There are signs that the Gordon Gekko culture of “greed is good” is dying and that corporate survival will depend on not only giving customers what they want but also being seen to have and act on a wide range of ethical values and behaviours.
In an environment of high employment and significant skill shortages in many sectors, the bargaining power of millennials and Generation X will only strengthen as the older generation of employees retires.
Equally, the power of consumers and customers choosing who to buy from is having a greater impact on corporates’ processes and practices.
In this context, CSR (Corporate Social Responsibility) policies will no longer be enough. Too many of them have been unmasked as marketing and PR exercises among the larger corporations and of little practical substance. SMEs often fare better, however, being closer to their localities and customer base, where their greater visibility puts them under pressure to be more accountable.
However, movements like Extinction Rebellion, highlighting the urgency of acting on environmental damage, as well as greater publicity about the treatment of whistleblowers who have unmasked the less than ethical behaviours of their employers (eg the Cambridge Analytica scandal), often at great cost to themselves, have focused attention on better ways of assessing corporate behaviour.
To address these concerns, ESG (Environmental, Social and Governance) is becoming more and more popular as way of assessing Sustainable Investment.
ESG incorporates measurements of how businesses respond to climate change, treat their workers, build trust and foster innovation and manage their supply chains. ESG is also becoming a key marker for investors decisions, according to a blog by npower, which claims that “a quarter of the world’s professionally-managed investment funds now only invest in companies that demonstrate solid ESG credentials”.
It quotes Nigel Topping, the head of the We Mean Business coalition of 889 companies with $17.6trn in market capitalisation: “If these challenges are tucked away and approached solely for compliance reasons, they are not being integrated. And if businesses aren’t incorporating them into financial decisions and long-term planning, then they are not being taken seriously – which leaves the business poorly prepared for the future.”
Businesses can adopt a process of continuous improvement on their energy efficiency, for example, by adopting the globally-recognised ISO 50001 standard, which can be verified and used to reassure customers, clients and investors.
Employee and consumer pressure means incorporating ethics for corporate survival
Investor, employee and consumer pressure is mounting for companies to incorporate the values that will help ensure corporate survival, despite some being at the expense of short term profits. This is somewhat at odds with many senior executives whose focus has been on reporting profits. The focus on profits has been understandable since they underpin most reward structures but this will need to change as ESG gains acceptance.
There are many recent examples of changes to corporate behaviour as a result of consumer pressure, most notably this year’s focus on plastic waste and environmental pollution.
Not surprisingly, the superstores and hospitality industries have been in the forefront. McDonalds has committed to completing a roll-out of bringing in paper straws in all its outlets by the end of the year.
Waitrose removed all its plastic straws from sale last year and has promised to reduce plastic whenever possible, while Iceland aims to be “plastic-free” by 2023.
Single-use plastic carrier bags are no longer to be had in virtually all the superstore chains and both Morrisons and Sainsbury are rolling out plastic-free fruit and veg areas across their stores.
But ethical behaviour is not focused solely on environmental concerns.
Just a few days ago the Chartered Institute of Credit Management (CICM) suspended another 18 businesses from the Prompt Payment Code for failing to pay 95% of all supplier invoices within 60 days. They included Screwfix, Galliford Try, and Severfield.
Employees and potential employees are also becoming more discriminating.
Research in the USA has revealed that:
* 75 percent of millennials would take a pay cut to work for a socially responsible company.
* 76 percent of millennials consider a company’s social and environmental commitments before deciding where to work.
* 64 percent of millennials won’t take a job if a potential employer doesn’t have strong corporate responsibility practices.
PriceWaterhouseCooper has also studied the millennial generation and found that “corporate social values become more important to millennials when choosing an employer once their basic needs, like adequate pay and working conditions, are met”. Their report concluded that “millennials want their work to have a purpose, to contribute something to the world and they want to be proud of their employer.”
There are moves afoot from the Government, too, to strengthen protection for those who discover unethical, or unlawful, behaviour in their workplaces and become “whistleblowers”.
Business minister Kelly Tolhurst has announced proposed new laws to ban the use of NDAs (non-disclosure agreements) that stop people disclosing information about their employer to the police, doctors or lawyers.
There remains the issue of excessive corporate executive remuneration to tackle. While there has been a significant increase in the numbers of shareholders who have questioned CEO and director level remuneration, so far, the High Pay Centre has found that every single vote at a FTSE 100 firm was approved between 2014 and 2018.
Clearly there is some way to go before the adoption of ESG by corporates becomes the norm, but the momentum is there and businesses should pay heed as their corporate survival will increasingly depend on it.