Recent years have brought a flood of stories about dubious standards in business. In the past, many of these might not have impinged on the public’s consciousness. But in today’s interconnected world, consumers and stakeholders are raising the bar for what’s acceptable in corporate behaviour. It’s up to boards and board members to ensure that businesses meet those expectations.
Stories of boards and leadership are the Aesop’s Fables of the business world–cautionary tales that warn us of what can go wrong when power, money and hubris blind business to ethical requirements and the needs and concerns of consumers and stakeholders.
In the past couple of years, we’ve seen stories about active annual general meetings, executive compensation, the governance of newly public companies, diversity in the boardroom and much, much more. From Olympus in Japan to Facebook, Yahoo and HP in Silicon Valley, geography is no boundary and the themes are universal. The volume and speed at which board-related stories are hitting the headlines are unprecedented, and the pace looks like it will increase in the coming years.
What has changed? First is transparency: the world is watching and talking. Information moves freely and quickly, so what happens in formerly dark corners of remote areas can no longer be brushed under the carpet or easily smoothed over by slick PR. The democratization of information is such that anyone has access to it and also has the means to spread it.
Second is connectedness: from the Arab Spring to the Occupy movement and then the “shareholder spring”, we are seeing a developing sense of interconnectedness among people and consumers. There is a greater understanding that no matter where people live, they have the same fundamental needs, wants and desires, and they deserve safe work environments and fair compensation. People care about where the goods they buy are made, how they are made, and who makes them. Their awareness is being raised by incidents like last year’s fire at a Bangladesh garment factory, a supplier to retailers around the world, that claimed the lives of over 100 workers. Consumers are acting on the knowledge that they have a role to play, speaking out and voting with their wallets.
Third is the global marketplace: companies like Apple and Nike, and many others, are increasingly selling their products where they manufacture. As the world is now less and less divided into producer and consumer countries, these issues are now literally close to home for many consumers.
All of this is complicated by doing business in developing countries where rules and regulations concerning wages, safety or corporate responsibility may be more flexible, or even nonexistent. The object as a business is not to go to a country and do the minimum required; the object is to set a global ethical standard and bring it with you wherever you operate. The case of Foxconn and Apple proves that the world is not willing to let companies so easily slide on failing to conduct their business with a global standard of ethics and fairness. Also, an increasing number of cases of corruption involve big businesses: for example, United States-based retailer Walmart went through a bribery scandal in Mexico while SNC-Lavalin, the largest engineering firm in Canada, saw the arrest of a former CEO.
Fourth is the ecosystem: boards are no longer only responsible to investors. They are accountable to the entire organisation’s ecosystem, including employees, customers, surrounding communities and investors. Understanding the ecosystem and the company’s responsibility within it must be a priority. Companies need to look not only at their returns, but at how they get them, and the cost to the communities in which they operate. BP and the Florida Gulf, Union Carbide and Bhopal, Apple and Foxconn, and, most recently, the tax affairs of Starbucks, Google and Amazon in the United Kingdom all serve as examples. Corporate accountability requires more than a token gesture or nonprofit giving. It needs to be central to the business, not an add-on, afterthought or Band-Aid.
Fifth is a demand for diversity: there is a growing public understanding that diversity in the boardroom is more than simply about optics. Healthy businesses need comprehensive diversity. Diversity of thought, experience, knowledge, understanding, perspective and age means that a board is more capable of seeing and understanding risks and coming up with robust solutions to address them. It is about the fundamental principles of good governance.
The European Commission has made steps to address this through legislation, and individual European countries, including Italy and France, have legislated for quotas. Even in countries where quotas have not been put into place, there are still strong movements to encourage diversity in the boardroom.
What can boards do? “Hear no evil, see no evil” will not work.
Boards must ask questions and demand full and complete disclosure. As board members, keeping our heads in the sand will not work. As soon as boards become aware of issues, they need to act swiftly and decisively.
We need to ask ourselves if our commitment goes beyond paper. Is ethical practice and holistic thinking in the DNA of the organization?
Is this kind of thinking relegated to separate corporate social responsibility programmes, or is there a comprehensive policy that lives and breathes beyond paper and policies?
We need to recognise that this is about every sector. Some spring easily to mind, but actually there is no sector–energy, pharmaceuticals, banking, technology and so on–that is unaffected. This applies to any company that does manufacturing, uses anything manufactured (as Foxconn proves, you are responsible for your sourcing), uses raw materials in its manufacturing (conflict minerals), does business in developing countries (fair wages, decent working conditions, bribery) and more.
We need to take a hard look at ourselves and ask, as board members and boards, are we passive or engaged? It is time for an active approach.
It is possible to take a tick-box approach and leave it to the risk register. But if we are committed to the long-term strength and viability of a company, and to the wider economy, we need to be asking hard questions and making sure we are genuinely satisfied with the answers.
Many corporate stories over the last couple of years have been negative. Here’s hoping that the coming years will bring some positive stories of bravery, integrity, and independence of thought and deed.
References and recommended sources
OECD work on corporate governance
OECD Forum 2013 Issues
More OECD Observer articles
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By Lucy Marcus, CEO of Marcus Venture Consulting
©OECD Yearbook 2013