Ed’s onto Something: Good Business

Tom’s October column for Progress Online explores how business can be better at being a force for good – by adopting some third sector values

 

The question about the role of business in society that Ed Miliband raised in his Labour conference speech is not as simple as whether a particular company is ‘good’ or ‘bad’; rather it is about their direction and speed of travel, how they interpret their role as corporate citizens, whether they are going where we, the public, want – or even need – them to go.

At its most basic, the private sector contributes to society by providing jobs for millions of employees and taxation for the Exchequer. Jobs bring money, security, fulfilment, advancement, rewards both tangible and otherwise. Employing more people reduces the burden on the taxpayer. Taxation is handed over by business with a greater or lesser degree of reluctance; ironically some of those which take liability reduction most seriously are generous in other ways, though the correlation is not universal.

The good corporate citizen goes beyond the basic, sees legal compliance as a starting point and not an end and accepts that companies have a greater role in their communities than employment and wealth creation alone.

Ten years ago the business case for ‘green’ behaviour had not been won; companies had not realised that they could save considerable sums by investing to reduce their energy usage. Still today some corporates remain unconvinced by the arguments for genuine, full-blown community engagement.

The dissenters are wrong. Study after study shows that companies which take care of their communities, through corporate giving and the promotion of employee giving programmes; or who foster a culture of staff volunteering; or otherwise establish a reputation not just for legal compliance but for overt ethical behaviour, do reap financial rewards. As with the environment, good impact mitigation through community stewardship is plain to see when it occurs.

What used to be known as corporate social responsibility takes many forms, but three things are clear: companies that practise it –

• Are held in higher esteem by their workforce than those who don’t, as seen in lower staff turnover and attracting more, and more highly qualified, job applicants
• All other things being equal, produce a higher and more reliable total return for shareholders
• Attract and retain customers from that growing part of society which regards ethical reputation as important.

Nowhere is the latter better seen than in fair trade. Over 20 years the volume and variety of fair trade goods has increased dramatically, as has demand for ethically sourced timber and other products. Those who demanded fair trade tea and coffee 20 years ago are today at the forefront of campaigns to see value chains support all the Millennium Development Goals and not just pay the producer fairly.

‘Charity of the Year’ remains a sought-after and lucrative status but top charities increasingly regard it as short-term and bureaucratic; companies too are starting to see charity partnerships as a recognition of common missions and not just a brief flirtation. No longer does the whim of the chairman’s wife decide where the profits from the company golf day should go: long-term commitments that genuinely help and support charities are being forged which can be justified on the company’s bottom line.

Indeed, the 2006 Companies Act says that companies should report to their shareholders not simply on their financial performance each year but on their triple bottom line – their impact on people and planet as well as profit. We still await the guidance from BIS that will make such reporting a reality over and above those pioneers – such as the Co-op Group, Aviva and Virgin – which are making the running.

Across London, dozens of companies have agreed to pay the London Living Wage, a minimum rate of pay over £1 per hour higher than the legal requirement. This is a fine example of a voluntary system which hospitals, banks, the Olympic people and others use to bring about social benefits which outweigh the marginal cost, not only for the communities inhabited by their poorest employees but ultimately for the companies themselves.

The business landscape is starting to be populated also by a breed of companies whose prime purpose is not the headlong grasp of profit at all costs: social enterprises. Punching well above its weight politically, this movement is the epitome of community-orientated, ethical business. It is tiny – barely £200 million was invested in it in the last financial year – but its members run nurseries, care homes, leisure, transport and other services and even some major hospitals. Over the next 10 years every analyst agrees that the sector will grow – although financial investment regulations need to be modified to encourage this.

There is now a British standard to encourage social responsibility in all corporate bodies, public and private. There are well-established means of giving and business engagement with charities is celebrated. In terms of employee volunteering having the sales department paint a few walls is old hat. It is being superseded by longer term relationships, well structured, outcome-driven and involving the exchange rather than the donation of skills.

This is what is meant by ‘good business’ in terms of community engagement. It is an acceptance that there is more to business than making money; such corporate activity is not inconsistent with financial success but it takes a route vastly different from that of the archetypal asset stripper.

In 2009 graduates at Harvard Business School were invited to sign the ‘MBA Oath’, a capitalist equivalent to medicine’s Hippocratic version. In short it says ‘I will play fair, I will not abuse my powers or influence as a business leader and I will never forget my responsibilities as a corporate citizen’. Since then 6,000 MBA graduates from 300 institutions around the world have signed up, many retrospectively.

It may be a drop in the ocean but it shows that plenty of people in business know exactly what Ed Miliband was talking about: that the corporate variety has the same responsibilities and duties towards society as any other citizen – and it is not unreasonable to expect them to be discharged.