You’ve embraced corporate social responsibility and the ecological movement, but how does that translate through your international dealings? Here’s a global view of ethical business.
John Elkington, founder of sustainable development and corporate responsibility consultancy SustainAbility, first coined the term ‘triple bottom line’ in 1994. Elkington used ‘triple bottom line’ to describe the concept of being able to measure a business not just by their financial profits, but also their management of people and the environment.
Ethical business is the internal and external manifestation of the triple bottom line; it is the marrying of positive economic factors in and of a business with its positive ecological and social effects.
If ethics is a contentious area in society, it’s even more so in the business world. What one business considers ethical could be a different story in a different business: think of how far some businesses stretch the truth in their advertising. This overview should show you how ethics can affect your international business dealings.
First, do no harm
What does it mean to do business ethically? Taking a leaf out of medicine’s book, ‘first, do no harm’. This means selling bomb-making kits won’t feature high on the list of ethical trades.
Seriously though, doing business ethically might simply start with your business premise. Businesses exist to make money, otherwise they’d be not-for-profit organisations. How you make your money and why you’re doing business is where the ethical part lies. If you’re making money from encouraging potentially harmful behaviour or consumption of potentially harmful products, you could be on ethically shaky ground, no matter how many charities you support; the business itself has to have its foundations in doing no harm to be ethical.
Earlier this year, national broadcaster Triple J published results of a survey on the habits of its Generation Y listeners. In jmag (August 2009) coordinator of the Protecting Children from Tobacco Coalition Stafford Saunders, says campaigns specifically telling children not to smoke sometimes backfire when children rebel against the message. He says he knows of at least one tobacco company “deliberately running an anti-youth campaign with the hope of picking up a few young customers along the way”.
While it may not be illegal to sell cigarettes, you could argue that it’s unethical to encourage children to take up smoking, considering that the tobacco industry has acknowledged the harmful nature of its products.
But the same applies to industries such as pharmaceuticals. Developing a drug that will alleviate the effects of a serious condition is widely acknowledged as a good thing; pushing the drug on people who may not need it, or who cannot afford it, is quite another. Being ethical is therefore not just about the premise of your business, but your behaviour.
Ethical inside out
In Australia, we are fortunate to have laws that govern the working conditions of employees, and laws that govern some unethical behaviour: for example, the Trade Practices Act places a responsibility on anyone involved in advertising and promotion not to engage in misleading and deceptive conduct. But not all unethical behaviour is illegal.
Fortunately, covering the grey areas we have a number of Government and non-Government watchdogs that keep suspect activity in check. Organisations such as the Australian Competition & Consumer Commission (ACCC) and the media make sure businesses are held accountable for their actions. As a result, it is rare to find a business on the wrong side of the ethical barrier without some kind of recrimination.
Internationally, it’s a different story. While in developed countries there are similar organisations to the ACCC, and media that is free to comment on perceived wrongdoings, in some developing countries these watchdogs don’t exist.
As someone doing business internationally, you need to look at what you directly and indirectly support when dealing with suppliers or customers in other countries. If you’re an importer, you might like to find out about the operating environment of your suppliers.
Say you’re a furniture importer: if you found out the manufacturer used timber from an unsustainable source that contained several endangered species onsite, and used child labour to assemble its products, would you reconsider your purchase? Most people would equate buying from that supplier as advocating behaviour that damages the environment and society, and therefore consider it unethical to trade with them.
Conversely, doing business with ethical suppliers supports their benevolent practices, which then spreads as success of the business grows. Initiatives such as the Fair Trade movement, which supports the social and environmental sustainability of producers and suppliers through positive commerce, are common in markets such as the United Kingdom and Western Europe where consumers demand such standards. There’s also growing awareness in Australia for goods produced under ethical circumstances, with benign origins.
Moreover, it’s not just about having the right labour conditions, but the way a business interacts with its supplier. A business can’t expect top labour conditions, and then “whack on huge orders with short turnaround times, which means that it’s impossible for your suppliers to do both,” says Duncan Green, head of research at Oxfam Great Britain. Therefore understanding how you do business with others will also ensure you can act ethically and place realistic expectations on other businesses to behave ethically too.
Exporters, particularly those with international assets, should apply the same principles. Green uses the example of entering into a joint venture. If your joint venture partner does something that you think is unethical, you shouldn’t just shrug and think ‘that’s how they do it here’.
“When you choose a joint venture partner, you choose them not just for a business fit but a cultural fit as well,” he says. “You have to make sure your joint venture partner understands what you’re talking about when you talk about ethical issues, and is willing to go there. The best way to make that happen is to show the business case for it. There is always a moral case and a business case for all these things.”
Ethics and benefits
Being ethical has its internal and external rewards. Beyond ensuring that you meet local employment laws, and international laws on human rights, “doing good is also doing good business,” says Green. “Your company benefits because it then has a better brand, better reputation, recruitment becomes easier, retention becomes easier.”
On that note, ‘doing bad’ could equate to public backlash, which has negative effects on business. Think Nike in the 1990s when the public found out it sourced its shoes and garments from Indonesians sweatshops; while the brand is probably one of the most stringent about ethical labour today, its reputation, which suffered in that period, will take some time to recover. “Once your reputation is tarnished, it takes decades to get it back,” Green agrees.
In Philanthrocapitalism, a book about capitalism’s role in the philanthropic world, authors Matthew Bishop and Michael Green touch on the benefits of ethical business—and the disadvantages of not being ethical: “When companies ignore the big issues of society, they can live to regret it.” They cite the time when British bank Barclays supported the South African apartheid: the result of a 1969 boycott led to Barclays losing 12 percent of the student banking market.
On the positive side, they recount how early corporate benevolence towards employees came from the idea that “better-looked-after workers would be more productive”. This included Port Sunlight, a village built by founder of Unilever Lord Leverhulme, which contained affordable housing for workers, schools, a library and other public buildings so workers could access facilities for self-improvement.
While you don’t have to provide your employees with a model village, it’s not hard to see that being kind to your workers and your suppliers leads to staff loyalty and a place among employers of choice. And when people want to come work for you, you have the pick of the talent crop, which is definitely good business.
People, planet, profit
Green believes it’s possible to be ethical and make money, and in fact highlights that business is extremely important for reducing poverty.
“The key sectors that really create jobs and push countries forward are the small to medium enterprises, so it’s about looking at what they need to flourish,” he explains. “As well as that flourishing business environment, what you need is a combination of active citizens—to hold Government and the private sector to account—and effective states to make sure the electricity stays on and the phones work and the people aren’t getting ripped off. If you have those three, you’re on your way.” It is therefore important that when businesses from external nations invest in these economies, they do so ethically so that there is a positive follow on effect.
Green offers the example of a mining company setting up in a village, often a controversial investment. “The key question there is paying taxes, being transparent about how you’re operating and respecting the wishes of the people in the area in which you’re mining,” he says. “There’s a whole bunch of good practices that many Australians should engage in, in terms of making sure that mining really does benefit local communities and the countries.”
From profit to philanthropy
On a proactive level, businesses can also become advocates for positive change through corporate philanthropy. The business premise of search engine giant Google, which carries the famous unofficial motto ‘Don’t be evil’, is to organise the world’s information and make it universally accessible and useful—not overtly philanthropic in itself.
However, its success begets responsibility according to Google co-founder Sergey Brin. He believes successful corporations have an obligation to use their resources to “at least try to solve or ameliorate a number of the world’s problems”. In Philanthrocapitalism he says: “In the long term, we will be better served—as shareholders and in all other ways—by a company that does good things for the world even if we forgo some short-term gains.”
This is where successful businesses can give back to the community if not already doing so through their core business. Whether you choose to donate time or money to a charity, or actively develop products or services to assist positive change, your business can benefit: not just through a warm, fuzzy feeling internally, but also by capitalising on your efforts externally through positive marketing.
So, what can your profits do for the people and the planet today?
Further reading
- Fair Trade Association Australia & New Zealand: www.fairtrade.com.au
- From Poverty to Power by Duncan Green (Oxfam Publishing, 2008): www.oxfam.org/en/policy/from_poverty_to_power
- Philanthrocapitalism by Matthew Bishop & Michael Green (A&C Black, 2008): www.philanthrocapitalism.net
CASE STUDY
Dilmah
More than two decades ago, a tea producer from Sri Lanka debuted his 100 percent Ceylon tea in Australia. Today, Dilmah, founded by Merrill J Fernando, is the second largest company in the black tea market, exporting to more than 90 countries worldwide.
In the 1950s, Fernando dreamt of having his own tea brand and set off to learn about producing, packing and marketing tea products. To his horror, he came to the industry at a time when multinationals were putting small tea brands out of business, with subsequent negative effects on production.
“The three or four big traders weakened the industry because they had buying power. I watched producers lose money on their crops and workers sharing that fate,” he recalls.
To make matters worse, he saw the tea of his homeland blended with inferior tea and inaccurately marketed as pure Ceylon tea. So, although disheartened by the power of the big brands, he saw the niche for single origin 100 percent Ceylon tea that would be grown and packed in Sri Lanka to enable the community to retain the benefits of the business.
Named after his sons Dilhan and Malik, Dilmah became Fernando’s “third child”. It was the world’s first fair trade tea where a producer could retain the profits from selling the product more or less directly to the consumer.
Fernando chose to debut the brand in Australia because he “knew Australians gave a fair break to the underdog”. Lacking funds to pay a celebrity to promote the brand, he fronted the camera himself, declaring his passion for Ceylon tea and closing with the now-famous line: ‘Do try it.’ Little did he know that that would be a refreshing change from the faceless multinational tea brands, popularity that this year led to the celebration of Dilmah’s 21st anniversary in Australia.
Despite its size, Dilmah has not forgotten the ethical premise of its beginnings. Earnings from global sales still go to the tea plantations where the tea is grown and packed, reinvested into the business and community. Dilmah workers enjoy healthcare and childcare services, while their children of school age have access to educational facilities.
Fernando’s son Dilhan adds that beyond the business side of Dilmah, the brand maintains the MJF Charitable Foundation, which sponsors community initiatives, including building schools and funding local reconstruction following the 2004 Indian Ocean tsunami, and provides microfinance to aid small businesses.
“It is an obligation, not an option, for every business to be a matter of human service. Every corporate is made up of normal people and it is being human to care for your neighbours,” he says. “The philosophy of business as a matter of human service needs cooperation and involvement from everyone, from the consumer to the retailers, to the media, to everyone in that chain, including our own representatives.”
Adds Fernando senior: “Everyone is a shareholder in my tea.”
—Find out more about Dilmah at www.dilmahtea.com and the MJF Charitable Foundation at www.mjffoundation.org
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