The importance of virtues in business

WILLIAM H. BOWMAN writes that firms run by virtuous leaders thrive in the marketplace and the results show in their bottom lines. Further, the character of employees is more important than ever, and data show that companies led by men and women of character outperform competitors. Key virtues include integrity, responsibility, forgiveness, and compassion . . .

William H. Bowman

by William H. Bowman

April’s Harvard Business Review has a fascinating article which notes that we regularly hear about unethical CEOs, but not much about firms led by “highly principled leaders.”

Do such organizations outpace competitors? KRW International conducted a survey and found that firms run by virtuous executives had a two-year return on assets of 9.4%. Those led by ethically challenged leaders returned 1.9%. And what were the key virtues they tracked? Integrity, responsibility, forgiveness, and compassion.

This isn’t the first time the relationship between virtue and corporate performance has been observed. In 2001, Jim Collins published Good to Great, demonstrating that top CEOs consistently practiced two key virtues: personal humility and professional will. He called that “Level 5 Leadership” and said it was primarily responsible for the 5:1 stock performance advantage great companies had over their direct competitors.

With such dramatic results, wouldn’t you do everything in your power to hire employees who took seriously the practice of virtues? We all say we want employees with integrity, but do we seriously address the issue of virtue in our recruiting procedures? If not, we should! Fivefold performance advantages are just too significant to ignore. But how do we do this? Which virtues are the most critical?

I was the president of two companies, each with about 250 employees. One was in the child care business and the other conducted building inspections. Each company decided it would work to acquire the human virtues most important to its customers.

Our first step was assembling a list of human virtues. We were able to identify 135 of them. Recognizing the impossibility of becoming proficient in each, we decided we would choose five. But which five? We needed employees to buy in because this was going to be serious work. So we decided we would ask each of our customers: “What is most valuable in the work that we do for you?” We received over 200 responses from each company’s customers.

We then mapped each customer response to one of the 135 human virtues. At the end of that mapping, we picked the five that received the most comments. For the child care company, the virtues were patience, optimism, tolerance, perseverance and commitment. For the building inspection company, they were diligence, dependability, knowledge, charity and honesty.

With virtues identified, we created an 18-month program where the first three months were reserved for planning, and each successive three-month period was dedicated to learning and practicing each of the five virtues.

Of course, we learn from Aristotle and others that virtues can’t simply be willed, they must be practiced. We become a generous person by practicing acts of generosity, not simply by reading about the value of giving. So for each virtue we created a plan by department so employees would have plenty of opportunity to practice that virtue. One of the real benefits of this process was that the entire company worked on each virtue at the same time, so there was a lot of shared experience.

A few months after the program ended, we went back and measured our key company metrics to see what had changed. We were not expecting to see the dramatic cost savings that accrued at the end of the program. Here are some examples:

• A reduction in turnover at the building inspection company from 20% to 14% six months later, to 8% a year after the program ended. It cost us about $25,000 to replace an employee, so this saved us $750,000. At the child care company, turnover was reduced by 35%.

• When our building inspectors missed a defect, the company had to pay to remediate it. That bleed was running $1 million a year before the program, but fell to $150,000 a year after the program ended, saving $850,000 per year. This savings continued year after year.

• A Fortune 100 company decided to purchase a child-care facility for its own use because it wanted a partner dedicated to helping its employees improve their personal as well as professional lives.

The break-even for each company’s program was less than six months. So we had a company that was more virtuous and that cost much less to run. Truly a virtuous cycle.

The character of employees is more important than ever, and data show that companies led by men and women of character outperform competitors. A conscious plan to help employees develop the virtues important to their business can vastly improve a company’s culture, as well as reduce its costs.

WILLIAM H. BOWMAN is president and CEO of Core Values Group.