[Viewpoint] Ethics make good business sense

When you look up Bill Gates in Wikipedia, he is referred to as an American philanthropist before his bigger title - chairman of software giant Microsoft - appears. Warren Buffett is also described as an investor and philanthropist, recognized for his donation of billions of dollars to the Gates Foundation, a charity founded by Melinda and Bill Gates committed to ending extreme poverty and eradicating diseases in impoverished parts of the world.

These business magnates earn respect from Americans and others not only for their entrepreneurship, but because they have returned to society some of their fortunes made from businesses.

The concept of corporate social responsibility arose in the 1950s, but in recent years an ethical business philosophy began to play a vital role in companies around the world. It’s instructive to look at two opposite cases of companies’ role in society, one a success and one a failure.

Houston-based energy company Enron Corporation was rated one of the most admired companies in Fortune magazine’s annual survey up until 2000. But the company went bankrupt in 2001 when its debt woes surfaced. It had collaborated with its auditor Arthur Andersen, one of world’s largest accounting companies, to tamper with its accounts to hide billions of dollars of debt and lobbied heavily to save the company. The unethical practices of the company’s leaders brought down Enron.

In contrast, an honest business strategy can save a company from crisis and help the company to prosper by gaining a better corporate image and brand power. Someone tampered with Tylenol capsules in 1982, adding cyanide, killing seven people who took the pain reliever. The case remains a mystery as the person who tampered with the capsules has never been caught. Such an event could kill a company, especially one selling pharmaceuticals and consumer products.

But Johnson & Johnson saved its Tylenol brand and came out on top. Immediately after the deaths were reported, the company took quick action, recalling and scrapping millions of capsules. Following a principle that transparency is the best policy, executives aggressively met with the press and public to describe its actions and developed a safer way to package the pills. Its endeavors won credit from the public and Tylenol soon recovered pre-crisis level sales. That pain reliever is still one of most popular consumer brands.

Korea Inc., however, has lagged in the field of social responsibility. There are many producers that tamper with food and sell them without a guilty conscience, and some even fabricate the country of origin label. Some retailers change labels to sell cheap products in the place of more popular brands and alter produce dates to sell off stocks. Indecent and fraudulent behavior continues to make news, bringing down Korea Inc.’s credibility.

But recently, stories of corporate generosity and integrity are showing up in the media, warming the hearts of consumers. In some cases, entire staffs of a company spend their holidays at community centers and save a portion of their monthly salaries to finance health care and education for the poor. Other companies are beginning to integrate ethics into their business models. Large retailers shed their domineering posture and exercise humane business practices by advancing cash payments to affiliated suppliers and giving compensation to consumers on behalf of their affiliates when complaints are received.

Korean companies have evolved from self-important profiteers to community servants by learning from companies overseas. They’re also adapting to the changing attitudes of local consumers. Consumers are no longer mesmerized by brands that have become household names, but seek out products made by companies that pursue honest business practices and social responsibility.

Consumers started by embracing the habit of separating their garbage for recycling and shunning disposable products. Now they check labels for proper production processes before buying a product. Consumers even take an interest in whether producers exploit cheap labor in underdeveloped economies and pay what they owe to suppliers. The growth and evolution of ethics-sensitive consumers will serve as an impetus to companies to fulfill their social responsibilities.

Consumers and companies play a three-legged race in a market economy. It’s not a zero-sum game, or conflict. They can find themselves in a win-win situation. In order for our companies to become corporate names that earn respect and envy from world markets, our consumers too must evolve by pursuing the common good of the community more than their self-interests.

*Translation by the JoongAng Daily staff.
The writer is a professor of psychology at Korea University.

By Sung Young-shin