The cost of business ethics

by | Jul 24, 2021


Last month I wrote a post suggesting that businesses could benefit by adopting the practice of “Ethics Moments”. Like Safety Moments, Ethics Moments are the times when you pause, and consider what you are about to do next.  (read here)

I’ve also written previously about how easy it is for a company to trash their brand. Years of building a trusted brand name can be undone in a flash with one ill-conceived move. In that article, I used the example of the painkiller brand Nurofen. Nurofen was found to have been using misleading advertising by promoting its “specific pain” range when, of course, the active ingredient (ibuprofen) simply targets all types of pain in exactly the same way.

Nurofen had continued with these misleading ads for some years after being told to stop in 2011. The company continued to market the “specific pain” range – at premium prices.

Why would a trusted health brand risk its reputation?

The company’s decision is a simple risk/reward calculation. Is the fine + brand damage greater than the profit earned? Initially, the Federal Court issued a fine of $1.7m. The Australian Competition and Consumer Commission (ACCC) appealed this decision. Today’s news is that their appeal has succeeded, and the fine will be increased to $6m.

While $6m seems to be a lot of money to the average small business owner, it’s small change to most large corporations. As one of my business mentors Matthew Michalewicz says – a rounding error.

Between 2011, when the initial order to withdraw the product was given, and 2015, 5.9 million packets of specific pain branded Nurofen were sold. The revenue from these sales was $45 million. It doesn’t take too long to work out that even with a fine of $6m, the revenue vastly outweighs the fine.

But is that the end of the story?

Every small business owner – either in a B2B transaction or as a consumer – will have had a bad experience with a brand. The product didn’t do what it was supposed to, you were overcharged, the warranty wasn’t honoured… Did you feel let down, or even angry, and vow never to do business with that company again? I know that’s how I feel.

So, maybe the $6m fine for Nurofen isn’t the end of the cost/benefit analysis after all, as consumers move to other brands. The after effects of a corporate scandal such as this can stick around for a long, long time. If Nurofen were telling me fibs about their pain relief products, what else are they not being straight about? I’m not particularly comfortable with trusting my health to a healthcare company that’s prepared to engage in illegal practices.

Survival – big vs small

Being a large multinational corporation, Reckitt Benckiser (the maker of Nurofen) will survive this stumble – as have Volkswagen and many other corporates that have engaged in unethical conduct. They have cash reserves, and other products that will keep their cashflow flowing. Not so for those of us in small businesses though. For us, one bad move can be fatal, particularly if we upset a big company client. Even if they indulge in unethical behaviour themselves, a big organisation will not tolerate risk further down in their supply chain, and that valuable contract you had can disappear overnight.

Corporate ethics is a hot topic at the moment. You only had to listen to the US Election news to realise that, so it’s more important than ever for each of us in small business to do the right thing.

Stop, take an Ethics Moment, and consider whether your next action will help or hinder your brand that you’ve spent so much time and effort to build.

By Bronwyn Reid | 16th December 2016