Companies Led By CEOs With Morals Are More Profitable

News & Views | Gerren Keith Gaynor | 03/25/2015 | 12:00 PM EDT

Study finds link between successful businesses and what employees think of their boss

It literally pays to have integrity, at least according to a new study.


Turns out a company’s profitability has a strong correlation with the deemed moral values of its CEO. A study conducted by leadership consulting firm KRW International found the link after it asked employees at 84 U.S. companies and nonprofits to rate their CEOs and managers on the morality scale.


Firms where employees rated the CEO's moral principles highly performed better than firms whose top executive had a lower character rating.


“I was unprepared to discover how robust the connection really is,” KRW founder Fred Kiel said, per the Harvard Business Review, which first reported on the study.


The report, first published on Harvard Business Review,  highlighted 10 company leaders, deemed “virtuoso CEOs,” who excelled “across the board.” The execs were seen as standing up for the right issues, expressing concern for others, showing empathy and moving past mistakes. They also got t high marks for their vision, strategy and accountability, the report says.


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As for the not-so-stellar executives, they were characterized as twisting the truth for their advantage, avoiding blame and being preoccupied with personal financial gain.


Researchers compiled their data by asking employees to rate their bosses based on four key moral principles: integrity, responsibility, forgiveness and compassion. They then lined up those responses with the firms’ financial results and examined whether there appeared to be an impact on profitability.


Businesses ran by an executive with a positive character score saw an average return on assets of 9.35 percent over a two-year span, the report says. Companies with a CEO who scored lower, however, had an average return of only 1.93 percent.


Interestingly enough, the lower-rated leaders gave themselves better assessments than their employees did, while virtuoso CEOs gave themselves lower scores than their employees did.


Looks like good character is also good for business.


(Photo: Ariel Skelley/Blend Images/Corbis)

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