Ethical business decisions in unethical markets

Blogikirjoitus   •   Elo 26, 2013 13:30 EEST

The constant barrier to CSR work is non-ethics, whether it is leadership styles as in “tone at the top” i.e. weak ethical leaders make weak sustainability agendas, or in business implementation with business to business corruption, or business to government corruption.

I have come across unauthentic environment certificates and quality certificates, bribed government inspectors closing their eyes to labour exploitation and ghastly environmental concerns and endless kick-back scenarios within companies no matter which industry or branch we speak of. This reality hits generally western companies entering emerging markets, such as India and China and hampers business decisions and creates inability to build key business partners such as suppliers and customers.

The immediate response in a situation of non-ethics is either references to local culture or a somewhat inability to strategically combat the issue/s at hand. The main reason is, lack of a firm and ethical leadership, at all levels of management in a company, and the inability to understand what kind of leadership is required to be able to successfully run an ethical business in emerging high risk markets and at the same time grow in business.

If you are making a decision that is illegal then it is not sustainable. If you refuse to learn about the new business environment you are entering it will not make economic sense. How do you know that something makes economic sense?

The difficulty here is to determine economic sense as you have short versus long term perspective, and externalities. Balance sheets are a set of decisions, but there are costs which does not show on a balance sheet, for example if your car cease to be your car once it leaves your manufacturing plant it also leaves your balance sheet and you can now measure your profit. What now happens to that car is an externality. Where does the metal, the rubber, the glass, where does the component parts go? These are externalities which are not included in your balance sheet, and regarded as someone elses problem (example taken from Dr. Carolyn Hotchkiss). However, from a long term perspective you may see costs which should be included in your balance sheet. Same principles goes for ethical issues.

Recent data and research indicates that investors and CEOs regard valuation of non-financial performance as a key issue. While it is broadly accepted that environmental and social (including ethical concerns: business practise) issues impact a company's financial performance and share price, making this causal link in a manner useful for investors remains intangible.

In order to make business practise and ethics tangible for your company, strategies for creating, building, hiring, attracting retaining and keeping ethical business leaders has to be initiated.

This might concretely be a topic within human resources, and business schools for that matters, but the question is; are the business leaders we produce today the leaders who can take firm ethical decisions in markets where unethical business practises are deeply rooted?

Dean of the Academy for Human Rights in Business
CSR Sweden