Integrity Matters
February 15, 2006

Profitability linked to integrity and trust

Question: (E-220)

Dear Jim:

You consistently tie profitability with integrity and trust. Why?


Relationships, built upon honoring commitments, are what sustain the long-term success of the enlightened free enterprise system.

Enlightened free enterprise demands legitimate, not excessive, profits, simultaneously valuing community, the source of integrity and trust.

When trust breaks down, faceless buyers and sellers demand detailed contracts and more costly inspections. When breaches of trust are deep, legislation is demanded. Free markets must operate with integrity, a culture of compliance, or face increasing government oversight.

Whatever precipitates the need for recalling faulty automobiles or restating corporate financials, uncertainty precedes loss of trust. The Wall Street Journal reported Dec. 27 that medical-device maker Guidant Corp. fell short of analysts' fourth-quarter profit expectations amid the company's continued struggle to overcome concern about its warnings about malfunctions in its cardiac electrical devices.

Guidant's corporate leadership illustrates failed integrity. Its leaders misled customers, some of whom died, and the company is paying a high price for its self-serving greed.

Thinking only about short-term profits is a mistake. The old maxim applies: "Cheat me once, shame on you. Cheat me twice, shame on me." Many consumers recognize when they are being violated. Though not vengeful, those who have suffered marketplace mistreatment have long memories and will likely never give the same greedy individuals a chance to prey on them again.

Five attitudes need to be addressed to sustain enlightened free enterprise.

First, legitimate profit is constructive. Second, workers deserve appropriate compensation. Third, suppliers must be able to earn appropriate returns. Four, families and villages are cornerstones of culture and are worth sustaining. Five, success in the enlightened free enterprise system is about how people treat one another: socially, politically and economically. Restoring trust demands, at least sometimes, sacrificing incredible for reasonable profits while maintaining genuine concern for all stakeholders, demonstrating customer loyalty and social sensitivity. Integrity and trust build long-term profitability.

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