Would changing the rules make business more ethical?

Adrian Henriques

Corruption. Poverty wages. Labour relations and strikes. Regulation for the public interest. Lobbying. Vanishingly low effective rates of corporate tax.  Fat cat pay. Issues like these seem suddenly to have thrust themselves onto the corporate agenda. So what does this mean for “sustainable business”? (And whatever happened to CSR?)

Time for a reality check.

The last 15 years or so have seen an increasing desire to question the role of business in society – and on the planet. Reducing energy use, recycling and staff volunteering were at times the entire world of CSR.

Later the realisation that CSR was not just a nice to do, but was actually just a small part of what was necessary for sustainability gave birth to “sustainable business”. And sustainable business concentrates harder on core business impacts and recognises a wider set of business dependencies on social matters like stability, stakeholder relationships and wellbeing.

Reputational Compliance

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What distinguishes these “new” issues like regulation and excessively high pay is that they are economic matters. And we are not just talking about profitability but about the core of the current model for business. These are not minor issues, but ones that question the power relationships and vested interests right at the heart of business.

They therefore directly raise the question of business ethics – not just the matter of how well-behaved individuals are in doing their job, although that is a part of it – but the ethics of corporate behaviour itself: how should companies behave? These new economic issues challenge businesses to operate with society rather than despite it.

Any call for corporate ethics will immediately be asked to produce a business case. Yet for some issues, the business case can easily be overridden by special interests, and for others it may favour unethical behaviour.

For example, the case for business-friendly pay is often overturned by the personal interests of those at the top. The global market pressures that are used to justify the necessity of Midas rewards don’t seem to be borne out by the reality of a relatively sluggish labour market for top positions.

Furthermore, very high rates of pay seem to be uncorrelated with business success. And if someone really only wants a job for the money, how good will they be at anything but negotiating their pay? In the end, the idea that there is a need to motivate people at the top through money seems extraordinary when set against the need for competitiveness, which depends in part on the motivation of the entire workforce, the majority of whom may be seeing their pay cut.

On the other hand, there is often a short-term business case to be had for corruption, lobbying and loose regulation. If a company can create the market it desires through words in the right ears and helpfully drafting new legislation for a hard-pressed government, then it will – and that will pay. If a company can profitably asset-strip an acquisition, then it may well do that, even if so doing will cut out the heart of a community.

All business cases are crafted against the social rules within which a business operates. So if we want to see more ethical behaviour, the rules need to be changed to make ethical corporate behaviour more likely to be profitable. The public interest needs to be brought into play to support the right kind of business.

To some extent that support is there. The recent ISO standard on responsible organisations legitimises a very broad range of issues as relevant business concerns, including corruption and labour relations. And the new definition of CSR from the European Commission recognises with admirable clarity that the responsibility of a business is co-extensive with the results of its actions.

That is helpful, but there is a need to go much further and make more mainstream support the norm. Maybe the tax system could be used to encourage better behaviour.

It is also necessary to take a hard look at regulation. Not in order simply to forbid everything that we don’t like, but to reduce any negative effect a business might have on society.

Regulation must protect the public interest, not the market, and recognise that the public interest is not identical with the lowest possible price. Of course it is usually in the public interest that markets survive and thrive, but it should be remembered that regulation is a safety net for society, not the markets.

So we are at a critical point not only for business but also for society: we need a new contract between society and business to ensure that there can be a long term advantage to ethical business.

Does all this add up to David Cameron’s “responsible capitalism”? For some this may be a contradiction in terms – and anyway impossible without responsible capitalists.

But whatever it is, it is not “Sustainable Business 2.0”, like a new software release. Ethics is not just the release of cleverly crafted codes; it is a change in direction.


Adrian Henriques is a social auditor and blogs at www.henriques.info. He is a member of Guardian Sustainable Business’ advisory panel


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