Restoring Trust in Business

GoodCorporation invited Charles Wookey from A Blueprint for Better Business to lead our most recent Business Ethics Debate which posed the question “How can we restore trust in business?”

Charles began by questioning the widely accepted philosophy that business is simply about profit and legality. If the only question that matters is “Is it legal and profitable?”, then the best interests of the customer are likely to be subordinated to the self-interest of the seller and the need for profit. Businesses, he argued, are bound by a moral and social sense of purpose but this purpose has become subsumed by the demands of a dominant fiscal and regulatory framework.

In order to restore trust and balance, we need to recognise the limits of regulation and restore a sense of purpose and a set of core values. Is the sense of purpose simply doing the right thing or is it something more? It was suggested that business needs to re-examine motivation and the reason staff get up in the morning; to look at what they are doing and why. Is it to maxmise shareholder value or is it to feel good about what we do and how we do it? This is nothing new, but a return to the core values of firms such as Cadbury and Quaker who delivered profitability and fair shareholder returns as a result of delivering an excellent service based on integrity that also met the needs of their customers.

Not only would this restore trust it would also deliver better, more profitable businesses. When ICI changed its purpose from innovation to maximising shareholder returns, it ceased trading within two years.

It was also suggested that many employees lead divided lives, required to abide by a code of conduct at work that they would not adopt at home. This, it was felt, is at the root of the problem and the reason behind poor ethical conduct in the workplace.

To address these issues, businesses need a culture shift. This must begin at board level and should start with a conversation about what makes the business unique. Does it fulfill a social purpose, does it have integrity and is it properly operational? Adopting such a business model will not only restore trust but also build better businesses that deliver more profit not less.

The issue of social purpose was discussed in detail. Some might question the social purpose of a defence company, for example, but this can be seen as defending the people of the nation state. Social purpose, therefore, is about connecting what the individual, company or sector does with what society wants or needs. Others argued that while businesses were capable of responsible conduct, regulators and law-makers were still necessary to ensure certain minimum standards of behaviour were enforced. Others felt that while rules are important, as we have seen, businesses have not been regulated into good behaviour. Although rules are needed, this has to be underpinned with an ethical culture. Regulation does not remove the need for responsibility and businesses must take responsibility for their conduct.

Some, however, felt that regulation can stifle innovation and while acknowledging that it is necessary to ensure a level playing field, businesses that wish to stimulate creativity and innovation, it was suggested, should begin by engaging with a clearer sense of purpose.

Others felt that social purpose could be complicated. An example was given of a bridge being built that facilitated a tribal war rather than an improved communication network. It was also suggested that the act of making money could be seen as a social purpose as taxes paid on profit are used for society’s benefit. However, if making money is the only purpose, appropriate motivation can be problematic: sales incentives in the financial sector have too often become the drivers of unethical conduct. Businesses need to examine their system of rewards and incentives to reduce the risks of such misconduct.

The discussion examined how a company’s social purpose should be defined, with some suggesting that this might be more easily achieved in family firms where a long-term view is more instinctively taken in order to preserve the business for the next generation. Others felt that a company’s social purpose needs to be agreed and defined at board level, but that this would be harder in larger organisations where the short-term profit motive is established and more dominant.

Both sides of the argument were questioned. Should business place so much importance on maximising shareholder value when the average shareholding is just 22 seconds? Some large organisations confirmed that their focus was what their business did, not what they delivered for shareholders. Others questioned the use of the term ‘social purpose’, claiming that all businesses are social because they operate in society, the term social is therefore not necessary and comes with the wrong associations. The focus should simply be on a sense of purpose. Purpose, it was argued, can unite and benefit all stakeholders

Conflating social purpose with the CSR agenda must also be avoided. Having a CSR programme is not the same as a sense of purpose and care must be taken to ensure that CSR does not become a displacement activity or a form of compensation for the core activities of the business.

It was agreed that the reason businesses have a licence to operate is because of what they do, their purpose. This does not need to be a ‘social’ purpose, but it must be acknowledged seriously at board level and course through the veins of the company. To do this, it was suggested, a company must identify the principles for which it is prepared to be held to account. There must be ownership for this at board level so the principles do not become the victim of changes at senior management level.

It was recommended that these principles should take pay and tax into account as these are real issues affecting society’s trust in business. Boards should also question themselves, asking if what the business does is still aligned with its purpose. Asking if a business is doing the right thing should be more important than asking if it is making enough money. If it asks the former, it was argued, the latter is likely to follow.

The debate examined how these principles can be applied to listed companies where there is a genuine requirement to deliver growth in shareholder returns. In large organisations, identifying the right strategy for delivering growth and motivating staff is crucial. The emphasis should be on stewardship, on innovation and good product development, not exploiting customers to deliver profit at any cost. CEOs should be encouraged to serve longer terms, not 2-5 years which is the current average. Examples were given of successful international companies that succeeded in instilling good corporate values throughout their organisations while delivering growth and profitability. Good communication is crucial to this success and while this can be hard in large international enterprises, it should be seen as an essential part of good corporate governance.

Business, it was argued, needs a new model and this should be based on placing purpose ahead of profit. In doing so, it was felt that businesses would build reputations, attract and retain good staff, deliver better products and, importantly, actually increase their profitability. These are principles, it was argued, that can be applied to any organisation regardless of size and if implemented successfully form a clear pathway to rebuilding trust.

GoodCorporation Business Ethics Debate: December 2013