In today’s business world, reputation is everything. Customers, investors, employees, and stakeholders demand transparency and ethical behavior. As companies grow and expand, it becomes easier for unethical practices to creep in. Such practices can quickly damage a company’s reputation, and negatively impact its bottom line. As unethical practices come to light, the effects can ripple through the industry, causing irreparable damage to a company’s image and long-term success.

There are many examples of companies that have suffered because of unethical behavior. One such example is the 2015 Volkswagen scandal, where the company was found to have deliberately installed software on its diesel cars to cheat emissions tests. The revelation led to a blow to the brand’s reputation, which had long been associated with quality control and environmental responsibility. The company lost billions of dollars in revenue and faced hefty fines and lawsuits.

The negative effects of unethical practices go far beyond the immediate financial consequences. In the long-term, companies can lose loyal customers and experienced employees, and even face legal consequences. Ethical scandals create distrust among consumers, and it can take years to restore a company’s reputation once it’s lost. Moreover, companies that opt to engage in unethical practices risk pushing themselves out of the market, as consumers increasingly become aware of and reject such behavior.

Ethics Affects the Financial Results of a Company - The Strategic CFO®

In addition to the ethical implications, the financial consequences associated with unethical practices can be devastating. Companies that lose the trust of their customers struggle to retain their market share, and may even be forced to lower their prices to attract new customers. Expenses associated with regulatory and legal remedies can compound the financial impact of ethical scandals. Ultimately, these companies face declining revenues, loss of shareholder value, and a tarnished reputation.

Beyond the obvious financial impacts, unethical practices can also have significant effects on a company’s culture. Such practices can lead to an environment where employees feel that they have to adopt unethical behavior to meet targets or stay competitive. The effects of such cultures extend far beyond a single case of unethical behavior — they create a corrosive environment that can lead to larger scale corruption, which can have devastating social and economic implications.

Ethics Affects the Financial Results of a Company - The Strategic CFO®

The impact of unethical practices on a company’s reputation and financial bottom line cannot be taken lightly. Companies must work to create a culture of transparency, where ethical behavior is not only encouraged but enforced. Failure to do so can have long-term consequences that can destroy years of growth and development. To avoid the risks associated with unethical practices, businesses must put in place robust compliance and governance systems, and ensure the entire organization is aligned to ethical behavior. Doing so is the best way to ensure that a company’s reputation and bottom line remain intact.