Literature Review

Authors: Burkard Schemmel, Karsten Bredemeier
Institution: EIM – European Institute of Management, Valetta, Malta

Introduction

Business ethics has emerged as an evolving field of theoretical and practical research that has garnered sustained attention since globalization, particularly following the rise of global cooperation post-2000, showing a "hockey stick" growth pattern in interest. In recent years, a relatively new movement—"alterocentric ethics"—has been gaining momentum. This philosophical approach places "the other" at the core of corporate considerations.

Alterocentric ethics demands that businesses integrate responsibility toward stakeholders, communities, and the environment as intrinsic components of their operations. This research systematically reviews the existing literature on alterocentric business ethics using a structured search methodology to comprehensively examine existing academic research in scholarly databases according to predefined criteria.

Key Definitions

Business Ethics: Business ethics encompasses the principles, values, and standards that guide behavior in the business world. It promotes transparency, equity, and accountability in its structure so that business operations—from resource allocation to corporate governance—align in an integrative approach with social responsibility, stakeholder welfare, and sustainability outcomes (Schemmel, 2024).

Financial Performance: Financial performance is the overall measure of a company's ability to return profits and conduct effective resource management during a certain period. It is typically measured with numerous KPIs that allow analysts to view a company from different financial perspectives:

• Revenue Growth: Denotes the growth of a company's sales over time and reflects its ability to enlarge market share and boost profitability.
• Net Profit Margin: Indicates what part of the revenue remains as profit after deducting all costs, serving as an important indicator of operational efficiency.
• EBITDA: Reflects operating performance by focusing on earnings through the main course of business, excluding the effects of financing and accounting decisions.
• ROIC (Return on Invested Capital): Shows how effectively the company generates returns for the capital invested in operating processes, underlining managerial efficiency in resource usage.
• Cash Flow: The net amount of cash transferred within a business to maintain liquidity and sustain operations.

Alterocentrism: Alterocentrism is an ethical orientation where the needs, views, and welfare of others are valued more than one's own interests. The individual contemplates themselves as being related to others. This relational ethics approach evokes sympathetic and unselfish concern. Alterocentric persons communicate mainly in the interest of their partners' needs, often at their own expense, toward common development and general satisfaction (Bratchenko, 2018). This contradicts the egocentric perspective, which is wholly interested in self-interests and personal benefits.

Research Methodology

The literature review employed a qualitative research methodology following the PRISMA (Preferred Reporting Items for Systematic Reviews and Meta-Analyses) guidelines. While PRISMA was originally developed for clinical trials and medical studies, it has been widely adopted as the foundational approach in reporting systematic reviews in various fields including environmental management (Shaffril et al., 2019), accounting disclosure (Ah Choi & Joseph, 2020), finance (Bhowmik & Wang, 2020), and business ethics (Joseph et al., 2023; Daradkeh, 2023).

The research process included:

1. Identification: 341 studies and books were identified from databases
2. Screening: 74 duplicate studies were removed before screening, leaving 267 studies to be screened
3. Eligibility: 109 studies were excluded during screening, leaving 158 studies to be assessed for eligibility
4. Inclusion: 133 studies were excluded for not being related to financial performance, resulting in 25 studies being included in the final review

Comprehensive Results

Over the past five years, research has underlined that besides the call of morality, ethical conduct offers business companies strategic advantages in terms of better economic performance, customer loyalty, employee commitment, corporate image, and long-term viability.

Financial Performance

A 2021 report by the Governance & Accountability Institute found that high-rated ESG (Environmental, Social, and Governance) companies consistently outperform the market. The stakeholder and investor portrayal of increased value to ethical practices is credited for this outperformance.

A case study by Eccles, Ioannou, and Serafeim (2014) revealed that companies with genuine concern for sustainability and ethics demonstrate stronger resilience during economic downturns. Their findings showed that greater commitment from employees and customers significantly determines a business's ability to maintain revenue levels and protect the bottom line during unfavorable economic conditions, indicating that ethical practices reinforce short-term financial improvement.

Customer Satisfaction and Loyalty

Research indicates that ethical business practices positively influence customer satisfaction and loyalty. Consumers increasingly prefer companies that demonstrate ethical behavior, with many willing to pay premium prices for products and services from organizations with strong ethical reputations.

Employee Retention and Engagement

Studies show that organizations with strong ethical cultures experience higher employee engagement, reduced turnover, and increased productivity. Employees prefer working for companies whose values align with their own, and ethical leadership has been linked to improved job satisfaction and organizational commitment.

Corporate Reputation

Ethical business practices significantly contribute to positive corporate reputation, which serves as a valuable intangible asset. Companies with strong ethical reputations are better positioned to attract investors, partners, and customers, particularly in competitive markets.

Sustainability and Long-term Success

Research suggests that ethical business practices contribute to long-term sustainability and success. Organizations that integrate ethical considerations into their core strategies are better equipped to navigate changing regulatory environments, adapt to evolving stakeholder expectations, and build resilient business models.

Research Gaps and Limitations

Despite the growing body of evidence supporting the positive impact of ethical business practices on financial performance, several significant research gaps remain:

Short-term vs. Long-term Impact

Most studies focus on short-term profitability measures while failing to address how ethical practices affect financial health in the long term. Longitudinal studies examining the sustained impact of ethical practices over extended periods are needed.

Industry-Specific Analysis

There is a lack of industry-specific analysis regarding the financial impact of ethical business practices. Different industries may experience varying effects from implementing ethical practices, and more targeted research is needed to understand these nuances.

Standardized Measurement

The measurement of ethical practices lacks standardization, making it difficult to compare results across studies and organizations. Developing consistent metrics and frameworks for assessing ethical business practices would enhance the validity and reliability of research in this area.

Impact on Small and Medium Enterprises

Existing studies primarily focus on large companies in developed countries, with insufficient consideration for SMEs and companies in developing countries. Research examining the financial impact of ethical practices in smaller organizations and diverse geographical contexts would provide a more comprehensive understanding.

Conclusion

Based on publications from the past five years, there is growing consensus that ethical behavior not only fulfills moral obligations but can also become part of modern business strategy and even be viewed as an asset when consistently implemented. While there is general agreement on the positive financial impact of ethical business operations, specific gaps exist in developing comprehensive frameworks that encompass both financial and non-financial indicators.

Future research is needed to investigate these issues with longitudinal approaches and a broader set of financial measures to determine the impact of ethical behavior on corporate performance in different contexts. Addressing these gaps will be crucial for understanding how ethical leadership and culture contribute to financial outcomes, particularly in the context of alterocentric business ethics.

Despite the challenges, applying an alterocentric ethic in the business world remains a promising approach for organizations seeking to balance financial performance with social responsibility and environmental sustainability. As research in this field continues to evolve, a more nuanced understanding of the relationship between alterocentric ethics and business success will emerge, providing valuable insights for practitioners and scholars alike.