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Ethics and Corporate Responsibility

Ethics and Corporate Responsibility

Remarks by David Grayson, Director, Business In The Community, UK
to the Committee For Economic Development Of Australia (CEDA), Perth, Western Australia, July 2nd 2002

(An alternative view on ethics can be found here. )

What should we make of the latest revelations about WorldCom, Enron et al ? There is the obvious and very immediate impact on stock markets around the world. Market volatility affects millions of us, through our pensions funds and other savings which are invested in the publicly quoted companies. More insidiously and potentially more damaging in the long-term, dishonest reporting will lead to a further erosion of confidence and trust in business and in the worth of enterprise. Even two years ago, Business Week was running a cover story (Sept 11th 2000) around a Harris Poll showing that 72% of Americans believed that business had too much power over too many aspects of American life; and less than half ( 47%) agreed that "in general what is good for business is good for most citizens" (versus 71% in 1996). MORI polls in the UK over the last few years have shown a substantial decline in the percentage of the British public believing that the profits of large business help society.

As someone who believes in the importance and positive contribution of enterprise and open markets, I think this loss of trust in business is dangerous. It is further reflected in the way business and business-people are represented in the popular media. TV Channel surfing last night to try and avoid the final of Australian Big Brother, I found an American courtroom drama in which the central character explains away his tax evasion by saying "I'm just a businessman and that's what businessmen do!" The Director-General of the Institute of Directors in the UK has done an analysis of the large percentage of characters portraying business people on British TV, who are shown as shady, "fly by night" crooks.

Business needs to challenge such negative images with programme-makers directly. But such challenges are going to be of limited impact, unless business gets its own house in order. One important step has already been taken with the head of the US Securities and Exchange Commission reminding company directors of their personal responsibility for ensuring that their company has made a fair representation of its financial affairs.

And if failure to do so leads to some recalcitrant directors going to jail then - like the French said of the hanging of the Eighteen Century English Admiral Byng: "the English hang an admiral from time to time pour encourager les autres!" - then so be it.

There are, however, more fundamental challenges here for business. As The Financial Times said in April last year in an important editorial after the collapse of the court case brought by the international pharmaceutical companies in South Africa:

"if businesses want to make good profits and to protect their good names, they must stand up and argue their case - for globalisation, for free trade, and for responsible corporate behaviour."

Without this, there is a very real danger of bad corporate behaviour destroying trust in business generally - with potentially disastrous consequences for individuals and societies.

I believe both elements of that Financial Times argument are crucial: first the positive articulation of the positive impact of business; and secondly, a much more serious and widespread commitment to responsible business practice. Markets - as well as individuals - need values rather than greed - for long-term success.

I see that the financier George Soros is quoted in The Australian this morning (July 2nd 2002) as saying something very similar: "rules alone are not enough. You need principles." He also says that the fact that so many irregularities have come to light raises "far-reaching issues about the values that guide us."

I believe there is far more global concensus across cultures and countries about what those values should be, than some commentators suggest.

The Institute for Global Ethics has been conducting focus groups around

the world asking people to list the five values that they would like to see over the entrance to a new school in their community. The five values chosen have been remarkably similar across continents and cultures: COMPASSION, HONESTY, FAIRNESS, RESPECT, RESPONSIBILITY.

There are many different definitions of "Corporate Responsibility" or "Corporate Social Responsibility" (CSR) or Corporate Citizenship. For me, it involves:

But I also think those five core values: COMPASSION, HONESTY, FAIRNESS, RESPECT, RESPONSIBILITY are a pretty good description of how a business can demonstrate that it is indeed responsible.

In "Everybody's Business: Managing Risks and Responsibilities in to-day's global society" Adrian Hodges and I argue that it is now everybody's task to promote these ideas - and that it cannot just be left to a "good works" department whilst the rest of the business carries on with the day job!

Adrian and I believe in business - we are pro-business - but not business as usual. I work with Business in the Community in the UK - which is a business-led association of over 700 companies including 87 of the world's 500 largest businesses.

Our mission is:

"to inspire business to increase the quality and the extent of its contribution to social and economic regeneration by making corporate social responsibility an essential part of business excellence."

We are very clear - we are here to inspire not to bludgeon or to cajole - and that such behaviour has to be an integral part of successful business practice. The most socially irresponsible business is the business that goes bust.

Personally, I think Enron, WorldCom etc ought to be a wake-up call to consider how our investments are managed, on our behalf. Of course, Enron and other corporate excesses are about greed: personal and corporate; and are failures of legal and accounting systems. But there are far more fundamental issues about how the market values businesses; what the people managing those businesses are judged on, and, therefore, for what they are rewarded. We urgently need an international debate about what will be the basis for the long-term, sustainable shareholder added-value and how to achieve sustained business excellence.

I have no doubt that there was much waste in business - not least in many of the privatised industries - and that it is important to seize the opportunities from new technologies and market liberalisation to rationalise and become more efficient. I wonder though whether in hindsight, it might be argued that the downsizing, cost-cutting, headcount-reducing "slash and burn," "Chainsaw Al" type tactics, and the mergers and acquisition mania which have so enthralled the stock markets and analysts over recent years, have been taken too far. It does not take a corporate genius to reduce costs and thereby produce "market-friendly" figures in the short-term.

If, however, corporate muscle as well as fat, has been cut - then yesterday's corporate hero may prove to be tomorrow's business destroyer. If crucial institutional memory has been lost and / or remaining employees are deeply disillusioned, demotivated and scared then short-term perceptions of "fit for purpose" will become "unfit for the future."

Looking ahead, even organisations which did not cut too deep into the corporate muscle, are going to have a much tougher task to win sustainable productivity improvements in the future. The growing debate about work-life balance, job-loading, and work-related stress litigation, suggest that future productivity gains will have to come not from short-term cost-savings - but from genuine break-throughs in technological and commercial innovation.

The business leaders who can produce these sustained and significant productivity gains / shareholder added-value will need to tap into very different strategies.

This all requires change-management and business re-engineering on a massive scale. For example:

Business is going to have to learn how to operationalise sustainable development and corporate responsibility as an integral part of "the way we do business around here" and then develop effective metrics for measuring impact and benefits. Analysts and commentators need to factor these issues into their assessment of whether a company is a good long-term bet - and markets need to reflect this in their valuations.

If WorldCom etc provokes this wider debate about how businesses will achieve long-term sustained productivity improvements and, therefore, sustained profitability and shareholder added-value - and what, therefore, markets and analysts should be looking for, in assessing the true value of a business - then maybe some good will come out of these business failures.

David Grayson is a director of Business in the Community and co-author of "Everybody's Business: Managing Risks and Opportunities in to-day's global society" published by Dorling Kindersley.

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