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P H I L O S O P H Y F O R B U S I N E S S ISSN 2043-0736
http://klempner.freeshell.org/businesspathways/
Issue number 10
18th July 2004
CONTENTS
I. 'Trust, Integrity and Reputation in Business' by Simon Webley
II. 'The Myth of Corporate Social Responsibility (CSR)' by Deborah Doane
III. CFP: International Conference on Evolution and Organisation - Denaturing
Darwin
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EDITOR'S NOTE
In this issue Simon Webley, Research Director of the Institute of Business
Ethics offers evidence that business codes of ethics do work: 'when
comparing the financial performance of large UK companies, those with codes
consistently out-performed those without one over a four year period.'
Deborah Doane from CORE, The Corporate Responsibility Coalition, argues that
the much hyped Corporate Social Responsibility (CSR) initiative has failed to
deliver on its promises, and in the hands of some of the biggest international
corporations has proved to be a cynical PR tool.
A ManagementPhilosophers e-list posting by Simon Lilley of the University of
Leicester, UK, provides details of a fascinating conference on the influence of
Darwinist thinking in the social sciences, to be held in November at the
International School of Philosophy, Amersfoort, the Netherlands.
Geoffrey Klempner
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I. 'TRUST, INTEGRITY AND REPUTATION IN BUSINESS' BY SIMON WEBLEY
Research Director, Institute of Business Ethics
Reputation and trust have become key words in corporate management. This is
partly due to the serious loss of reputation among larger businesses following
well publicised business malpractice particularly in the United States and
Europe (Enron, Worldcom, Arthur Andersen and Parmalat).
Loss of reputation due to lack of integrity poses a risk that is not easily
insurable but can have critical outcomes. A much cited example of this
concerned the partners and directors of Barings Bank. They woke up one morning
in 1999 to find that the value of the bank's liabilities exceeded that of its
assets: it was broke. The bank was subsequently sold for 1 Pound to a Dutch
bank. A proud British institution which once financed the US purchase of
Florida from Spain[1] had been brought down by the unscrupulous, indeed
illegal, behaviour of one employee - Nick Leeson, and the lack of proper
supervision in both London and Singapore.[2]
Ethical Business Practice
Over recent years, UK company boards have begun to focus on how to introduce
and ensure good ethical business practices. A decade ago leaders in the private
sector (among them the Stock Exchange, CBI and the Chartered Accountants),
decided that what was required was a clear statement of was considered to be
best practice in the way companies were run.
A number of Committees whose members were drawn from the senior ranks of
business and the professions were asked to report on different aspects of the
subject. The Cadbury Committee[3] and the Hampel Committee[4] are two examples.
By making their recommendations applicable to all companies listed on the Stock
Exchange, they have ensured that corporate governance standards are both set
and maintained. The 'Combined Code' as it has become known gives guidance to
companies not only about how to fulfil their obligations to their shareholders,
but to others to whom they relate in the wider community.
After the success of this initiative, a further Committee was set up by the
Institute of Chartered Accountants of England and Wales chaired by Roger
Turnbull. This was to make recommendations on what Internal Controls were
required to make the Combined Code work.[5] This mainly concerned non-financial
risk controls including issues of integrity. More recently, the Higgs Report[6]
which was sponsored by the government, has made recommendations about the role
and responsibility of outside directors in corporate governance.
All these initiative are having a major effect on the way directors view
business probity.
This drive to espouse high ethical and corporate governance standards has had
some success. The Institute of Business Ethics estimates that nine out of ten
of the UK's largest companies now set out explicitly (usually in the form of
codes of ethics or conduct), what they consider to be their core ethical and
business values. These are used to provide the basis for guidance to staff on
how to resolve ethical dilemmas that they will encounter in the course of
day-to-day business. For instance, if a core value is 'openness' then in
relation to the providers of finance - shareholders, banks etc. - it will state
that its financial reports will be accurate and timely, and that it will keep
them informed about all matters that effect the understanding of future
prospects of the business. Similarly, if integrity is cited as a core value
then a way of expressing this in relation to suppliers is to pay invoices in
accordance with the contract.
To be useful, the code must address issues that are faced by directors,
managers and staff in the course of day-to-day working life. It has to be more
than 'a booklet kept in a drawer'.
The companies that take their values and resulting ethics seriously will
develop and implement methods to embed them. This is best done by including
reference to them in training programmes, as well as monitoring the use and
relevance of the code on a regular basis. The long term benefit of such a
programme should, among other things, lead to a reduction of integrity risks.
Those who provide risk ratings appear to ascribe a lower risk to those with an
explicit ethics policy.
Values, standards and conduct together make up the culture of an organisation.
This in turn, is reflected in the degree of trust that exists between the
organisation and its stakeholder. When trust and therefore reputation, are
forfeited in relation to any one of its main stake holders, a business in
unlikely to survive. It is important that symptoms of mistrust internally and
externally are recognised early and remedial action taken.
Although having business policies and programmes is now considered to be one
hallmark of a well managed company, business leaders are still among the least
trusted grouping society. Evidence for this comes from answers to the question,
"Who do you trust to tell the truth?" in a 2004 MORI survey. Although their
position has improved by 3 per cent over the previous year[7] business leaders
continue to be in the bottom quartile of those respected for their honesty.
A recent meeting of the World Economic Forum in Davos had as its main theme
Trust and Values[8] - partly as a response to the accounting scandals among a
few US companies and partly because a survey in OECD countries on trust showed
similar results to those in the UK. This indicates that the topic of integrity
is now considered important enough to engage the attention of senior executives
involved in international business.
Some initiatives at international level are making progress.
At the highest level, the United Nations' Global Compact,[9] which sets out ten
principles for international business in the fields of human rights,
environmental protection and labour standards, is becoming widely adopted by
multinational corporations. Its underlying standards are assumed because they
have been taken from protocols which have been endorsed by the UN.
At the opposite end of the scale, that is, in smaller businesses, values are
usually not explicit; the owner/ manager sets the tone and the style. Employees
know that the values of the business tend to be synonymous with those of the
owner/ manager. Furthermore, those values are reflected every day by the way
employees and customers are treated. They also become clear in the way
relations with competitors are conducted. Research indicates that standards of
care and concern for staff in small and medium sized businesses are usually
high. The adage: "If you want to be ethical, get an ethical boss" seems to hold
good.[10]
For business of any size, profitability is vital. But the way that it is
achieved is also important: means as well as ends do matter. Acting ethically
has been shown to be consistent with profitable business.[11]
The Institute of Business Ethics has shown that when comparing the financial
performance of large UK companies, those with codes consistently out-performed
those without one over a four year period.
Reputation Tests
Two tests were used by the researchers to verify that what a company claims
about its business behaviour is in fact what happens i.e. that having a code of
business ethics makes a difference. First, businesses that have codes or their
equivalent (either posted on their websites or circulated to all employees),
were matched against an assessment produced by SERM rating agency as to their
ability to reduce what is called their 'socio/ ethical' risks. This is a
measure of policies in place to address variables in this field, such as poor
corporate governance. The comparisons show that those with codes were
consistently rated higher in these tasks than those without codes.
Second, a peer assessment was used to see what other businesses thought about
their behaviour. The annual list of Britain's Most Admired Companies published
by Management Today was used to find out which companies have been in the list
for five consecutive years 1997 - 2001. Of the twenty-four companies that
fulfilled this criterion, nineteen were found to have a code. The sample of
companies used in the research was restricted to those that had a code in place
for five years or longer in order to provide consistency.
The results of these tests showed that having a code of business ethics
constituted a valid proxy for assuming that a company took its commitment to
business ethics seriously.
Financial Tests
The researchers used five tests to measure changes in corporate value - Market
Value Added (MVA); Economic Value Added (EVA); Price/ Earning Ratio; Return on
Capital Employed and Profitability. The first two measures, which are
considered the most authentic ones, showed that companies in the sample of
forty-one, for which consistent data was available, clearly out-performed those
who had stated in IBE surveys that they did not have a code.
The results of the Price/ Earnings Ratio analyses showed remarkable stability
in the figures of those with codes compared with others in the years 1997-2001.
The Return on Capital Employed Measure indicated that since 1999 when the
economic down-turn started, those companies with codes out-performed those who
did not have one. On Profitability there was a significant positive difference
for those companies with codes among the twenty eight companies in this sample.
What is not yet clear is what is the difference in the ways in which companies
operate that causes the enhanced economic performance. Some speculate that a
large firm with a culture of trust and high ethical standards may be able to
delegate decisions further down the management chain and thus save on
'bureaucracy'. A company of this sort can perhaps more easily identify
unethical behaviour and save on expensive remedial action, not least in
litigation and public relations. Economies on marketing expenditure could be
expected when customers select firms or brands which they trust. The cost of
capital may well be a significant difference. There is evidence that staff too
prefer working for such organisations and good quality staff are more attracted
to them. Further work on this aspect of the topic is required.
So there now seems to be good business reasons for encouraging corporate
policies that stimulate trust both within the organisation and with those with
whom the business interacts. However, the ongoing challenge is well stated in
this quotation from Peter Koestenbaum, a philosopher at the University of
Illinois:
"To be ethical is profitable: but to be ethical because it is profitable is not
ethical".[12]
FOOTNOTES
1. The Sixth Great Power, Ziegler P, Harper Collins, 1988
2. Rogue Trader, Leeson N & Whitely E, Warner UK, 1997
3. Financial Aspects of Corporate Governance (Cadbury Committee). Gee & Co, 1992
4. Final Report, Hampel Committee, Gee Publishing, 1998
5. Internal Control:Guidance for Directors on the Combined Code, Turnbull R,
ICAEW, 1999
6. Review of the Role of Effectiveness, Higgs D, HMSO, Non-Executive Director,
2002
7. MORI http://www.mori.com/polls/trends/trust
8. http://www.weforum.org
9. http://www.unglobalcompact.org
10. Priorities, Practice & Ethics in Small Firms, Spence L, IBE, 2000
11. Does Business Ethics Pay? Webley S & More E, IBE, 2003
12. The Heart of Business, Ethics, Power & Philosophy, Koestenbaum P, Saybrook
Press, 1987
(c) Simon Webley 2004
E-mail: simonwebley@ibe.org.uk
Web site: http://www.ibe.org.uk
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II. 'THE MYTH OF CORPORATE SOCIAL RESPONSIBILITY (CSR)' BY DEBORAH DOANE
Chair, Corporate Responsibility (CORE) Coalition
According to a report by CAFOD, labour standards in the high tech computer
sector are amongst the worst in the world. Systemic problems of unsafe working
conditions, compulsory overtime, poor wages falling below a legal minimum, are
just some of a catalogue of examples found in factories in Mexico, Thailand and
China.
In Brazil and Kenya, Christian Aid continues to report on extreme health and
safety violations of tobacco farmers who supply to major companies like British
American Tobacco, while in Nigeria, communities report ongoing problems with oil
spills emanating from Shell's operations there.
And Amnesty International is also in heated battles with Shell over the UN
Norms for Business and Human rights. Shell, considered to be a leader in CSR,
is nonetheless trying to galvanise the business sector to destroy a four-year
process to develop the UN Norms for Business and Human Rights. This is in spite
of the fact that the norms merely articulate what's already codified in
International Law.
Corporate Social Responsibility (CSR) has been the business-led response to the
anti-globalisation movement, best articulated by Naomi Klein in her now infamous
tome, No Logo. Post-Seattle, CSR has become the PR tool of choice for top
companies, making statements on everything from environmental performance, to
labour standards. Given all the CSR conferences, publications and consultants,
one would easily think that companies are taking the issue of their
responsibility rather more seriously than just a few years before.
The problem is that the hype, represented by glossy ads, reporting awards and
landfills of 'best practice' studies, bear little resemblance to the reality.
Across sectors, and across countries, case studies are emerging on an almost
daily basis.
But have we really come so far in the last few years? Has business been
revolutionised by CSR, or is it just a symbolic gesture to appease the
anti-globalisation movement? In spite of the apparent rise of socially-friendly
capitalism, it would seem that business-as-usual prevails.
Shareholders first, society last
Companies like BP or British American Tobacco (BAT) are regularly part of a
socially responsible investment portfolio, in spite of claims by NGOs that they
are anything but. Amnesty International has argued that a BP-lead consortium
deliberately made it difficult for the Turkish government to enforce its
primary responsibility for human rights on the Baku - Tbilisi - Ceyhan pipeline
project, while Christian Aid's report uncovers extreme health and safety
violations of tobacco farmers in Brazil and Kenya who supply to BAT.
Some would argue that the critics of CSR are simply lacking in patience and
need to wait for it to mature before it's dismissed altogether. That would be
fine, if the very premise of CSR wasn't flawed at its foundation. CSR imposes a
market discipline on social responsibility. Its proponents argue that the market
will naturally reward good behaviour and penalise bad; whereas the intervention
of government, on the other hand, increases costs and inhibits the ability of
business to innovate.
This argument, however, is flawed for several reasons. For one, while consumers
may be more and more concerned about ethical behaviour of business, with the
exception of a few products, like Fair Trade, they have yet to respond en masse
with their wallets. Research by MORI shows that although a large majority of
consumers intend to act ethically, only 5 per cent of consumers consistently do
so in practice. Similarly, the UK Institute of Grocery Distributors has found
that consumers are more interested in price, taste and sell-by date than
ethics, while research from the US shows that ethical consumers are all but
absent.
Second, the market doesn't make a habit of rewarding investments that don't pay
off in the short-run. So the pharmaceutical industry is loathe to relax patents
on high-performing drugs even if it would mean saving thousands of lives and
would clearly be considered socially responsible.
Fifty or 100 years ago, when many of the big multinationals started, the aim
was to provide an affordable product or service to people, and make a
reasonable profit at the same time. It is doubtful that the founders of major
multinationals ever set out on a path aiming to subsume other cultures, plough
down forests, and exploit cheap labour half way around the world.
But the role of a company has, over the past century, taken on a life of its
own, where its primary function is to return capital to the anonymous
shareholder - not to serve the needs of society. In today's capital markets,
companies need to grow; to find new markets in which to trade; and to keep
their costs down through anything from ensuring 'affordable' labour to reducing
tax liabilities. None of these are necessarily in the interests of wider
stakeholders, and we shouldn't pretend otherwise.
CSR strategies, such as voluntary reporting on social and environmental
impacts, have done little more than further the PR-driven game of the most
astute companies, deluding investors and consumers into thinking they are
contributing to sustainable development. And while they may be more sustainable
vis-a-vis risk management, few companies are really tackling the big global
problems of our time, from climate change to environmental degradation, to
poverty and disease.
Markets or Morals
CSR delusions are simply indicative of the failure of markets themselves. They
work only in so far as they help to protect brand reputation. But there is a
wide chasm between what's good for a brand, and what's good for society.
NGOs are often confronted by CSR companies for criticising their efforts.
Either we're lacking the patience to let CSR work; we shouldn't be hitting out
at the leaders; or its the job of governments to regulate, business shouts. The
problem is that it's business who is, in part, to blame for contributing to the
institutional vacuum in the first place, arguing that any regulatory
intervention is simply "red tape". This attitude is evidenced by the decreasing
share of corporate taxes paid over the last decade.
But corporate leaders should take heed: the history of large-scale social and
environmental innovation by business has rarely emerged from market-only
incentives. As recently as last December, until legally binding targets were
placed on renewable energy, the finance sector argued that it couldn't provide
investment in these technologies, so many projects floundered, currently
threatening the ability of the government to reach key targets on renewable
energy over the next decade. They were too expensive and there was no
guaranteed long-term market, investors warned. In another example, only when
European regulation imposed mandatory labelling for household appliances did
energy-saving technology on refrigerators or cookers really take off. Sales in
high-rated energy appliances now represent over 60 per cent of the market.
For industries whose products may cause harm, it is only the threat of
regulation that has a tendency to bring about change. Responses to the obesity
crisis now emerging from the food and beverages sector are reminiscent of the
defensive behaviour played by the tobacco industry in the past. In the end,
only aggressive regulation has stemmed the growth of the tobacco industry in
the western world. Sadly, we have yet to see any such moves in emerging
economies, where tobacco is celebrating exponential growth. For obesity, we'll
more than likely need stronger interventions by governments to reduce salt,
sugar and fat in processed foods to tackle the impending crisis. In the
meantime, the costs of obesity-related diseases can cost more than 30 per cent
of a developing country's entire health budget.
The end is nigh
The Economist magazine recently called for the death of CSR, predictably
arguing that business should only keep its eyes on making money, and nothing
else. Yet while the death of CSR may be no bad thing, this is not for the
reasons cited by the reactionary publication. Its because pretending to do good
when markets don't allow you to do so is delivering false hope, and letting
governments off the hook at the same time.
Business, it seems, wants to be 'socially responsible' on their own terms. And
for those of us who have borne witness to the CSR phenomenon, this is more
about being seen to be doing good, than anything more substantial. This is why
the largest businesses are fighting the UN Norms which begin to clarify the
expectations society has of business in the realm of human rights, even though
the Norms simply articulate what's already codified in international law. And
this is why business will continue to resist any form of regulation that aims
to protect our common assets and solve the seemingly insurmountable challenge
of achieving real sustainable development.
CSR is no longer a useful paradigm. It not only masks poor business practice,
it limits the ability of governments to implement laws that would hasten moves
towards sustainable development. Far more ethical than CSR would be for us to
have business leaders that are prepared to admit that they can't do it alone in
a competitive environment, and that effective legislation, including both
carrots and sticks, is needed to really solve the challenges facing the world
today.
(c) Deborah Doane 2004
CORE - The Corporate Responsibility Coalition
Web site: http://www.foe.co.uk/campaigns/corporates/core/
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III. CALL FOR PAPERS: INTERNATIONAL CONFERENCE ON EVOLUTION AND ORGANISATION
DENATURING DARWIN
12-14 November 2004, International School of Philosophy
Amersfoort, the Netherlands
The Theme
Darwin, once again, is seemingly everywhere - competing for general acclaim as
The Greatest Briton; slugging it out with Creationists in American schools; the
subject of public disputes as to who can be regarded as his true disciples; with
awards in his name for both scientific endeavour and suicidal stupidity; through
to new reclamations of his ideas in academia. And even though the theory of
evolution may not be the 'universal acid' that Daniel Dennett (1995) seeks,
burning through all that stood in its way, it has been etched into a broad
swathe of the natural, social and political sciences. Sometimes, for example,
it appears to merely rest as agreeable metaphor, as in Marshall's 'teeming
millions' in economics; sometimes to lie as causal explanation, as in social
inequality as rendered by social Darwinists; sometimes to stand as proof, as
atheistic fundamentalists use it to deny the existence of Gods; and sometimes
to act as the Trusty Sword of Truth, as wielded to defeat those contemporary
bogey figures, be they post-modernists, feminists or social-constructionists
(see, for example, Pinker, 2003 or Dawkins,1976 and 2001).
The misapplication of Darwinist thinking in the social sciences, on its own,
could justify a conference. Yet such a narrow theme risks simply returning to
the bitter battles over sociobiology of the 1970s, fought over similar terrain.
Instead, the rise and rise of Darwinism itself demands a closer look. We suggest
here four themes that might evolve.
First, perhaps, is the origin of The Origin of Species. The genesis of the
central idea - evolution through natural selection - continues to attract
discussion as to whether Darwin was creator, or (unknowing) disciple. Yet
Darwin's construction of the argument, his proof (drawn from his own
cultivations) and its presentation, draws into question the whole question as
to what is natural, and what is selected. Thus, for example, even as his theory
appears to extinguish one Creator, in practice, another seems to emerge in His
place - a theme that is continuously re-enacted today, as programmers seek to
develop natural selection in software. We would welcome papers further
examining such origins and their consequences.
Darwin's writing is undoubtedly skilled, as he weaves his subjects into an
evocative narrative. But the pernicious spread of Darwinism cannot be laid
simply to the power of his rhetoric. Why did the idea of evolution through
natural selection so quickly and virulently spread beyond its natural host and
find such welcome in seemingly unrelated fields? And why does it continue to
excite similar interest as an explanation for apparently unrelated phenomena
today? We welcome work that seeks to explore the phenomena of Darwinism itself.
At the same time, despite Darwin's own warnings, as his ideas spread they
became and continue to become derivations of derivations: mere pastiche or
downright wrong. Diluted and adulterated, these homeopathic theories claim to
explain more and more of the world around, be it in terms of rampant
individualism or carefully pruned collective, while still claiming fidelity to
the purity of their source. Unsurprisingly, such unruly science has shown
itself capable of producing monsters, both hopeful and hopeless, with monstrous
results. We call, then, for critique of such abominations.
And finally, despite the overwhelmingly critical tone of what has preceded,
there is the question of where a more considered examination of the
consequences of the Darwinist explosion might take us. This may stretch, for
example, from the exploration of a radical humanism that might take account of
contemporary issues that oscillate between the biological and social sciences,
such as Bio-nomics, through to discussion to whether Darwinism and the social
sciences will always remain incommensurable. In the field of organisation, for
example, could we go beyond rather simple notions of 'population ecologies' to
consider the mutual co-construction of 'organised' bodies and the 'fitness
landscapes' that they both constitute and inhabit?
Abstracts
Abstracts of no more than 500 words should be sent to darwin@le.ac.uk, no later
than Friday 30th July 2004. Please submit abstracts in MS Word or Rich Text
format. Acceptance will be notified by August 2004. Electronic versions of full
papers should be submitted no later than Thursday 30th September 2004, again to
darwin@le.ac.uk. A selection of complete papers will be placed on the
conference website http://www.le.ac.uk/ulmc/cppe/darwin as soon as is
practicable after that date.
Keynote Speakers and Plenary Sessions
There will be two plenary sessions at the conference, featuring a total of four
keynote speakers. Dr Gowan Dawson of the Victorian Studies Centre, University of
Leicester and Dr David Amigoni of the Department of English Literature and
Philosophy at Keele University will both address a plenary session entitled
Reading Darwin. The other plenary, entitled Evolution and Creation, will be
addressed by Dr Steve Brown of the Department of Human Sciences at Loughborough
University and Professor Jack Cohen of the Institute of Mathematics at the
University of Warwick.
Publication plans
A themed issue of the Routledge journal, Culture and Organization, is under
discussion. Papers appropriate in terms of theme and contribution will also be
selected for consideration for the Palgrave journal, Emergence,Complexity and
Organization.
Conference Fee
The conference fee will be in the region of 300 pounds (450 euros) and will
include accommodation and all meals, including a gala conference dinner.
Language
The language of the conference will be English.
Conference Organisers
The conference is being jointly organised by the Centre for Philosophy and
Political Economy of the University of Leicester, UK and the Department of
Critical Theory and Organisation of the University for Humanistics, Utrecht, NL.
Further Details
Further details and registration information will be made available via the
conference website
http://www.le.ac.uk/ulmc/cppe/darwin
Specific queries should be addressed to darwin@le.ac.uk.
Simon Lilley
Reader in Information and Organisation
University of Leicester Management Centre
Ken Edwards Building
University Road
Leicester LE1 7RH
UK
Tel +44 (0)116 223 1261
Fax +44 (0)116 252 5515
http://www.le.ac.uk/ulmc/staff/slilley.html
Representing Organization: Knowledge, Management, and the Information Age
Simon Lilley, Geoffrey Lightfoot, and Paulo Amaral
Available now through all good bookshops, or direct from Oxford University
Press at:
http://www.oup.co.uk/isbn/0-19-877541-5
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