Time was when the most important watchwords in business were efficiency, shareholder value and the bottom line. These days, companies must also be ethical, eco-friendly and socially responsible if they want to impress customers and investors.
Stakeholders increasingly take an interest in the way companies approach the environment, run their supply chains and deal with their staff and customers. Concerns about issues such as climate change, fair trade and human rights are influencing the way people view corporations.
In part, this is a reaction to the kind of corporate freebooting that led to scandals such as Enron and Worldcom. Many developed countries have enacted legislation to regulate business and governance – the process of complying with regulations – has moved up the corporate agenda. Last year, the UK introduced a Companies Act which included obligations on directors to consider corporate social responsibility (CSR) issues for the first time.
The move towards a more responsible business style has also been driven by a greater awareness of the significance of environmental issues such as global warming and the impact that globalisation can have on the lives of people in countries far away.
As a result, ethical investment funds which take a company’s social and environmental policies into account are becoming increasingly popular and powerful in persuading corporations to act well. Some organisations have reacted by hiring CSR consultants and appointing social responsibility teams to keep a check on their practices and those of their suppliers. Others have invested in initiatives to present a more responsible image to the world.
McDonalds won plaudits for a decision to power its UK delivery vehicles with recycled vegetable oil from its fryers. The company has been sending cooking oil away to be recycled for some time but now it plans to fill up its fleet of 155 trucks with a mixture of rape seed and reclaimed oils. The carbon saving will amount to 1.675 tonnes a year – equivalent to the output from 2,424 family cars, boasts the company.
Some people may dismiss projects like McDonalds’ as window dressing. But the penalty for failing to act responsibly can be heavy. That was Cadbury’s experience. The chocolate maker recently received a €1.5m fine for negligent hygiene at its Hereford factory after causing a salmonella outbreak that affected 40 people.
The company had to recall over a million bars of chocolate and spend €30m improving the plant where a leaking pipe caused the infection. Ironically, Cadbury, with its model village for workers and Quaker heritage, is a company born out of the social responsibility of an earlier age.
The situation is strangely schizophrenic. On the one hand consumers say they want to buy greener, locally produced products while at the same time they hanker for cheap clothes and consumer goods. The dilemma is that if consumers in the developed world turn their back on goods made in developing countries they will damage these emerging economies and the people who depend on the trade for their livelihoods.
Similarly, efforts to impose higher ethical standards overseas smack of neo-imperialism. Moves by concerned corporations to influence Stakeholders increasingly take an interest in the way companies approach the environment and staff issuestheir trading partners on issues such as health and safety, wages, and child labour are not necessarily welcomed in the poorer parts of the world where survival is the name of the game.
Yet to do nothing is not an option as firms such as Nike, Coca-Cola and British American Tobacco found after they became embroiled in scandals overseas.
So what are those responsible for setting up and running supply chains to make of all this? One big problem is the difficulty of making the right decisions in an often contradictory environment.
Help may come in the shape of efforts to agree standards for socially responsible commerce. The Ethical Trade Initiative has enrolled some of the big brand names but still has a way to go in signing up importing countries.
John Lamb is a former editor of computer weekly, informationweek UK and Information Economics Journal