Oscar Wilde saying: “I can resist anything, except temptation”, or the unlikely phrase “Great Depression”, or even “Act Naturally” are all what wordsmiths call oxymorons.
For many people “Business and ethics” is almost certainly an Oxymoron—an incompatible mix.
For them, ethics inhibits or prevent the profit-making drive, through for example, pushing up costs or limiting their actions in some inconvenient way.
Ethics can also seem expensive. For example, a 2014 Dow Jones survey of 350 companies globally, found about half of them saying they’d lost business to unethical competitors the previous year.
Psychologists and neuroscientists have similarly found holding two contradictory ideas at the same time does your head in. They say it creates an uncomfortable and unsustainable reaction called Cognitive Dissonance.
To get a good night’s sleep, one of the two conflicting ideas must go. In the case of business and ethics, something must give and you can probably guess which one usually loses out.
Author F. Scott Fitzgerald of Great Gatsby fame, took a rather more insightful different view:
Business and ethics is neither an oxymoron, nor a nasty case of cognitive dissonance.
Also, many companies are in serious need of an ethical compass to guide them in current and indeed future decision making.
CHANGING THE CULTURE
Culture is an important point on any company’s ethical compass. Culture is simply “how we do things round here” and it’s how leaders drive ethics into the fabric of the organisation.
In a classic encounter with the Leveson Committee on the UK press in 2012, the owner of the Daily Express Richard Desmond was asked about the culture of his organisation, specifically:
“What are ethics of your papers?”
Here’s what he said:
The vagueness to which Mr. Desmond refers, is a well-worn business response to the profits versus ethics dilemma.
Some business people use this vagueness to avoid giving much thought to whether what they’re doing adds to, or detracts from the society in which all of us must live. That is, they use the vagueness to justify not even looking for, let alone at their ethical compass.
Since Mr Desmond’ apparently made his early fortune from pornography, perhaps we shouldn’t be too hard on him for having a rather tenuous grasp of what ethics means in business.
But what about the banks? Surely their guiding compass must be refurbished by now? Do they show any clearer sense of ethics and what that means for their business?
Since the crisis of 2008, we’ve had the Libor legacy–manipulating the inter-bank lending rates, the fiddle of Forex or influencing foreign exchange rates for personal gain, tricky tax avoidance schemes costing society millions, and most recently this February the fines for mis-selling.
The PPI miss-selling scandal has now cost the banking industry around £26 billion ($40 billion) in compensation payments and administration fees.
These all suggest there’s a long way to go in making ethics in banking at least, a reality. Adopting a reliable ethical compass still seems far off.
Underlining this further, Antony Jenkins, or Saint Antony as he was briefly called while heading Barclays, has recently been fired.
On his appointment he declared he was determined to bring ethics back into the bank—to re-instate its ethical compass. For this he said he needed five years to change the bank’s culture.
Poor Jenkins, sadly he only managed three years, before being brutally booted out for failing to bring profits in fast enough.
If you lack sympathy for Mr Desmond or Mr Jenkins, how about the CEO of Shell? In a recent BBC interview Ben van Beurden explained his company’s controversial decision to drill in the pristine arctic this way:
His particular ethical compass somehow conveniently managed to point the way to drilling in an area of natural beauty–one meeting wide society resistance, including high profile singing from Charlotte Church outside Shells’ London offices.
Whatever van Beurden’s ethical compass told him, Church condemned Shell’s plans as:
“Unbelievably dumb, exploitative and nonsensical”.
Finally, well perhaps not so finally, there’s the derivatives market trader currently accused of being the sole cause of the US Flash crash in 2010. Certain commodity prices zoomed up and down in seconds, making loads of money for him and nonsense of the term: thoughtful investors.
Five years later he’s now under arrest, and a traders’ representative managed this entirely revealing comment about the culture
Making sense of the ethical compass for business is therefore not quite as simple as
“Let’s just do the right thing.”
That’s certainly an important principle. But what guides ethical behaviour in business is rather more complex than it may first appear. Here are just some of the components which a large business must somehow include on its ethical compass
This is certainly not a comprehensive list of the many variables a company may need to consider on its compass.
Unilever has just committed itself to supporting Human Rights and this chart from the company shows some of the implications for its particular ethical compass.
Having all these issues on the Unilever ethical compass draws the company into a wide range of activity it previously may have ignored. For example, a recent BBC expose of terrible conditions in India’s tea plantations highlighted several UK brands that appear to be ignoring the plight of the workers, notably Lipton’s tea, owned by Unilever.
Helping to put all the diverse aspects of culture and the ethical compass in perspective, the Bank of England’s Governor Mark Carney recently had something of a field day. At the 2015 Lord Mayor’s banquet Mr Carney painted a sordid picture of the ethical climate of the City, and its faulty, or absent ethical compass.
His attack on the culture of the City was made in typically low key fashion. It’s easy to miss the stark reality of the story he tells:
(after clicking to play, allow a few moments for full loading of video)
Governor Carney’s reassuringly bland phrase of “ethical drift” in reality means complete ethical irresponsibility:
“Too many participants neither felt responsible for the system nor recognized the full impact of their actions.” None it seems had a viable ethical compass.”
In case you missed the full indictment, here’s what caused the failure of the City’s ethical compass.
Yet there are signs of change, as business people wake up to the implications of what it means to be ethical, and equally important what it means to be an ethical business leader.
For example the efforts of Unilever mentioned above, to put Human Rights on its ethical compass is both encouraging and a model for others to consider.
But like Mr Desmond, or the Shell CEO, many business people prefer to shunt ethics into a siding. At its most basic, their approach comes down to questioning
“Does ethics pay?”
It’s a simple question. Well there are some compelling answers.
“Have you tried the price of being unethical?”
Frankly, the case for being an ethical business is simply a no brainer. Those companies with a reliable and strong ethical compass tend to do better financially than those without one. In other words, ethics pays.
Further, this chart from the World’s Most Ethical Companies summarises the whole issue of profits versus ethics. It show more ethical companies simply do better than less ethical ones.
Yet another useful way of viewing a company’s ethical compass, is the social license. This previously rarely heard term, has become mainstream. Let’s hear from Mark Carney again
Naturally, the social license is merely one point on a company’s ethical compass. But no company can do without a license for long, and it would be most unwise to take it for granted.
A social license can run out or be revoked, as Shell discovered in 1989 when it wanted to dump the obsolete Brent Spar oil rig in the sea.
Shell abandoned its plans while still claiming this was the safest option from an environmental and an industrial health and safety perspective. Something it would almost certainly not try to assert these days.
More recently we’ve seen customers threatening Starbucks’ social license for failing to pay its fair share of taxes. The company realising what was at stake quickly volunteered a large tax payment.
And there’s now the serious movement around the world to withdraw funds from supporting fossil fuels. In particular coal mining everywhere is facing problems raising funds to continue operating.
For example the Norwegian Sovereign fund is leading the way by announcing a sell off of coal investments from its wealth fund, the world’s biggest.
Meanwhile, the heirs to the Rockefeller oil fortune say they intend to disinvest from fossil fuels over climate change.
Not to be outdone, the heirs to the Standard Oil fortune have joined the campaign to withdraw a total of $50bn from investments in fossil fuels, including from tar sands funds.
The ending of the News of the World was not just abandoning a tainted brand. It was a tacit acknowledgment the paper’s social license had expired.
The above are all examples of the social license and like Health and Safety regulations the principles are still evolving:
No organization can afford to leave the social license off its ethical compass. A study by advisory firm Ernst and Young, for example, ranked the social license to operate as the fourth biggest business risk facing the mining and metals industry.
How long will it be for example, before Sports Direct faces revolt over its sharp practices recently publicly slammed as:
British capitalism at its grubbiest…it also flouts some of the most basic rules of how a company should be run.”
Guardian 9th September 2015
COMPLIANCE AND ETHICAL ENGAGEMENT
City Bank recently revealed it had around 30,000 compliance staff devoted to keeping the bank on the straight and narrow.
Vast sums are pouring into trying to achieve compliance, particularly by financial service companies. Not surprisingly it’s been called by some critics a black hole.
For no matter how much spending occurs, serious breaches in regulations and ethical behaviour within business continue.
The mega sums spent in search of compliance give leaders an illusion of safety. According to a KPMG study most companies mainly work to minimum standards, which may keep leaders happy, yet without offering much real security.
The only solution is to take ethics seriously. That is, for a company to discover its own ethical compass and use it to chart a long-term path to a responsible future.
That means involving all employees. Not just the odd thousand or so who may have compliance in the title of their job description.
Instead, being an ethical company means every single person employed needs to be committed to helping run a responsible business—that is to become ethically engaged.
Employee engagement is now widely seen as the secret of an effective company and it’s been a major concern in recent years with masses of research to show how it’s done. How do you get such engaged employees?
When it comes to ethics the best way is to develop a strong corporate culture, since the stronger the culture the more engaged people feel.
We already know younger workers—the so-called Millennium generation, often regard working for a company with integrity as more important than just earning lots of money.
Close behind them is yet another generation who face the consequences of the damage done to our planet by short-termism and a disregard for nature.
Engagement though is not enough. What companies need are people who are ethically engaged.
So far that’s a relatively rare state of affairs. In a global study only 3% of employees fell into the category of “self-governance”, or ethically engaged, in which everyone is guided by a “set of core principles and values that inspire everyone to align around a company’s mission”.
So companies may need help to tackle the issue of ethical engagement, not just engagement in the more generic sense.
Another way for a company to refine its ethical compass is to get on a list of companies independently confirmed as meeting some clear ethical standards.
There are scores of these lists, ranging from the Global Responsibility Initiative to the well-known annual “World’s Most Ethical companies”, through to the much quoted list from Transparency International.
League tables, such as one recently proposed for the banks to reveal their ethical behaviour are therefore an attempt to show their ethical compasses are working properly.
The criteria for getting on a list though, can be mind boggling. For example, to be nominated on The Ethics Quotient by Ethisphere, a company must complete over 30 pages of detailed questions and be willing to provide additional evidence to support their answers.
And naturally such lists are often transitory.
One minute for example BP is up there with the great and good, the next it’s a social pariah. One day Starbucks is firmly on the list, the next its tax avoidance tactics makes it persona non grata as a responsible company.
In summary, it helps to be on a list, but that’s only one indicator that maybe you’re running an ethical enterprise.
A WORKABLE COMPASS
Not only are businesses often still searching for a viable ethical compass, but there are multiple elements that go towards creating one.
It includes changing the culture, seeing ethics as a profitable investment and not just a cost, the social license, compliance and ethical engagement, getting on ethical lists and league tables.
Ultimately there is not just one form of ethical compass, but many. Each business must devise and test its own, and many are indeed doing just that.
Mr. Desmond may be unsure what it means to run an ethical business. Shell’s CEO may wrestle with his conscience, and Murdoch’s News Corp may wonder what all the fuss is about. But that does not mean the rest of business can do without an ethical compass.
For those in search of one, it starts with
- CULTURE AND
- LEADERS WITH INTEGRITY