Monthly Archive for March, 2009

The series of events which culminated in recession have reminded us of how the behaviour of business can directly impact society. Back in the moments when the seeds of crisis were sown this link might not have appeared so starkly, but now it is unmistakably clear – to both businesses and consumers.

Meanwhile, the relationship between business and the environment is coming into sharper focus, especially in consumers’ eyes. Research suggests that consumers are becoming increasingly interested in the green credentials of businesses, and some are willing to spend more to avoid environmentally unfriendly brands.

Resulting from these circumstances is an erosion of consumer trust in business. As a consequence, it is likely that in future businesses will have to show greater respect to both society and the environment, in order to maintain consumer trust and remain popular among consumers.

Faced with such a future, business leaders might wonder how best to act. We believe that – first and foremost – business owners and managers must make clear to themselves what it means to be socially and environmentally responsible. In essence, we believe businesses must define the codes they work by.

Rakesh Khurana and Nitin Nohria, of Harvard Business School, make the point well by arguing that business management should be turned into “a true profession in much the same way medicine and law have”. “True professions have codes, and the meaning and consequences of those codes are taught as part of the formal education required of their members. Through these codes, professional institutions forge an implicit social contract with society: Trust us to control and exercise jurisdiction over an important occupational category, and, in return, we will ensure that the members of our profession are worthy of your trust – that they will not only be competent to perform the tasks entrusted to them, but that they will also conduct themselves with high standards and great integrity.”

Industry-wide regulations of this nature are unlikely to emerge anytime soon, but that does not mean businesses cannot act individually to define their own codes. By defining and unequivocally accepting their ethical, societal and environmental responsibilities, businesses can create frameworks for their people to work by. Such codes might define a business’s attitude towards financial risk management or the training and development of its people, and express its desired approaches to producing ethically sourced and environmentally friendly products or services.

Ethical, social and environmental responsibilities are invariably difficult for businesses to live up to, because by definition a business is primarily driven by commercial self-interest. As Khurana and Nohria put it: “The main challenge in writing a code lies in reaching a broad consensus on the aims and social purpose of management. There are two deeply divided schools of thought. One school argues that management’s aim should simply be to maximize shareholder wealth; the other argues that management’s purpose is to balance the claims of all the firm’s stakeholders. Any code will have to steer a middle course in order to accommodate both the value-creating impetus of the shareholder value concept and the accountability inherent in the stakeholder approach.”

Finding this balance poses significant challenges for businesses. But, by rationalising its thinking in codes that reflect the desires of leaders and managers, businesses can begin to direct their culture and behaviour. If decision makers at every level are guided by a clear and unified voice, they can be enabled to act more responsibly in the moment of decision. For instance, if a manager is faced with a choice between an environmentally friendly supplier and a cheaper alternative, he may feel more confident about making the ‘right’ decision, if guided by clear organisational codes.

It is precisely these moments of decision that determine a business’s overall impact on society and the environment. And it is the sum of such decisions that ultimately determines how businesses will be judged by consumers. Through its codes, a business can permeate into organisation culture its ethical standards and expectations, so that when faced with difficult decisions employees are able to act in ways that satisfy the balance between commercial, societal and environmental interest.