We live in a world where companies are trying to be politically correct and ethical to avoid lawsuits and disgruntled employees. While this is beneficial in many cases, sometimes being too ethical can cause problems for a growing company. While it is important to run businesses as ethically as possible, if doing so gets in the way of profitability, your company may want to look at ways to start making money as opposed to worrying entirely about what is ethical. At the end of the day, companies must make money or they will have to close their operations. Below are some examples, carefully chosen by Fueled, of companies that may have taken "being ethical" a little too far.
Costco's Profit Margins
Costco has grown its revenue by more than 100 percent over the past 10 years. While this is good news for the company, this is largely because of the company's extremely slim profit margins. According to a Motley Fool article, Costco had an average profit margin of 1.66 percent between 2009-2013, which shows that Costco's strategy is to grow their business while keeping their profits extremely low. To compare to other large retailers, Walmart's average profit margin was 3.52 percent and Target's was 3.96 percent over the same time period. There is some question as to whether Costco will be able to continue to grow at the same rate over the next decade with profit margins so small. Costco's position has always been that they are focused on being ethical through offering extremely low prices on all of their products. They claim to never markup any product more than 14 percent. Only time will tell if this ethical position will pay off in the long run.
Failure of Green Subsidy Companies
Under President Obama's stimulus program, a large number of companies that were designated as "green companies" received huge subsidies through a $90 billion government program. The problem is that many of these companies are no longer in business. They were focused on green initiatives, but obviously not focused enough on making money. The most well-known green failure was Solyndra that received more than $500 million in government funds to only later go bankrupt. Many taxpayers are asking if the government went too far by providing assistance to ethical green companies that in the end, "took the money and ran".
Forsaking Profits by Only Using Organic Products
Unfortunately, organic ingredients are extremely expensive. Therefore, companies that require that all of their ingredients be considered organic or fair trade can get themselves into trouble. Many companies that have a reputation for being pro-organic actually may not be as squeaky clean as you would think. Whole Foods for instance, manufactures much of it's food in China where organic food is largely unregulated. This begs the question as to whether all of their products are as organic as they claim.
There is no doubt that business ethics are beneficial, but when they cause companies to become less profitable and even shutter operations, the question remains: are companies being too ethical? At a glance it seems there is a happy medium between ethics and profits, we just need to find it.
Ilan Nass is the head of marketing at Fueled, the leading iPhone app builder in New York City, renowned for its award winning mobile design and strategy.
