Are companies free to act ethically?
19 July 2017
Resources, food and the environment are global, intertwined challenges that need sustainably addressing. Trends making sustainability more important than ever include - globalization, displacement and movement of people, urbanization, climate change, poor air quality, shortages of fresh water.
This is nothing new. But what is new is the emergence of companies as leaders on sustainability. Companies are powerful actors in society. They represent well over half of GDP in many economies. So in addressing our challenges, companies have a large role to play.
Of course, we expect companies to behave ethically and understand how to make the right decisions. And therein lies the problem – under today’s circumstances, are companies free and able to evaluate what is right, and to make sustainable decisions? This is a questions of ethics and values.
Ethics, also as it applies to business, poses the question – how do I make the right decision? The answers assume that we are free to act, then places a framework of limits over that freedom. Ethics originates from rational thinking and science, taking inputs from our values as they change over time.
Values are easy reminders of what we have prioritised. They inform our actions, rather like a day to day ethical tool to determine what the right course is. For example, imagine a corruption incident. If we have a universal value of honesty, virtue ethics informs you that the right thing to do is to tell the truth and come clean to regulators, owners and others.
Consequential ethics might also guide you that the right thing to do is to tell the truth, though with less emphasis on the value itself, and only after balancing against the downsides (like penalties, court cases, time-perspectives, etc).
Traditionally, company values have focused on things like honesty, integrity, teamwork and ambition. Even trust, which is an outcome, has remarkably been treated as a value! Although helpful in our day to day activities, these traditional values seem not to tackle societal challenges directly. They fail to address complex, long-term aims such as sustainability.
Given the global challenges we face, there can be no more important aspect of any company’s framework for decision-making than sustainability. Yet, as we tackle these challenges, we rely on flawed thinking. The assumption that companies are free to act is wrong - it is arguable that they cannot act ethically because they are bound by outdated judgments that over-emphasise the financial.
Profit is often billed as sustainable in itself. But companies continue polluting and investing in high carbon infrastructure precisely because they are primarily expected to be profitable. We have taken decades to incentivise cleaner technologies and there remains urgent work to be done. We haven’t solved the political mess internationally on climate change and how to tackle it together (together being the operative word).
The wider context is important here - broad groups are angry, rallying against unfairness, globalisation and what they see as ‘elites’. As pointed out by the Business and Sustainable Development Commission, “we cannot defend a lazy return to the old model that has been so widely rejected over the past year.”
Change is afoot...
Businesses can reflect on the following as we take the lead in bringing about change:
Business has to define what is “right”, and act to rebuild the social contract. Missions, visions and values can take centre stage in shaping how a company and its employees act. The Sustainable Development Goals provide a rallying point.
Tough decisions will include cutting dangerous emissions. Not just a bit, a LOT. They may include paying more tax and certainly paying taxes in the right places. Tax havens must stop. Tough decisions will include investing time and funds to improve (or reject) poor business partners, including governments, whose values do not match those of the company.
Boards need to support CEOs doing the right thing and driving sustainable business.
To ensure fairness, financial lobbying must be recognised as a form of corruption and must completely stop. Sound democratic decisions can only be made when transparency is assured and financial influence is excluded. Lobbying could be replaced by representative committees who ensure expert understanding of complex topics.
As individuals, we can reflect on what a ‘life well spent’ looks like and encourage young people to do the same. Consider all of the talent that goes into profit-driven industries like corporate law, finance and banking. Imagine the achievements if those talents went into local government or praiseworthy research projects.