Sunday, May 14, 2006
Business ethics: Change the world
All too often we hear people say that business is evil and a major cause of the many problems of society. Unfortunately, that statement is true in all too frequent cases. That doesn't mean, however, that all business is bad. A few bad apples can spoil an entire barrel. Such is the case in the business world where a few dishonest and uncaring people make all business people look bad.
The good news is that you can do something about the bad reputation inflicted on honest business people by a few scoundrels. You can operate your business from startup to retirement on ethical principles. Honest and open business practices can and should be how you run your company. In fact, I am positive in my conviction that honesty is the best policy. In the long run, nice guys finish first.
Let's start at the startup of your company when you devise your business plan. Begin with a firm statement of your own convictions and principles. These are the cornerstones of how your organization will operate in the present and into the future. For example, you might declare that you will purchase no items that destroy the Amazon rainforest (pictured at the top of the post), or harm or displace indigenous people. You could announce fair hiring practices that include people of every gender, race, age, and physical challenge. You may decide to provide charitable work for the community and to give something back, and then some.
Once these foundation principles are in place, you must devise systems that will put them into action. Your suppliers must adhere to your environmental and human protection goals, or you will seek new sources of goods and services. Your hiring policies will be open and use innovative techniques that don't eliminate candidates. You get involved in community groups that help others succeed and achieve their goals.
Take care of your day to day business activity as well. You conduct your business honestly and provide the best customer service possible. Discuss your ideas and business practices with peers in your industry and outside your regular business circles. Talk openly with customers about your goals and beliefs. While many potential customers might reject the concepts, they will be attracted by your honest business practices. Write about your experiences with your core values on your business blog. The feedback from customers and business associates will help further your goals and enable you to reach and even exceed them.
Business doesn't have to be cut throat competition and a race to the bottom. Working together in strategic partnerships, with other like minded business people, will help everyone achieve success. Your customer base will include many people who are seeking something better in their lives and for the planet as a whole.
Satisfied customers will spread the word about you and your organization by good old word of mouth advertising. Your company will be treated well in blog posts and media coverage. The viral marketing power of blogs and the traditional media will work in your favour, spreading the word on your behalf. Good news is good for the business bottom line as well.
Honesty is the best policy. It pays off in customer and community relations, and it pays off for the world.
Practicing strong business ethics is the ultimate win win for everyone.
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Couldn't agree more.
The historically and widely accepted primary purpose of business is to increase its wealth thus achieving a profit and increasing shareholder value. But how does this narrow view best serve humanity?
What this unitary ‘profits are everything’ approach does not however conceive is the wider implications of the firm operating within society, of which it is inextricably linked, and the affect that it may, directly and indirectly, have on the people and various other constituents, that make up that society.
Milton Friedman, the Noble Prize winning economist, vigorously protested against the notion of corporations taking on any wider social responsibilities. Moral responsibility, according to Friedman, is exclusive to human beings and therefore not the concern or duty of the firm. Furthermore, management should act solely in the interests of the firm’s shareholders and certainly not become involved in social issues, which he contended were the sole responsibility of government. However, if moral responsibility is exclusive to human beings, and not to the firm, then is Friedman suggesting that employees of such firms need to leave some of their humanity, and certainly their morality, at home?
How then, can the consumers engage and trust these inanimate, morally vacant firms, and would the consumer want to engage with this type or organisation if it knew about it’s ‘character’ or lack of character - surely not. Furthermore, would other constituents, in contact with the firm such as suppliers and employees, and local communities enter into a relationship with such an organisation if they too were aware of this lack of humanity within the firm? Maybe customers, potential and existing, would think differently if they knew the morally indefensible lengths that some companies will go to in order to achieve a profit.
Lee Iacocca is a prime example of a manager that went too far. He is a widely known as a morally vacant, single-minded, profits driven manager who went to extremes to achieve profits. Iacocca was the manager in charge of the infamous Ford Pinto over twenty years ago when it was going head-to-head in competition against the VW Beetle. There was a problem with the Pinto’s fuel tank that had a propensity to explode under impact. The executives at Ford, led by Iacocca, were fully aware that the Pinto was dangerous under certain conditions and they carried out a review of what was required to make the car safe. The findings would have certainly saved the lives of Ford’s customers.
However, the cost of improving the quality of the Ford Pinto fuel tank was $5 per vehicle and it was deemed too expensive for the cars to be recalled. The company actually carried out a cost-benefit-analysis of recalling the Pinto against the predicted number of deaths per annum that may be attributed to the weakness in the Pinto’s fuel tank and thus the amount of damages the company would have to pay out to the families of the deceased Ford customers. It was cheaper to payout to the families of the deceased than to improve the safety of the fuel tank and thus the improvements were shelved. See Ford Memo.
Hundreds of people lost their lives because of this singleminded pursuit of profit at any cost...so much for customer service!
Surely this case should have served as warning to all unitary focused, profits are everything, whatever it takes, morally vacant businesses and also motivate government to legislate. However, this has not proved to be the case with many different ethically vacant incidences over the past twenty years involving companies such as McDonalds, Enron, WorldCom, Shell, Nike and others.
There are however a few shining lights out there that have developed their businesses by steadily increasing sales and market share, without selling their souls, or behaving in an illegal or morally indefensible manner. Cafédirect, Ecover, The Body Shop, Ben and Jerry’s Ice Cream, Charles Schwab, The People Tree are testament to this fact. Recently, even big business has caught on to the idea that these “high value” ethical brands may have the potential to develop a more meaningful and human relationship with the customer. So much so that The Body Shop (L’Oreal) and Ben and Jerry’s (Unilever) have been bought out by multinationals.
Note that the primary goal of each of these "high values" companies was not to enrich shareholders; it was in fact to enrich and benefit the actual suppliers, customers, employees, shareholders and the wider society thus developing real long-term relationships that benefit all.
Businesses and their managers should be responsible to their shareholders but they should never lose sight of their responsibilities to their employees, suppliers, customers, the communities and environments in which they operate and society in general. Enlightened shareholder value, which is striking a balance between the competing interests of the different stakeholders in order to benefit the shareholders in the long run is the policy advocated here. It makes perfect business sense. The Iacocca, purely profit driven focus on shareholder value, above the lives of his own customers, is utterly reprehensible.
Good business; embracing values, ethics and fairness, as Cafédirect, Ecover, People Tree and others have illustrated, can make perfect “high value” business sense. This is an entirely more fair, intelligent and human way of doing business for all involved.
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The historically and widely accepted primary purpose of business is to increase its wealth thus achieving a profit and increasing shareholder value. But how does this narrow view best serve humanity?
What this unitary ‘profits are everything’ approach does not however conceive is the wider implications of the firm operating within society, of which it is inextricably linked, and the affect that it may, directly and indirectly, have on the people and various other constituents, that make up that society.
Milton Friedman, the Noble Prize winning economist, vigorously protested against the notion of corporations taking on any wider social responsibilities. Moral responsibility, according to Friedman, is exclusive to human beings and therefore not the concern or duty of the firm. Furthermore, management should act solely in the interests of the firm’s shareholders and certainly not become involved in social issues, which he contended were the sole responsibility of government. However, if moral responsibility is exclusive to human beings, and not to the firm, then is Friedman suggesting that employees of such firms need to leave some of their humanity, and certainly their morality, at home?
How then, can the consumers engage and trust these inanimate, morally vacant firms, and would the consumer want to engage with this type or organisation if it knew about it’s ‘character’ or lack of character - surely not. Furthermore, would other constituents, in contact with the firm such as suppliers and employees, and local communities enter into a relationship with such an organisation if they too were aware of this lack of humanity within the firm? Maybe customers, potential and existing, would think differently if they knew the morally indefensible lengths that some companies will go to in order to achieve a profit.
Lee Iacocca is a prime example of a manager that went too far. He is a widely known as a morally vacant, single-minded, profits driven manager who went to extremes to achieve profits. Iacocca was the manager in charge of the infamous Ford Pinto over twenty years ago when it was going head-to-head in competition against the VW Beetle. There was a problem with the Pinto’s fuel tank that had a propensity to explode under impact. The executives at Ford, led by Iacocca, were fully aware that the Pinto was dangerous under certain conditions and they carried out a review of what was required to make the car safe. The findings would have certainly saved the lives of Ford’s customers.
However, the cost of improving the quality of the Ford Pinto fuel tank was $5 per vehicle and it was deemed too expensive for the cars to be recalled. The company actually carried out a cost-benefit-analysis of recalling the Pinto against the predicted number of deaths per annum that may be attributed to the weakness in the Pinto’s fuel tank and thus the amount of damages the company would have to pay out to the families of the deceased Ford customers. It was cheaper to payout to the families of the deceased than to improve the safety of the fuel tank and thus the improvements were shelved. See Ford Memo.
Hundreds of people lost their lives because of this singleminded pursuit of profit at any cost...so much for customer service!
Surely this case should have served as warning to all unitary focused, profits are everything, whatever it takes, morally vacant businesses and also motivate government to legislate. However, this has not proved to be the case with many different ethically vacant incidences over the past twenty years involving companies such as McDonalds, Enron, WorldCom, Shell, Nike and others.
There are however a few shining lights out there that have developed their businesses by steadily increasing sales and market share, without selling their souls, or behaving in an illegal or morally indefensible manner. Cafédirect, Ecover, The Body Shop, Ben and Jerry’s Ice Cream, Charles Schwab, The People Tree are testament to this fact. Recently, even big business has caught on to the idea that these “high value” ethical brands may have the potential to develop a more meaningful and human relationship with the customer. So much so that The Body Shop (L’Oreal) and Ben and Jerry’s (Unilever) have been bought out by multinationals.
Note that the primary goal of each of these "high values" companies was not to enrich shareholders; it was in fact to enrich and benefit the actual suppliers, customers, employees, shareholders and the wider society thus developing real long-term relationships that benefit all.
Businesses and their managers should be responsible to their shareholders but they should never lose sight of their responsibilities to their employees, suppliers, customers, the communities and environments in which they operate and society in general. Enlightened shareholder value, which is striking a balance between the competing interests of the different stakeholders in order to benefit the shareholders in the long run is the policy advocated here. It makes perfect business sense. The Iacocca, purely profit driven focus on shareholder value, above the lives of his own customers, is utterly reprehensible.
Good business; embracing values, ethics and fairness, as Cafédirect, Ecover, People Tree and others have illustrated, can make perfect “high value” business sense. This is an entirely more fair, intelligent and human way of doing business for all involved.
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