How do big brands embrace ethical business practice?
So, last week, on my first day back at work after the Christmas/New Year break, I was sitting on a bus mulling the big stuff (as you do at these times) – ethical business practices.
I was thinking about the work we do to encourage businesses to become more adept at meeting customer needs by building: Authenticity, Transparency, Agility and Inclusiveness.
I was wondering why sometimes companies try to embrace these principles but fail – or, if they do start to act more like this, why it can feel unsatisfactory – like nothing has really changed?
Then a dirty word came to mind – ethics.
I think many businesses shy away from this word. I think this is because ethics feel at best, worthy, and at worst, naïve, when applied in a business context.
For sure, many large businesses have a code of ethics, social responsibility charters and even ethics officers who oversee the moral behaviour of individual staff operations. In practice however, these efforts often do little more than tick the box for corporate citizenship and limit a company’s legal liability in the case of employee non-compliance.
To be truly ethical a company needs to hold some core beliefs and responsibilities that go above and beyond the legal requirements for business operations. Without this, even with an ethical policy, business practice can still fall foul of illicit behaviour (as we have seen with the banks over the last few years).
Why is this so?
Economist Milton Friedman argued that: “[corporate executives] responsibility… generally will be to make as much money as possible while conforming to their basic rules of the society, both those embodied in law and those embodied in ethical custom”. Friedman also said, “the only entities who can have responsibilities are individuals … A business cannot have responsibilities. So the question is: do corporate executives, provided they stay within the law, have responsibilities in their business activities other than to make as much money for their stockholders as possible? And my answer to that is, no, they do not.”
This seems to reflect what happened with the banks – the drive to short-term success meant that concepts of risk and ethical behaviour were hugely distorted.
But Friedman’s denial of the need for ethics in business seems strange to me.
When I was at university my area of interest was medical ethics. It is inconceivable that medicine would operate without a consideration of what it means to do so ethically (the Hippocratic oath, for example, has created a baseline for behaviour since 5th century BC).
Yet for business, a consideration of ethics seems to me to be treated as a weakness or even a threat.
One of the issues is that “Business ethics fundamentally try to balance the interaction of profit-maximising behaviour with non-economic concerns.” (source: Wikipedia)
Some interpretations of this hold therefore that ethics must be at odds with capitalism.
Wikipedia also states that: “Business ethics reflect the philosophy of business, one of whose aims is to determine the fundamental purposes of a company. If a company’s purpose is to maximize shareholder returns, then sacrificing profits to other concerns is a violation of its fiduciary responsibility.” [my italics]
But acting ethically can be a sound strategic approach for a business.
The key is balance – recognising the needs of customers, employees and the wider community does not necessarily require the sacrificing of profit. Ethics and profit in business are not an either/or, as the bank Triodos demonstrate.
Triodos operate a triple bottom line: people, planet and profit. They believe in promoting sustainable and transparent banking, only lending to people and organisations who are working to make a positive impact – culturally, socially and environmentally.
And in terms of business results they remain competitive – generating good returns for customers and demonstrating growth year-on-year
Friedman’s assertion that “the only entities who can have responsibilities are individuals … A business cannot have responsibilities.”, also leads us into dangerous territory as it absolves the business from moral responsibility putting the onus on individual agents’ consciences.
To my mind it is the type of thinking that allows behaviours such as those witnessed in the banking sector prior to the crash.
Ultimately, a business is made up of individuals, its culture disseminated from its leaders, their behaviours and beliefs. This is one of the reasons I think the banks behaved the way they did – their leaders demonstrated and created cultures that were based on individualistic perspectives of profit and risk.
And this is why ethical policies are often just empty promises. Even if your policy states that the business should put customers first, it will never do so unless its leaders actively strategise and behave with this goal in mind.
For me an ethical business practice is one that strategically balances profits with things like environment, customers, community to create long term business sustainability. It is one where these ethics are lived and breathed by the organisation through its leadership and culture. Where these ethics are displayed transparently and authentically and drive innovation and stakeholder relations in the business.
Being an ethical business means understanding that business is part of a bigger ecosystem and that it needs to operate well within that system in order to thrive – it is a part of that system, not at odds with it.
From this perspective, it is the capitalist single-minded drive towards short-term stakeholder return that seems naïve. It is not worthy or woolly minded to take the view that environmental sustainability, good customer practice and better employee relations might build a business that can operate for greater economic stability and shareholder returns in the long-term.
In fact, in a world where transparency and authenticity give us a window into your business, customers are increasingly making the choice that represents fairness and ethics, not just value or good return. Arguably in today’s world its deeply embedded ethics that give the competitive advantage.