The right way to do business

Source: Technology Digital

Date :09/05/2007 11:53:40

Should a business do the right thing out of morality, philanthropy or self interest? John O’Hanlon considers some of the ways of looking at corporate social responsibility

The Institute for Business Ethics (IBE) celebrated its 20th anniversary last year. The 1980s when it was founded was the era of Margaret Thatcher and the rule of the market. It was not a high point in the history of corporate social responsibility. Mrs Thatcher’s mentor back then the economist Milton Friedman wrote in the New York Times Magazine that a business' only responsibility was to "increase its profits." The ‘public service’ model of business went out of fashion once economists like Friedman and politicians like Thatcher and Reagan gave business a license, as it were, to create wealth as a primary goal, with the not indefensible corollary that wealth created at the top of society would filter down through the social strata and indeed down the generations. There would be more house-owners, more shareholders, more entrepreneurs and greater annual growth in the economy leading to higher living standards.

None of this implies the criticism that social responsibility was a dead letter, nor that businesses were less compassionate. However it focused the mind of a generation on the idea that a healthy economy on the macro scale and a profitable business on the micro level were the key to individual fulfilment. As a generalisation, it might be said that the 1980s was a decade in which accountants came to question the cost of everything against its contribution to the bottom line.

The IBE recently released figures, based on MORI polls, showing a significant rise over the past three years in the number of people who believe British businesses behave ethically. In 2003 less than half the population (48 percent) believed that British business behaved very or fairly ethically. By 2006, that figure had risen to 58 percent.

“We have come a long way in the last 12 months, putting far greater emphasis on embedding and monitoring the way ethical codes work. After all, if you look at two instances of unethical corporate behaviour during the last year – at Cadbury and BP – both of those companies had very good codes of ethics in place. But those are of little use if they are not embedded and acted upon. In both cases the companies are addressing these issues, which is a positive development,” said Philippa Foster Back OBE, Director of the IBE.

I asked Philippa Foster Back whether business practice matches this perception. “I think the case is being made for regarding an ethical code as an opportunity rather than a cost to the business,” she said. “Companies with a code of ethics tend to be better managed, and more companies now have such a code.” The challenge now is to get that code encultured through training and the sharing of best practice, she says.

The IBE’s longest standing clients are clearing banks and oil companies – forced into compliance by the need for crisis management following very public scandals, I suggested? Well they are exposed, she admits, but the better companies will quickly realise that stories about rip-off bank charges or a blind eye to safety in the West African oilfields are the last thing such companies need. Poor practice costs more in the long run than pre-emption. It is exactly like right first pass manufacturing. It’s better to quality manage the process rather than catching defects at final inspection.

The IBE is a small organisation, and a registered charity. Its role, says Philippa, is to act as a sounding board, help its clients formulate their ethical policies and train senior management. “All industries are affected,” she says, and there is no doubt that every supply chain needs to be examined to make sure it does not depend at any point on human exploitation, environmental damage, IP and other legal infringements or dodgy accounting. These can be the route to attractive prices in the short term: they’ll always turn up to hit the bottom line in the long term.

Why bother?

In the late 1990s, companies selling food and clothing to UK consumers were coming under increasing pressure – from trade unions, non-governmental organisations (NGOs) and consumers – to ensure decent working conditions for the people who produce the goods they sell. Such companies typically responded by adopting a code of practice setting out minimum labour standards that they expect their suppliers to comply with.

But what should minimum labour standards cover? And how can they be implemented effectively? Many companies who adopted such codes soon found that they had neither the public credibility, nor the necessary experience and skills, to answer these questions alone. They realised they needed the backing of relevant civil society organisations, in particular of trade union organisations and NGOs with expertise in labour issues and overseas development.

With this need in mind, the Ethical Trade Initiative (ETI) was set up in 1998 to bring the combined knowledge and influence of relevant NGOs and the international trade union movement to work alongside these companies in identifying and promoting good practice in code implementation. A good place to look if you still need to be convinced of the need for ethical sourcing is the ETI’s latest workbook Ethical trade:a comprehensive guide for companies.

It defined ethical sourcing as the responsibility a company has for the labour and human rights practices within its supply chain. It concerns the behaviour of sourcing companies and what they should do in different situations.

Companies commonly meet their responsibilities for labour practices in their supply chains by adopting a code of conduct on labour practices and applying this code to their supply chain. Until recently, the ETI argues, companies adopting ethical sourcing strategies have focused on using workplace assessments of their suppliers as the major way of driving improvements.

However, there is growing evidence that too narrow a focus on workplace assessments by individual companies working in isolation won’t actually make a substantial or lasting difference to working conditions unless it is supplemented by other measures. The workbook provides practical guidance on how to plan and manage workplace assessments and describes other measures companies can take.

I found the explanation of the differences between ethical trade and ‘Fairtrade’ very enlightening, and the same with the definition of ethical labelling, However ethical sourcing is an important component of corporate social responsibility (CSR), which is also sometimes called ‘corporate responsibility’, ‘corporate citizenship’ or ‘corporate accountability’. Broadly speaking, the two key concepts behind CSR are the ‘triple bottom line’ – the idea that a company should take responsibility for its social and environmental as well as economic impacts, and ‘stakeholder accountability’ – the idea that companies are accountable to other stakeholders beyond their shareholders.

There’s a strong business case for embracing a culture of corporate social responsibility. Implementing an ethical trading strategy can help protect a company’s reputation, improve its access to capital, improve efficiency in its business operations and so improve its bottom line. It will also encourage employee motivation.