Last Wednesday, between bouts of sneezing and self-pity, I followed tweets from Legal Week’s Corporate Counsel Forum. My interest was especially piqued by a panel discussion, featuring the estimable Tom Kilroy, on “Operating as your company’s ‘moral’ compass”.
The title of this piece having been mystifyingly rejected for the panel discussion, I’m free to use it for another outing of one of my favourite hobby horses. Please direct all complaints to Tom.
I’m going to follow up the actual CCFE discussion in a later post, but first: does it mean anything to talk about ethical behaviour in business? You could argue that it is a category area to even raise the issue, because the function of business is to make profits within the parameters set by the law (which embody the ethical expectations of society).
However, I know from my own practice (and it seems confirmed by the CCFE tweets) that businesses are becoming concerned with how they are perceived by employees and customers. There is a sense that ethical behaviour can be a differentiator in competitive markets, including the labour market, and that unethical behaviour can cost money.
A cynic might question how far this is a matter of branding rather than substance. If the appearance of morality is achievable at limited cost, and a commercial benefit can be realised thereby, do you simply end up with a range of fig leaves for essentially amoral organisations?
Well, plenty of companies have worthy mission statements and corporate social responsibility programs, and plenty of those same companies still end up being dragged through the press over their bad behaviour*.
Of course, all businesses can and do make mistakes. That doesn’t necessarily mean that they are evil capitalists ruthlessly taking advantage of defenceless employees and trusting customers.
But even if you take the high-minded rhetoric at face value, there are areas where the do-gooding writ doesn’t really run. Take the treatment of suppliers, for example.
Now, every CSR policy that I’ve ever seen has a section for suppliers. It says, at greater or lesser length, “All suppliers must follow this policy”. It says nothing else, ever.
So all suppliers must implement the company’s requirements on environmental impacts, sustainability, and whatever else is in the policy. Nothing wrong with that at all, and in the age of outsourcing it’s an important way for companies to put their ethical aims into practice.
But in setting no standards for the interaction between the company and its suppliers, these policies leave a gap. Practices abound which, if you are on the receiving end of them, feel less than ethical: agreeing prices and then demanding further discounts, refusing to negotiate on standard contracts even where they are factually wrong, making unmarked changes in redlined drafts.
For example, I was once involved in a negotiation where an agreed contract was withdrawn just before signature and replaced with standard terms, without explanation. When we asked to put back in some of the agreed terms from the earlier contract, we were shouted at and (irony klaxon) accused of bad faith.
That particular company says in its publically available corporate responsibility materials that it treats its suppliers with integrity. So how do you square that circle?
Rewind to the earlier proposition: that ethical behaviour can be a competitive differentiator, and that unethical behaviour can cost money. The competitive advantage is (in simple terms) that customers want to buy products from and employees want to work for ethical companies, and the flip side is that bad behaviour leads to complaints, lost sales, and high employee turnover.
The question of whether any particular action is ethical or unethical is unlikely to be clear cut, and the likely effect on customers or employees will be uncertain. The consideration therefore necessarily involves an assessment of risk as well as a moral debate.
So there is a spectrum of possible outcomes, from customers or employees forming an angry mob right through to a weary “meh”, and a range of commercial considerations to take into account. The ultimate decision will be based on how these factors balance.
Then there is psychology. At the most obvious level, people have different views of and tolerance for risk – all in house lawyers have come across the sales manager who, when catastrophe is imminent, waves the warnings away with a glib “Oh, it’ll be alright.”
And (although I am not competent to go into this in detail) there are many well understood and prevalent biases of thought. People think of themselves as basically good, which means that they will find reasons to justify to themselves actions which may look dubious to outsiders, and tend to place more weight on the concerns and interests of the groups to which they belong at the expense of consideration of the concerns and interests of outsiders.
And so: there might be little risk in treating suppliers badly (because customers and employees will not find out), and much benefit (in lower prices and substantial transfer of contractual risk). At the same time, the purchasers may attach little weight to the legitimate concerns of the supplier compared to their own business objectives, and so find it easy to convince themselves that they are acting morally.
A similar dynamic plays out in every decision that might be characterised as having an ethical dimension. There might be more risk and more impact from unethical behaviour towards customers, but there might be bigger profits to be made.
Which means that you might find a company that says that it “always operate[s] in an ethical and responsible manner” performing a blatant shakedown of its suppliers. Or a bank with a “focus on providing good value and transparent products” taking a £3.2bn provision for PPI mis-selling**.
Many people would say at this point, so what? It’s all in the game, so suck it up and stop whining.
I have some sympathy with that view. If a company feels that it’s in its commercial interests to act in that way, and if my employer wants to do business with them, it’s my job to do the best I can in those circumstances without complaint. If I want to buy a financial product, I should read the terms and conditions, right?
My real issue is with the gap between the PR and the practice. I don’t mind getting screwed or shouted at, but I do very much mind being told that it’s in the name of “partnership” and saving the planet.
Basically, either walk your talk, or stop going on about it.
*This is a random example. I have nothing against that particular company, and no reason to believe that it’s any worse than any other business.
**These are also random examples. See above.