Good Honest Dollar $$

One of the hotly debated topics in the field of business ethics at the moment seems to be the question of the type of impact which the current challenging economic environment will have upon Corporate Social Responsibility (CSR) – efforts on the part of companies to conduct themselves in a manner which is responsible from a social, economic and environmental perspective as well as a business perspective.

My thoughts – overall, I would not be surprised if many companies seek to pare back their level of CSR related effort, particularly as firms are, as The Economist puts it:

“.. a long hard look at the resources they devote to everything from supporting charities to making their activities carbon neutral.”  (refer article)

However, CSR encompasses a very broad range of activities, and I would think that the impact of the challenges associated with the current economic environment will vary according to the nature of each particular activity.

 
Observations about the impact of the downturn from a CSR perspective
A thorough examination of the likely impact of the downturn with respect to each type of CSR related activity is well beyond the scope of this discussion.

Nevertheless, I would like to make a few observations:

 
• Corporate philanthropy.

Probably one of the hardest hit areas, not least because this form of CSR: (a) involves the direct outlay of scarce financial resources, as well as benefits which can be difficult to quantify and are often expected to accrue over a lengthy time period; (b) expenditure in this area can be curtailed without a great degree of direct or immediate impact upon a firm’s business operations.

Regardless of how moved one may be by Ford’s assertions that it remains ‘committed to the concept of giving,’ the fact that the automaker expects it’s corporate donations to be down forty per-cent next year (refer article linked to above) speaks a great deal about the prospects of any areas of corporate philanthropy which are not very closely related to an organization’s operations or direct branding strategy. 

 
• Community Business Partnerships.

Interesting area.

Commitments to these types of partnerships, which typically involve social or environmental partnerships between companies and NPOs or community groups are generally of a fairly long term nature.

With respect to existing projects, I doubt there will be many cases where firms reneg on commitments which they have already made. Compared to straightforward philanthropy, I would have thought that these kinds of projects would generally tend to be more closely aligned with both operational requirements and branding strategy, reducing the likelihood to which they would be subject to curtailment. Moreover, corporations would find it difficult to pull out of their commitment to such projects without suffering considerable damage from a reputational viewpoint.

That said, I would not imagine that firms would be particularly keen right now to enter into new commitments in this area. With short term survival proving enough of a challenge for some firms, I cannot imagine that investment in new social partnerships would exactly be a top priority.

 
• Investment in energy efficiency and environmental improvements.

Probably the most risilient form of CSR at the moment, particularly given the extent to which energy efficiency helps improve not just the environment but the bottom line through cost reductions as well as government enthusiasm to direct stimulus related funding toward any areas with a ‘green’ label attached to them.

That said, I would have thought that investment in some of the more capital intensive projects may be subject to some degree of curtailment, particularly in cases whereby large portions of the anticipated cost reductions are not anticipated to be realized until the project concerned has been operating for several years.

 
Genearal comment – back to core business
Overall, whilst I would certainly have thought that some areas of CSR related effort may be subject to curtailment, I do not imagine that firms will abandon the concept altogether.

Instead, what is more likely is a refocusing of CSR effort toward projects which: (a) are more closely tied to branding strategies or business operations; (b) are anticipated to produce business benefits of a more obvious and (ideally) quantifiable nature; and (c) do not involve large outlays or long term commitments of financial resources.

Any forms of CSR efforts which do not fit the above criteria, I would imagine, will be the subject of an increasing level of scrutiny among corporate boards.

 
Over to you
What do you think the near term future holds for CSR related effort?

Today, I am delighted to have sales and marketing professional Brad Shorr as a guest writer on this blog.

Brad has many years of business experience, and in his discussion below, he talks about the need for organizations to hold discussions with their staff about the most effective ways to handle specific situations in which they may encounter potential ethical dilemmas in the course of their duties:

 
I’ve been a big fan of Andrew’s blog from the moment he told me about his theme, business ethics. It’s a topic that deserves much more attention, and I love how Andrew is able to give us a clear yet high altitude understanding of complex ethical issues.

For my guest post, I’d like to turn the tables a bit and talk about what business ethics look like from the trenches. Since that’s where I’ve spent most of my career, it seems like the logical place for me to go.

It’s been said that ethics is what you do when nobody is looking. In day to day business activities, nobody is looking pretty much all the time. I’ve worked in environments where management requires detailed call reports and looks over employee shoulders continually, but the fact is, people can get away with just about anything if they are so inclined.

Well intentioned or not, in the trenches it is difficult to tell when you’ve crossed the ethical line. Hypothetical: Supposing a customer overpays you by $10 on a $1000 invoice. Would you pocket the $10 or credit it back?

It’s quite easy to justify pocketing the $10. Processing the paperwork will cost the customer more than the $10 in question. I’ve certainly given that customer more than $10 of free service in the past, so this just evens things up. It’s the customer’s responsibility to pay properly, not mine. Ten dollars is nothing – why bother with it at all?

Even when the choice is made to refund the $10, the choice might be made for less than ethical reasons. For instance, the seller might think, I’ll show the customer how upstanding I am. Perhaps in the future I’ll be able to use it to my advantage for a greater gain.

So, even in a simple situation like this, discerning right from wrong requires a good deal of thought and reflection. But the seller could be faced with more complications still. Suppose the customer always pays 90 days beyond terms. Suppose the customer is notorious for taking unauthorized deductions or grinding suppliers’ margins into the ground? Do those considerations affect the decision of how to handle the extra $10?

And what about the big picture? In the trenches, we don’t think about that a lot. But any employee who cares about the success of his firm should. I might be able to justify keeping the $10, yet if my colleagues applied my same reasoning, my firm might overcharge customers by tens of thousands over the course of  a year. Conversely, if our firm had a policy to refund regardless of circumstances, we might forgo tens of thousands in revenue leading to a reduction in salaries and bonuses. 

In my experience, well intended business people will reach different conclusions about how to handle my hypothetical $10. Does that mean business ethics are situational? Is it possible to devise a rule to cover all variations of even the simple example in this post? I’ve been in business for more than thirty years and to tell the truth, I don’t know the answer to either question.

What I do know is, whether a firm has rigorous ethical guidelines or none at all, discussing ethical issues that occur in the trenches is a must. Discussion serves as a collective conscience. While some may not agree on the ultimate decision, everyone comes away with a new perspective and a deeper understanding. These things make it likely that the next time a problem crops up, it will be handled better and more swiftly.

How would you handle my $10 example? Perhaps we can put my theory to work and see if discussion brings clarity!

Andrew, thank you so much for giving me the opportunity to be a guest author on Good Honest Dollar $$!

 
About Brad Shorr 
Brad Shorr lives in the Chicago area, and is president of WordSell, Inc. He helps organizations strengthen their online business presence with business blogs and compelling web content.

Brad writes extensively on his own and many other blogs, mainly about writing, online marketing, entrepreneurship, sales and business humor.

The recent announcement by Wal-Mart of its intention to adopt a more stringent approach toward its supply chain in terms of labor and environmental standards represents a positive step in the right direction.

Now comes the hard part – verifiable and lasting improvement on the factory floor.

 
Wal-Mart’s strategy
On October 22, the company outlined a renewed strategy designed to produce significant improvement in terms of the management of its supply chain from a social and environmental perspective.

The centerpiece of this strategy is a new supplier agreement, to be phased in over a three year period beginning in January 2009. Under the new agreement, suppliers will be required to:

• Certify (a) compliance with all relevant laws and regulations in areas in which they operate and (b) adherence to strict social and environmental criteria;
 
• Conduct their own audits, as well as co-operate with (sometimes unannounced) audits from company representatives or independent auditors;
 
• Provide the name and location of every factory which they use in the manufacturing process; and
 
• By 2012, source 95% of all manufacturing inputs from suppliers which receive the highest ratings in relation to social and environmental practices.

In addition, the strategy also includes a range of targets relating to energy efficiency and product quality and safety, with particular emphasis upon its Chinese operations.

(Refer company announcement and International Herald Tribune article for more details)

 
Lessons from Nike
Associate Professor Chris McDonald, author of The Business Ethics Blog, draws a comparison with Nike. By all means, this is a valid comparison – Nike once had a poor reputation from the point of view of labor practices within its supply chain, but its reputation has improved considerably over recent years due to improvements in public transparency and accountability.

Nevertheless, the comparison with Nike raises three interesting issues:

 
• Wal-Mart’s efforts, at least in terms of public accountability and transparency, do not appear to be as extensive as those of the sporting goods manufacturer.

Nike currently provides full public disclosure in relation to (a) the location of supplier factories; and (b) the aggregate results of audits into labor conditions at supplier factories.

The announcement by Wal-Mart does not state whether or not such information will be publicly disclosed. If not, the general public will not have means by which to verify any claimed improvement in supply chain practices.

 
• Wal-Mart’s problems go beyond its suppliers.

Whilst the problems at Nike relate predominately to its external contract manufacturing practices, those at Wal-Mart extend further, and include alleged poor labor practices in the U.S.

If the company is serious about improving its reputation, it must address all of these issues, not just the issues which pertain to its supplier base.

Moreover, responsibility for improvement cannot be simply transferred to suppliers. Wal-Mart itself has a responsibility to adopt proactive supply chain management initiatives, including the training of suppliers in terms of best practice operating proceedures. Perhaps the most important action which the company could take is to cease placing unrealistic cost and time pressures upon its supply chain - suppliers must be provided with the opportunity to make improvements in operating practices without compromising the viability of their operations.

 
• Accountability is one thing, results are another.

As noted in an earlier post, whilst Nike has made significant improvements from an accountability viewpoint, its progress in terms of verifiable improvement on the factory floor has been very disappointing, with problems occurring frequently in terms of excessive overtime, poor occupational health and safety practices and failure to pay legal minimum wages.

Wal-Mart must go beyond Nike and demonstrate a substantial level of verifiable improvement at the level of the factory floor. Until this happens, no improvement in its corporate reputation will be justified.

 
Summary
Wal-Mart is to be commended on its positive initiatives, particularly its new supplier agreement.

Now comes the hard part – results on the factory floor.

When business and conservation groups fight against each other, both tend to lose out.

On the other hand, when they work together, mutually beneficial results are often achieved.

Today I would like to highlight the new Integrated Biodiversity Assessment Tool (IBAT), a wonderful example of a common sense project which can occur when large business and conservation groups work together in a spirit of mutual co-operation.

  
The problem
New business projects, such as construction of mines, pipelines, and many other forms of infrastructure, often have a significant impact on the area concerned from a viewpoint of biodiversity.

In order to prevent or mitigate this impact, or to avoid costly modifications to the project at later stages, it is crucial that such concerns are considered during the early stage of the planning process.

However there are at least two key barriers toward this end:

• Companies may be reluctant to share their plans with conservation groups until planning has reached a considerably advanced stage, lest they give away sensitive information.

• The process of conducting Environmental Impact Assessments (EIAs), which can involve compiling a substantial volume of information from a wide range of disparate sources, is arduous at best, and is often not complete prior to crucial decisions having to be made.

  
The solution
What business needs is a one stop shop – a singular, comprehensive, publicly accessible database which details, in consolidated form, complete information about each and every significant biologically sensitive area on a worldwide basis.

This is the objective of the IBAT, a consolidated web based analytical database which has been developed by Conservation International, in conjunction with a range of conservation groups and corporate partners.

  
How IBAT Works
Say, for example, that BP plans to build a new pipeline or road.

Regardless of where in the world the project is to take place, BP will be able to use the database to determine:

• whether or not any proposed construction routes intersected with legally protected areas;

• whether or not any such routes intersect with area which are not legally protected, but which are otherwise considered to be of significance from a conservation viewpoint; and

• which licenses or permits which, if any, the company will require.

Further, IBAT will also enable the company to explore each individual site in a considerable degree of detail and gain an in depth understanding of specific biological issues associated with the proposed construction routes, in turn providing guidance during the EAP process.

  
How IBAT benefits business
The benefits of IBAT to business will be twofold:

• Better information – earlier.

By helping companies indentify and accommodate specific conservation related concerns at an early stage of the planning process, the database will help to avoid: the need for significant adjustments to the project at a later stage; and/or any adverse reputational impact from allowing potentially destructive plans to reach advanced stages.

• Anonymity.

After an initial registration process, companies will be able to use IBAT on a completely anonymous basis, allowing them to search the database without fear of alerting external parties to any plans under consideration.

  
Environmental benefits
The benefits of IBAT from a conservation viewpoint are equally as clear.

The earlier that potential biodiversity related concerns are identified within the planning process, the greater the likelihood that firms will be willing to make adjustments to projects in order to accommodate such concerns.

  
Sleeping with the enemy produces results
Perhaps largely due to issues of mistrust, some on the side of both business and conservation have been reluctant to embrace any form of collaboration.

However, the IBAT initiative is a shinning example of the benefits to both which can accrue when they put aside any differences and work co-operatively toward mutually beneficial solutions and outcomes.

Dear readers,

Recently, I had the privilege of being interviewed by Saad Khan of Social Bridges, an organization dedicated to promoting responsible behavior amongst business in Pakistan.

The interview can be viewed here.

It was truly a pleasure to share my thoughts and opinions with readers of Social Bridges, particularly as I have a high level of respect for those involved with the organization and what they are trying to accomplish.

During the interview, Saad asked some thought provoking questions relating to Corporate Social Responsibility and Socially Responsible Investing, and I was challenged to think deeply about my responses.