The rise of business ethics

A recent article by Michael Skapinker in the Financial Times made the valid point that as far as ethical purchasing goes, consumers may talk the talk, but they are still a long way from walking the walk. A number of reasons are given as to why, most notably, consumers are inclined to tell researchers what they think they want them to hear but that when it comes to purchasing, it is still quicker and easier to make the same decisions you have always made.

If this is the case, then why has Unilever put such a sizeable investment into its Sustainable Living Plan? If sustainability and ethics have little impact on consumer behaviour, what is the point? Are CEO’s of major conglomerates more ethically concerned than Joe Public?

The issue here has less to do with ethics and more to do with the two Rs: Reputation and Regulation.

Let’s take reputation.  As Skapinker pointed out, Unilever’s Sustainable Living Plan was largely the response to an aggressive Greenpeace campaign against the company’s purchase of palm oil from an Indonesian company causing deforestation. Even if it’s only brief, no business likes a high profile demonstration against its activities, with all the resulting media coverage that this usually brings. That Unilever is now having to invest in an education campaign to explain why consumers should care if their margarine comes from sustainable palm oil illustrates the power of some of today’s campaigning organisations.

But reputation is only the starting point. While no company likes high profile media coverage exposing its shortcomings, particularly for environmental or human rights abuses, news stories, by their very nature, are mainly fleeting. As we have seen, sales figures and share prices of companies exposed for sweat-shop conditions go largely unchanged. The old adage that today’s news is tomorrow’s fish and chip paper seems to hold true.

So if reputations are only marginally tainted and sales figures go unchanged, what is driving companies such as Unilever, Nike and M&S to change behaviour? Businesses survive by staying ahead of the game.  Many understand that today’s campaign is tomorrow’s regulation. No business wants to be caught on the back foot if regulators decide to dictate the way they should behave, so what may be a perceived marketing strategy to drive consumer sales is in fact an attempt to jump before being pushed and to head off regulation by “keeping it voluntary”.

In the business-to-government and business-to-business world we see how reputational and regulatory risk drives behaviour to an even greater extent. Governments, as buyers, have become more demanding, insisting that their suppliers abide by certain standards and regulations.  Companies tendering for Government contracts need to be able to demonstrate their adherence to labour standards, human rights codes, anti-corruption and environmental legislation for example.  This has had an important impact on the way businesses behave and placed a real emphasis on living by the rules and implementing effective codes of conduct throughout a business.

A similar pattern is emerging among businesses selling to large corporations who are under extreme pressure to comply with laws and internationally acceptable standards of behaviour.  Due diligence of suppliers, which is being driven even further by legislation such as the Bribery Act, is resulting in businesses investing significant sums in checking and managing their practices and procedures to meet these demands and secure valuable contracts.  It may be down to winning business, but it is having a positive effect on business ethics.

So while consumers may claim to prefer companies with sound ethics, their purchasing patterns are far more fickle than those of Governments and corporations whose behaviour is heavily scrutinised. The prospect of damaged reputation, criminal prosecution, loss of business or even a fall from power means that when it comes to ethical behaviour it is businesses and governments not consumers that are starting to walk the walk as well as talk the talk.