The phrase “business ethics” is like the word “sustainability.” Everyone agrees with the concept, but no one knows quite what it means or how it applies to day-to-day operations. BCBusiness sat down with a roundtable of experts to discuss the issue.
We all like to think we’re honest people who deal with others fairly, yet occasionally a business might find its reputation tarnished by the court of public opinion or, worse, implicated in a public scandal. Kenneth Lay and Jeffrey Skilling probably started out running Enron with decent intentions, until a series of bad decisions piled up to become the train wreck that was the company’s demise. BCBusiness set out to decipher exactly what ethics means for businesses today. We convened a panel of experts on business ethics: an academic who has devoted his career to studying such questions and two executives whose companies have earned public recognition for exemplary business ethics. Mark Wexler is a professor of applied ethics at SFU’s business school. Ian Warner is COO at Vancity, which hosts the annual Ethics in Action Awards and leads by example, with a formal ethics policy and a board committee charged with helping all business units adhere to it. Dick Kouwenhoven is president and CEO of Hemlock Printers, which is recognized in the printing industry for its leadership in social responsibility, and was the winner of a 2005 Ethics in Action Award. We asked: How do you come up with your ethics policies, explain them to staff and integrate them into each of the thousands of decisions made every day? And we took it a step further: How do you monitor these policies to ensure compliance? And, perhaps most importantly: What’s the cost of implementing an ethics policy? What are the returns? And is there a financial upside companies can actually measure? BCBusiness: Let’s start by defining business ethics. Mark Wexler: There are two approaches: descriptive business ethics, which describes how the business community engages in practices above law and regulations, and the approach that emphasizes cultural periods. Business ethics in 1920 is different from business ethics in 1980, for example. The second one is called prescriptive business ethics, and that’s the one we’re mostly interested in. It determines what a business should do in order to achieve its ethical mandate in society. It doesn’t describe what a community does, but defines what it ought to be doing. Ian Warner: We have a 60-year history of trying to be an ethical organization, and we’re trying to get a process in place where we put on paper and in practice what we actually mean by the ethics. That really clarified things in terms of what is in and what isn’t in. We engaged our staff, we engaged our board, we engaged some of our members to try and collect all the elements that go into our ethics, because the question that comes up is, whose ethics are they? We didn’t want it to be “these are the ethics delivered from on high.” BCB: But everyone in the organization has a different set of ethics. How do you gel that together? IW: They did boil down to the topics we’ve got in our ethics policy right now. Those are the things that we talked about for quite a few years, and when we shared it with people, we asked, is there something missing in here? Animal testing came up large, for example, and yet it wasn’t incorporated into our ethics policy. There are other things that come up, that do fit in. The other important factor is that it’s an evolving document, so it’s not the same as it was in the 1920s. It’s got to be something we look at on an ongoing basis and with new information. Dick Kouwenhoven: Hemlock is a small company. We grew from two employees to 230 in about 35 years, and we did not have the luxury of incorporating ethics into business plans. Our culture is very much one of respect for each other, and I think that’s where the ethics starts in our organization. In the past 20 years, we’ve started to pay attention to things like environmental issues. We pioneered a lot of moves that our industry needed to do, and we achieved a number of significant goals that were not easy to reach. But we had a great group of employees that were willing to take risks and transfer into areas that were kind of new. It translates into the ethics of how we treat clients and how we respond to their needs. MW: I think Dick makes a good point, and that’s to distinguish firms that are overly PR-oriented with their ethics from those that have built a grassroots relationship with their employees. There are some firms whose ethics are not a matter of anything other than marketing; they tend to portray an image of something well above what they’ve actually accomplished inside. BCB: Was there a point where this became a formal commitment, Dick? Did your company develop a set of guidelines? DK: We have a value statement, which ethics is very much a part of, especially in the area of total honesty with each other and with the outside world. It is so well entrenched that we don’t have to worry about internal fighting or mistreatment of clients. It is communicated well and continues to be so every day. [pagebreak] BCB: Does the commitment to ethics come from the CEO or the employees? IW: Both. It has to be something that does come from the top and the senior level, but it also has to be credible at the lower level, and I think Dick’s comment about having an honest, open dialogue with your employees gets you a lot of that credibility. MW: To compare these two firms in size, once you get to the size of Vancity, you need a lot more internal vigilance and self-auditing, whereas Hemlock can still be run much as an extension of the leaders’ personalities, with the kind of dialogue that gets much more difficult in a company the size of Vancity. IW: My guess would be that it’s been like that from the start. I think that’s the way Vancity has been since the start. BCB: What’s in it for you, Ian or Dick? What are the goals, how do you measure them? How do you know whether or not you’re getting there? DK: About two or three years ago, someone said, “You know, you should go out there and tell your story.” We do it because it needs to be done. There really isn’t a payback or a single issue. That’s the way you want to interact. BCB: But what about the payback? What does it cost a company to be ethical? DK: There are costs, but there are also benefits. And in the final analysis there isn’t a great cost involved. MW: Most firms are motivated by some combination of the conscience of their employees and their values, and the idea that over time, reputation is a solid basis upon which to deal with the community. A good reputation does have capital bottom-line effects that can be measured as goodwill, etc. It’s not something to be mobilized quickly, but it’s something that most people recognize as being a rather good thing. DK: That is indeed the case. You and I are in the corporate world. If your reputation is enhanced by your involvement in the community, there are benefits. IW: For us, it’s the staff side of this. They want to work for an organization that has similar values to theirs. It’s huge in the competitive market we’re operating in. Reputation is another element. If you’re attracting organizations that are like-minded and organizations that want to deal with you for those reasons, it becomes easier to work together. Originally our ethics was sort of a negative screening: you are involved with these businesses, so we don’t want to associate with you. Then it became a way to move companies in a certain direction; we’ll engage with them and try to transition them to a different place. BCB: So this shift is important? MW: It’s important for three reasons. First, you want to give off a signal that you’re an ethical company. The second is that you want to be seen as a mentor and teacher within the culture. The third one, the positive one, is where ethics becomes the centre of the supply chain. If you evolve ethics slowly, you have to think of the long-term costs. The biggest enemy of ethics is short-term thinking: thinking that I could make a signal and a reward will come back quickly, and I don’t have to do very much to back up that signal. BCB: What about the day-to-day momentum? How do you make sure it’s not sliding – do you have committees? DK: We have a corporate social committee with approximately 11 people from various departments, with various focuses. New ideas come to the table and they get developed. Most recently, we installed a recycling centre for the employees, where techno trash and all the items that do not fit in the blue box can be disposed of. That committee is now looking at expanding into a client service. We reuse computer disks and other things for our internal collection, and now we’re looking at offering that to our clients. It’s a service. The associated cost is minimal. IW: The question on implementation comes down to, for example, when you’re looking at business banking and credit application, what kind of organization and business you’re dealing with. It’s not always black and white. You do get into shades of grey and we talk to our corporate sustainability group, the group that is spearheading the ethical policies and accountability rapport and tries to guide the decision-making process to help the business units to interpret it and come up with a decision. BCB: Would you refuse to do business with a company that you thought was acting unethically? IW: Absolutely. It’s easier to do at the beginning, rather than during a business relationship. We’ve had businesses come to us asking, how can you help us comply? It’s still new to us, though. We have to get the intentions out to have something to talk about. BCB: What if you’re a public company with shareholders and members, and your company is backing away from business because it doesn’t suit your ethics committee? MW: This is a public-sector question. If you’re going to be in business for the long run, you do not want to be associated with companies that are later found to be engaging in deviant behaviour. People get a bad reputation because they hang around people with bad reputations. BCB: Who defines what it means to be a good company or a bad company? For instance, a tobacco company may be very ethical and run its business cleanly, but you simply disagree with the sale of tobacco. So who determines whether it’s an ethical company? MW: There’s no absolute definition, but somebody has to make a decision whether or not they want to improve the ethics or reputation of the individual or firm. Some people are prepared to use that as a decision-making mechanism, while some people just decide on price, saying, for example, if I could find somebody cheaper than Hemlock or Vancity, I’ll go with them. Some companies use ethics purely as a marketing tool because they are targeting that part of the population that uses price and ethics, rather than price alone. Wal-Mart is trying to do both, and that’s a very difficult position. If you compete just on price, you have to lower the price at almost any cost. And in some cases, that may get you into controversial ethics. [pagebreak] BCB: So it would be difficult to compete on price and uphold your ethics. DK: It comes down to relationships, the culture of the company and the philosophy of the company. That becomes part of the value we place in the company. Of course, you cannot become the most expensive provider in your region; you have to be reasonable. But you often do not have to be rock bottom against somebody else that has less to offer, as far as ethics and liability are concerned. IW: For Vancity, you’re not going to get our business if you say, “We’re an ethical organization and we’re not competitive.” That’s just really big. We have to be sharp on our price and credit. MW: There are four values: reliability, trustworthiness, credibility and guarantees. You may say, “We might not have the lowest price, but we have these four added values.” You can try to build that into the socialization of your clients. You let them know. DK: And then you come to reputation. If you have a relationship like that, you get a lot of refund in referrals. That’s value that goes right to the bottom line. It’s a long-term thing. Other companies, smaller companies who are under pressure, you can see the pressure on ethics. Which is sad. MW: It’s true that maintaining ethics gets more difficult with size. But you can figure it out with your own career: the way you work, your short-term and long-term plans. We all have to make these decisions. Businesses face the same kinds of decisions, but it gets more difficult because you’re not the sole decision-maker. The payoff is the same, however. BCB: Dick, say Hemlock decides to buy biodegradable ink that costs a few cents more per litre, and you have to pass that cost onto customers. How do you feel when customers choose to go to cheaper competitors? DK: Well, it’s the customer’s decision. We don’t really judge customers. We do our very best to make the best case of what we believe is right. We have a program called Eco Alternative: if we get specifications in from a client that calls for a certain paper and we see an opportunity to make it more environmentally friendly, we will give them alternatives and show them the difference. We’ll explain to them that for the same price or for slightly more, they could print on 100-per-cent post-consumer recycled paper. IW: I didn’t mean to trivialize it when you asked if it was hard to turn down business. We do have aggressive targets for our staff; we spend a lot of time building credit applications and it becomes a hard situation for both sides if we have to turn down an application on ethical grounds. It’s not completely easy or obvious, but sometimes it’s the right thing for us to do. BCB: Could you say that doing business with a company you deem unethical never happens? Does it ever get pushed through anyway? IW: I’d say our decision would be on the side of “this looks grey; let’s not do it,” as opposed to “can we look the other way, just this once?” If we get to the finer lines of a situation, we have to look at what level of detail we’d like to get into, what we say yes or no to, or how it contributes to both sides of the situation. BCB: One could argue that credit unions can afford to be more ethical, but for a public company that is getting a lot of pressure for shareholder returns, it becomes more difficult. How do you see this evolving? MW: First of all, it is not easy to be ethical in all circumstances. The more you produce knowledge or services, the more you’re going to be dealing with reputation, and in North America we are moving in that direction. Ethics will become an interesting way of branding in the future. It becomes associated deeply with structure, with Vancity’s structure, with Hemlock’s structure, with Simon Fraser’s structure. BCB: To create value. MW: Yes, to create value. I’m not just buying a table, I’m also buying a personality: Dick’s personality, Mark’s personality. That is pretty hard-wired for the next 10 or 15 years into the future. DK: As a printer who has printed things like annual reports for the past 30 years, we’ve seen the ink become less flashy. And now we’re seeing sustainability reports taking the place of the flashy annual report. Many larger companies, especially those in the energy sector, are really paying attention. I would say that this drive toward reputation in public companies is very ethical. And sustainability is a very large part of it. MW: One of the ways to establish a reputation for being ethical is by walking the talk and showing people you can do it; showing people you have a committee to do this sort of thing. You sometimes have to give the signal before the recognition comes. BCB: Have things changed a lot, post-9/11, post-Enron? Has there been a lot of improvement in ethical business conduct, or is there simply just more talk about it? MW: I would think that where there’s talk, there will be action. The scandals are the result of the vigilance of the public looking at the back rooms of corporations. Part of the reason for this interest is the corporations’ announcement that “we are transparent.” BCB: What about consumers in general: are you seeing ethics playing an increasing role in their decisions, along with price? IW: I think consumers’ attitudes are changing. The environmental side of things is big. I think there’s a community of people that are like-minded in the various areas that we’re trying to comply with. Those communities, to me, seem to be growing – both in importance and in affluence. MW: If you’re poor and unemployed, you may have a firm desire to live in a comfortable, nature-oriented planet, but find it very difficult to imagine the ways to do that. If you’ve got a job and pension, it’s a lot easier to buy organic foods. BCB: The majority of B.C. businesses are small and medium-sized. I’m wondering if their approach to an ethics policy is, “I’ll get there when I can afford it.” MW: I think Hemlock is proof of the exact opposite. The way it started was not as an ethical company, but they built relationships early in order to grow from two to 230 employees. The norm for most businesses in the beginning is survival. You’ll probably survive in the long run if you build honest relationships with employees now, and they will later roll out a very good ethical format for building a long-term firm. IW: I don’t believe small businesses think of it as a luxury. I think it’s more to do with personality. Vancity has been like this as well. We’ve just been growing and growing, but we’ve maintained the same values. DK: I think new start-ups are increasingly incorporating this at the start, probably more consciously than I did 30 years ago. But they come out of university, where they have talks about ethics. It’s more likely to become part of a small company’s start.