Mr Webley and Mrs. Elise More examined 86 companies taken from the FTSE 350 between 1997 and 2001. They tried to find out if there was a link between business ethics and financial performance.
The article states that we must first investigate if the presence of an ethical code actually goes along with true ethical performance. Using the company rating for risk management and a peer evaluation about financial soundness, quality of goods and services etc., the test resulted in a positive correlation.
The further research was based on the same methodology as C. Verschoor (A Study of The Link Between a Corporation’s Financial Performance and Its Commitment to Ethics) and inquired the companies’ numbers about Market Value Added, Economic Value Added, Price Earnings Ratio, Return on Capital Employed and three indicators for corporate responsibility.
Findings (1):
- On Economic Value Added, the sample of companies with codes outperformed those without over a four year period.
- On Market Value Added, the performance gap was even more marked.
- On Price/Earning Ratio, the more demonstrable ethical companies showed far less volatility than the remainder
- On Return on Capital Employed companies with codes underperformed those without between 1997 and 1999. Between 1999 and 2001, however, the trend was reversed, and ethical companies were clearly superior performers.
The conclusion is that larger UK companies perform better than companies without an ethical code, as the ethical proved to have its results on ethical behavior.
Baptiste De Vleeschauwer
Article: http://www.s145828053.websitehome.co.uk/DBEPsumm.htm
(1): source: http://www.s145828053.websitehome.co.uk/DBEPpr.htm
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