How should the socially responsible company think about, and actually implement, ethics? Philippa Foster Back, new director of the Institute of Business Ethics, calls on companies to ensure their social responsibility is more than skin-deep.
From my experience in senior industrial posts and four months as director of the IBE, there is a logical process for encouraging a company to act in a responsible manner. If you asked a Victorian about ‘mainstreaming corporate social responsibility’ he might look at you askance. To many Victorian businessmen, corporate socially responsible behaviour was implicit in how they undertook their business. The obvious examples are Rowntree, Cadbury and Lever Brothers.
So where did we ‘lose’ it, such that today people feel the need to encourage companies to act in a responsible manner? Is it that the companies have been doing so but not telling anyone, or did it go off the agenda once the ‘family’ holding in the company had been sold, and the fourth or fifth external chief executive was unaware of the company’s original philosophy of how it did business?
Whatever the reason, and it will vary from company to company, the issue of how a company undertakes its business is on the agenda. How a company is perceived to do its business is just as important. Indeed, this latter issue looms larger in many boardrooms, as a company’s reputation can often determine the difference between success and failure. A good reputation is a critical asset to any organisation and has to be protected and nurtured.
But what has been lost? In essence, the core values of how business is to be undertaken. In making a profit, companies need to be mindful of all the components that go into that – specifically that a profit has to be sustainable in good years and bad. Those main components are employees, customers, suppliers, society as well as shareholders; in other words, the company’s stakeholders, with society representing the wider community including the company’s effect on the environment. The original owners of businesses had integrity and vision, they had a sense of their company’s place in society and what service it provided. Today, businesses are run by managers who may, or may not, be driven by that sense of vision. Where to begin? A donation to charity, whilst laudable, is not the answer. Nor is a rash statement to reduce emissions by 50% over the next two years. Both are measurable but will fail unless part of a thought-out strategy, and the company’s reputation will suffer. It must begin from within rather than as a knee jerk reaction to external pressures, be they from consumers, NGOs or governments. Investing in a well thought-through process will provide an inner strength and sustainability to the business, that stands the test of time.
A logical process:
The first step is to identify the purpose and values of the business – including its service, or set of services, financial objectives and role in society. It will also include non-negotiable values such as integrity, honesty and fairness. It will represent a clear vision of what the company stands for and what it is prepared to be held responsible or accountable for.
This discussion would be initiated in the boardroom but hopefully not limited to there. Information would need to be gathered from all levels of the organisation in order to get the buy-in necessary to overcome local cynicism and embed the corporate values. A champion or set of champions will be needed to take the initiative forward.
The purpose and values will, and should vary from company to company. Two examples are Barclays plc and Severn Trent plc. In Barclays plc’s statement of values in their Social and Environmental Report 2000 “our values underpin everything we try to do”. The four values stated are accountability, humanity, philanthropy and balance. In Severn Trent plc’s statement of values, in the company’s Code of Business Principles and Conduct, they “define our culture and guide our strategies”. Three values are stated: service, quality and environmental leadership.
Having identified the values the company needs then to transform them into words – words which have meaning. A statement or principle that “we are committed to achieving a safe working environment, where our people are valued and respected”1 needs to be illuminated and given depth and meaning. This further amplification could be ” we seek to achieve success through fostering a culture based on honesty, trust, integrity, and by recruiting and developing talented and committed people focused on the achievement of our values and vision”1. It is these words and messages that need to be embedded in the company as a code of conduct. The code can be prescriptive and form part of the employee’s contract of employment, or promoted as part of the culture of the company. Either way, the company needs to assist employees through training to understand the company’s policies and to ‘live’ them at work. Once the values and principles are set, published and embedded within the company (not easy) they can be promulgated externally.
At this stage the company has moved from the initial ‘trust me, this is how we do things around here’ to the ‘show me, how you do things around here’. The third stage is ‘prove to me how you do things around here’.
One of the Institute’s contributions is to assist companies with the ‘show me’ stage, as we help businesses translate their core values into words. The resultant codes are designed not only to help employees undertake the business of the company, so developing its culture internally and externally, but also to act as a marker for those interacting with the company to understand its behaviour.
It is in the third stage where companies set the policies against which they are prepared to be measured by others. This is the outward facing aspect of a company’s principles. For many, the public and professional company watchers alike, it is the only aspect they will see. For some it will also form the basis of a reputation measure.
The measures that have been developed to date have focused on environmental standards, where initiatives are easier to monitor and improvements can be verified. It is less easy to do this in the social or community aspects of policy. A company may be part of the PerCent Club, giving 1% or more of UK pre-tax profits to the community, but who is to judge whether the giving is fit and proper – the company or those who monitor the public conscience? Or is the giving of a percentage of pre-tax profits enough in itself?
The key issue is that a company donating funds does so to further and support its aims and values. For instance, a value statement to support local communities might be backed up by a donation to fund computers in schools, or assist those with disabilities. This ‘prove to me’ area, where independent verification of a company’s behaviour can be measured, is the realm of what has come to be known as ‘corporate social responsibility, or ‘corporate responsibility’ or ‘corporate citizenship’. Whatever words are chosen, the meaning implies the company’s accountability is to the wider community with which it interacts, as well as the narrower financial accountability to its shareholders. Of course the two are closely intertwined. An added benefit of behaving responsibly is the ‘feel good’ factor. Employees can feel proud of the company they work for, which in turn can attract quality staff, lower staff turnover and so forth. Suppliers and customers will respond on the basis that success breeds success. The company reputation will be enhanced, usually feeding through to the share price, and lower costs of borrowing – all of which helps the bottom line.
Summary
At the IBE I have been asked where do ethics sit relative to CSR. Many argue it is a chicken and egg dilemma. I do not subscribe to this. Unless a company has defined its values for doing business, how can it choose an appropriate way of demonstrating to the wider world that it is behaving responsibly? In CSR there is a band-wagon effect at play which is in danger of taking over. This may lead to greater cynicism in those who criticise business practices, who will accuse companies of spin and superficiality.
To get both a short and long-term gain and more from its corporate responsibility programme, a company needs to follow a logical process of implementation. It first needs to assess how it wants to do business, then understand the impact of how it will therefore be perceived as doing business. In this stage the Board is agreeing and setting down its values, which it codifies as its ethics and guidance to staff. Only then can the Board agree and set down targets by which the public can measure its behaviour. The process will have evolved from an inward-looking debate into an outward-facing one where the company is prepared to stand up and be counted. The board will recognise that for everyone concerned, doing business ethically will make for better business..
1 Severn Trent plc Code of Business Principles and Conduct.
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