations,” “Specifically, virtuous organizations perform significantly better on indicators such as profitability, customer satisfaction, quality, and so on.”

In a study appearing in an upcoming issue of the journal American Behavioral Scientist, Cameron and colleagues, David Bright of Case Western Reserve University’s Weatherhead School of Management and Arran Caza of the Michigan Business School, developed a statistical model to measure organizational attributes and behaviors of more than 800 employees at 18 companies based mostly in the Midwest. The researchers found that higher levels of perceived organizational virtuousness --- forgiveness, trust, integrity, optimism and compassion--- are positively related to higher levels of real and perceived organizational performance when performance is compared with the industry average, best competitor, past improvement and stated goals.

“Our findings suggest that even in organizations expected to suffer from the deleterious effects of downsizing, a positive relationship exists between virtuousness and organizational performance,” Cameron said. “Performance does not deteriorate.”

Cameron and colleagues explain the impact of virtuousness on the following five measures of organizational performance:

  • Innovation: Because exposure to virtuous behavior produces feelings of inspiration, awe, gratitude and other positive emotions, people broaden their interest in and accessibility to new ideas and information.

  • Customer Retention: Customers are more effectively served and are more loyal to the organization when employees encounter positive experiences at work, such as caring, empowerment and various forms of virtuousness.

  • Turnover: Virtuousness in organizations reduces turnover and fosters employee longevity.

  • Quality: Exposure to virtuousness in organizations helps employees make better decisions; more effectively process information, support one another and, hence, make fewer quality errors.

  • Profitability: Enhanced employee innovation, expanded social capital development, increases in pro-social behavior and the development of resiliency all serve as mechanisms by which organizations achieve profitability, even in the face of a downsizing environment.”

Key take-aways from the research:

Acting with honesty and integrity inspires higher performance and greater commitment from employees…and your customers. Net result…your company’s performance should be higher.