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Can you have social responsibility without ethics?
For some people, corporate social responsibility is about programmes.
Stuff that you do where you can describe what you're trying to achieve,
what approach you've taken to achieve it, and whether it worked. But it
needs to include the other aspect - how you and your staff behave on a
day to day basis. You could label this element straight business ethics -
my version is that it's about what you do when you think that nobody's
looking.
The UK's Institute of Business Ethics reviews accusations
that appear against companies in the news headlines - around 300 stories
for last year. Of these the largest number involved issues affecting
customers. For instance, product safety issues, misleading advertising
or overcharging. The next largest group covered market abuses, such as
anti-competitive behaviour or bribery. Third then came a wider group of
environmental and human rights issues.
It's a lot of stories about malpractice. No wonder public trust in businesses remains at a low 26 percent.
The trouble is that it's very corrosive. Businesses that try to build trust with customers by running green programmes don't succeed unless the public is convinced that the action is sincere. It doesn't have to be pure altruism - people don't expect businesses to behave like charities. But if they feel it's all just for show they will be more negative, more cynical than if the company had done nothing at all.
After all, Enron ran perfectly good programmes.
The sectors most often at the sharp end of complaints about bad practice are the banks and financial service sector, the retailers, and the energy or extractive sectors. In different ways, they all prove the point.
The financial services sector is most criticised for its treatment of customers, with accusations of excessive fees, mis-selling and misleading advertising. Why particularly these stories? Because almost nobody really understands the majority of financial services. The incentives all go one way. If you can persuade a gullible and confused public to buy a products which is more expensive than it needs to be, or yields a smaller return that they think, then you make more profit.
On the other hand, if you give better service - produce simpler products on smaller margins - then you probably get no reward in the marketplace - because people still don't understand the products, and therefore don't even realise that its a better value proposition. You just make less profit.
At this stage in the discussion, somebody usually pipes up that it is a dreadful affront to insult the intelligence of the great consumer. It's not the issue. I'm not stupid, and I don't understand most of these products. And at least one senior director of a financial organisation was (confidentially) pretty explicit about the phenomenon in a recent discussion.
So if the customers suspect that the banks make their money at their expense, the fact that they may have some nice community programmes isn't going to make the difference. And it's not just down to the chairman, or the chief executive. It's down to the individual who's looking you in the eye and selling in the branch. Day in, day out.
The retailers are the point of focus for two reasons - suspicions of collusion between each other to the detriment of the customer (price fixing), and labour rights abuses in the supply chain. Very rarely is the former proven, but the suspicion persists. The truth is that it's very hard to get away with much in retail - there's almost never a time when you can persuade yourself that nobody is looking.
But the intensity of competition is precisely why you get these issues. It's about trying to expand wafer thin margins, by squeezing the bottom (he with the leanest supply chain wins) and expanding the top. The retailers have the closest relationship with their customers - there's not much confusion over buying a tin of beans.
The energy companies in the UK have been opened to competition, and yet still sell energy across the same fixed lines to customers - a situation where differentiating from the competition is harder than usual. Again, there has been the development of a range of different tariffs, often with hidden layers of complexity.
The point is this - if the stories that illustrated a lack of business ethics within business were just down to small numbers of rotten apples and the personal integrity of certain individual leaders, you wouldn't have such strong trends in terms of certain sectors registering so much higher on the scale of malpractice. Not when business leaders hop from business to business on a pretty regular basis, many of them changing sector as they do so.
The fact is that the business models of some sectors have more incentives to cheat than others. The market rewards bad practice, or the rules make it very difficult to play along whilst being successful if others aren't.
The answer isn't to treat companies in these sectors like dangerous dogs that must be muzzled - we still need thriving successful businesses here, and by and large they are not run by evil or stupid people.
But it is a serious challenge, both to regulators but also to business leaders to look carefully at the business model that applies to each of these businesses.
80 percent of the companies that have been hit by these stories over the last year are amongst the top 100 listed companies. Nearly all of these firms are committed to CSR, and have codes of ethics. So why isn't it making the difference?
The point is having a policy, and having a code, is not the same as achieving consistent and reliable behaviours in line with that policy and that code. If you mean it, you have to really drive it through the business so that the person in the call centre knows the values of the business and what they mean for how they should behave when faced with a dilemma. It is not a question of the integrity of the people at the top that means that the big companies fail in this - but it is a failure of management nonetheless not to achieve better results in consistent behaviours.
If your business operates in one of those sectors that yields more temptations than most, it is even more important.
An
Article from Business Respect, Issue Number 86, dated 18 Sep 2005
By
Mallen Baker