The cardinal rule of ethics is, "at first, do no harm"...
Ethics (doing what is right and moral for a majority of people), can either positively or negatively affect brand equity. (Brand equity is the potential revenues a brand can generate, as a result of its ability to win heart, mind and wallet share from its target customers).
(A brand is a product/service/company whose positive associations so endear it to its customers, that these customers will continuously demand it. These customers will also use these positive associations to differentiate the brand from similar products/services/companies on the market.)
E.g. in the case of Nike (which is both a company and umbrella brand-where the Nike brand covers many different types of products) the positive associations - agility, athleticism, excellence, boldness, grit, reliability, high quality products, have enabled its revenues to increase exponentially over its 43-year existence.
Whether it be company brands such as Anderson Consulting or product /service brands like Colgate or Caterpillar, the ethical behaviour of your company's senior and executive managers will have a direct correlation on how much revenue your brand can generate (your brand equity.)
Ethical behaviour of senior and executive managers increases your brand equity, while unethical behaviour, decreases it.
Let me explain:
When your senior executives demonstrate unethical behaviour in their business dealings (e.g. when they falsify financial information or sexually harass subordinates) and this is exposed, it negatively affects how your brand is perceived...
The following occurs:
1) Your brand loses credibility - years of which you've spent building, as the entire leadership in your organization is now perceived to be unethical
2) Those positive associations of your brand, which your marketing people spent years building up, start to crumble, as negative perceptions take their place
3) These negative perceptions start to fester and spread like wildfire as the media, blogs and other social networks start transmitting the bad news re the offender(s), to your customers and potential customers. (Bad news about your brand spreads 10 times as fast as the good news re your brand)
4) If your company is listed on the stock exchange, your investors will ditch your stock for fear that it will lose value,fast.
In addition to the decreasing revenues caused from lost customers, you will lose profits due to lawsuits that will be filed by complainants against these unethical employees. Legal fees that could run into millions of dollars - fees that your company will have to pay.
(Remember Tylenol in the 1980's?- Johnson & Johnson, the company that owned the brand, took too long to recall the headache pills, when it was found that some bottles had been tampered with. It took Johnson & Johnson 10 years to regain their customers' trust in the Tylenol brand.
In a more recent case, there is the Hewlett Packard (HP) scandal, which found
the Board of Directors hiring a private investigator, who in turn hired
a data collector to spy on incoming and outgoing calls made by some
directors, employees and journalists...so as to find out who was
leaking inside information. - HP had to pay USD $14.5 million in fines
to the State authorities in California, for fraud, not to mention the millions in legal fees - money that could have been returned to shareholders, in the form of dividends.)
Depending on how long the bad news remains in the public domain, your company will lose millions each day, if the problem is not resolved. The value of your brand(s) will decrease. The ability of your brand to generate revenues will be substantially diminished, due to the proliferation of the brand's negative perceptions in the market.
And you'll have to mobilize your PR machinery to do damage control or
else you could be looking at bankruptcy in a matter of days.
Alternatively, if you encourage your senior managers and their subordinates to exercise ethical behaviour in all business dealings, your company can concentrate on the business it should be in - building brand equity for existing brands and establishing it, for new ones.
You can encourage this behaviour, by ensuring that your organization has and adheres to an ethics policy document that governs the actions of employees at all employee levels.
Covered in this document should be protection for whistleblowers - employees who expose unethical behaviour of peers, subordinates and/or supervisors.
(Employees should know that there are procedures for reporting unethical behaviour, that they will be listened to,when unethical behaviour is reported; that their reports will be investigated; that the offender will be reprimanded if enough evidence is present;that the whistleblower will still retain his/her job after the unethical behaviour has been reported and that there will be no reprisals against the whisteblower, as a result of the reports made.)
Additionally, you'll need to appoint a Chief Ethics Officer and support staff to whom the entire organization must be accountable. This position should be filled by someone with senior management experience,who is known within your company and/or industry, to be ethical.
The staff should be competent ethics officers who not only train project teams and divisions/departments in corporate ethics, but are given such authority that all employees, from the janitor to the CEO have no problem reporting to and getting advice from them.
This indicates to employees, customers, potential customers,investors and the public at large, that you are serious about ethical practices in your organization.
An indication that augers positive feelings towards your brand and as a result, encourages customers to not only buy from you, but gives them the confidence in encouraging their friends, family, peers and co-workers to buy from you as well.
Thus substantially increasing your brand equity.
Well, that's it for now. I hope this was helpful in helping you to understand the effect of ethics on brand equity.
Please let me know if it was!
Sources include:
1. Article, "Second HP employee issued probe warning", by Ina Fried, Staff Writer, CNETNews.com, September 27, 2006
2. Article, "HP pays huge fine for being unethical", by Inquirer Staff, Inquirer.com, December 8, 2006
Gillian
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