Ethics are rising up the business agenda

Posted on 7 June 2011 by

About to become a mainstream subject?

Cross-posted from the Valoro VGW blog.

Two different articles highlight the importance of ethics and integrity as corporate considerations.

Anthony D’Angelo, writing in Business Week, analyses the curious lack of attention paid to reputation management in business schools:

An analysis of highly ranked MBA programs by the Public Relations Society of America showed that only 16 percent offer a single course in crisis and conflict management, strategic communications, public relations, or whatever label one chooses to describe management of a precious organizational asset: reputation. Even that course is likely to be an elective. So glaring is this omission that it’s typical for MBA-holding executives to assume “reputation management” or “public relations” is the black art of spinning an alternative version of reality, as though that works in today’s wide-open, relentlessly scrutinized, electron-speed information environment.

One can’t blame organizational leaders for not understanding that the way they operate the business is inseparable from the way they communicate about the business, inside and outside the organization. They’re not educated sufficiently to know these are inextricably linked leadership requirements: You can’t have effective leadership without an effective communications strategy. The latter is based on authenticity and transparency because nothing else works.

The delusional separation that exists between what companies do and what they say is not examined in most MBA programs. Yet we wonder why so many company stakeholders – customers, shareowners, government officials, activist groups, community residents, employees, the news media, and so forth – don’t trust businesses.

Trust in companies and their leaders has never been lower. Peter Peterson, co-founder of the Blackstone Group, noted: “What matters is what the public thinks and the public trust is what’s really crashed.” Yet the course content that would directly address building trust, including ethics and communications strategies, is commonly absent or marginalized in MBA programs.

D’Angelo blames this situation on the academic silos which don’t easily allow multi-disciplinary consideration of “the related topics of ethics, social responsibility, reputation management, public affairs, interpersonal dynamics and organizational behavior”.  But I’m not sure this is right.  In my experience, an MBA is notable precisely for its multi-disciplinary character.  It brings a breadth of perspectives to a single object of focus, running a business, whereas most academic disciplines apply a depth of perspective to a variety of topics.

So if reputation management is not making it onto the academic syllabus, this is more likely to be by design than by systemic failure.  It is not offered because there is little demand.  To reach for a famous aphorism of Donald Rumsfeld: MBAs don’t know what they don’t know.  So they don’t think to ask for it.  One could argue that business schools are flunking their educational purpose by not putting reputation on the agenda.  But the failing is unlikely to be caused by the challenges of surmounting the barriers between disciplines.

Unfortunately, this Rumsfeldian ignorance of reputation management may well persist once MBAs continue their careers into corporate leadership.  As D’Angelo points out, executives are much more likely to heed the advice of corporate lawyers who counsel to say nothing than to weigh this against the equally pressing demand for honest communication.

The delusional separation between what companies do and what they say is an increasingly pressing concern of compliance officers.  Alicia Clegg reports in the FT how compliance jobs are broadening in scope.  Where once they were the domain of audit and legal specialists, they are now as likely to be occupied by ethics champions who possess both commercial credibility and the persuasion skills to change company cultures.

In the UK, at least, this is given an urgency by the Bribery Act, which comes into force next month.

The article gives some interesting examples of how different companies are facing up to the challenge of getting beyond a box-ticking approach to compliance and actually investigating whether practice on the ground is consistent with company policy and the law.  A particularly important requirement, the article notes, is a desire to hear the truth:

The skills required to isolate rotten apples are not necessarily those used in corporate audits. According to Louis Freeh, a former director of the FBI and founder of Freeh Group International Solutions, a compliance consultancy, many businesses follow scripts too rigidly rather than probing and picking up on unguarded remarks as investigators do. “A lot of companies are so process-driven that they forget the basic questions,” he says.

This encapsulates the challenge of ethical leadership and is what links the two articles.  Asking the right questions internally is the pre-condition both for understanding the compliance risks in an organisation and for effective, honest and authentic communication (about the company’s strengths and failings).

The bit in the middle is the hard stuff about aligning an organisation’s internal behaviour with the story it wants to present externally.  Creating a sound ethical compass for every employee is not the whole story, but it is a big part of it.

Image courtesy Jaap Stronks.

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The emotional context of business

Posted on 12 May 2011 by

A healthy emotional climate is a competitive advantage

Cross-posted from the Valoro VGW blog.

Some organisations have a knack for creating great places to work which get the best out of their people.

John Timpson, the chairman of the Timpson chain of shoe repair shops, swears by his system of “upside-down management”.  He believes the people in his shops have the best knowledge about the business and that it is his job is to get management out of their way.  He insists on as few rules as possible and gives staff the freedom to set prices, deal with complaints and decide their own training needs.

The John Lewis Partnership makes everyone in the company an owner, conferring on each of them a responsibility not just to do their jobs but to contribute to the leadership of the firm.  One John Lewis employee – quoted in The Guardian – speaks of:

The “passion and commitment” that come from “being engaged, because you have a vested interest in making sure it works, for you and for the people you work with.”

These companies – both doing well in difficult economic circumstances – are successful examples of what the writer, Bob Garratt, calls the emotional climate of an organisation.  They make the emotional climate a source of competitive advantage, by ensuring that employee behaviours deliver excellent customer experience.

In The Fish Rots from the Head, Garratt emphasises that it is the responsibility of the board to set an emotional climate that helps an organisation succeed.  The emotional climate covers many things: sharing a clear sense of what the organisation exists to achieve, beyond making money for shareholders; alignment behind the values that shape behaviour – such as excellence, creativity and risk-taking; and the ethical base of the enterprise – how you determine what is right and wrong.

One of the most important functions of a healthy emotional climate is to enable the organisation to learn from its experience.  Garratt concurs with Timpson that the most important knowledge is held by people who are low in the hierarchy but responsible every day for the customer interactions by which a company makes its name.  The insight they hold cannot reach the leaders of the organisation unless there is a mature emotional climate which allows people to have honest conversations about their experiences.

It’s 15 years since emotional intelligence entered the lexicon of corporate life, popularised by the writing of Daniel Goleman.  Yet few organisations give serious consideration to the emotional factors that shape their success.  Corporate culture operates in a rational, logical paradigm that is driven by numeric data and a quasi-scientific model of management.  This has its place.  But it is only part of the story.  In Western culture at least, organisations operate in a context in which the emotional dimension is increasingly important.

Given that most people’s basic material needs are well-met, people bring to their jobs and to their choices as consumers a higher-level need to express their sense of self.  The way they respond to situations at work is in large measure emotional.  But the instrumental nature of organisations – their focus on the task and the bottom line – makes them ill-equipped to to accommodate this aspect of human existence.  Workplaces on the whole are directive, command-and-control environments, in which people are expected to know their place and keep their heads down.

The influential psychologist, Carl Rogers, was one of the great advocates of the view of people as essentially self-directing, able to form their own standards and values on the basis of their own experience.  He insisted that people were inherently resourceful.  Timpson and John Lewis seem to understand this psychology.  They have high expectations of their people, inviting them to focus their imagination and initiative on the big picture not just their immediate job roles.

If work fails to find a way to draw out employees’ potential, they are likely to develop negative emotions towards their organisation and disengage their commitment.  The result is the opposite of an organisation that learns; it is one where insight stays where it is and the organisation hampers its own potential.

This is how organisations can preside over disasters even though the knowledge of something awry may have been widely grasped but never quite articulated.  The rational-logical paradigm is impervious to intuitively known truths that find scant expression in management data.  Neuroscience is demonstrating that the greater part of what we process of experience is unconscious.  If we are aware of it at all, it is as emotional reaction, gut instinct, possibly a sense of ease or unease about something.

Leaders of organisations need to find ways to tap into this kind of knowledge.  To access it is more of an art than a science.  It resides in the unofficial organisation: the subversive or irreverent stories that people tell each other; the informal sources of leadership to whom people listen.  Stories are vital to understanding what’s going on.  As the management theorist, Yiannis Gabriel, writes,  “Stories open valuable windows into the emotional, political and symbolic lives of organisations.”

For stories to be heard, there needs to be a safe environment for them to be disclosed.  It often takes people with specialist skills, such as journalists, coaches or academic researchers, to encourage people to share what is normally tacit knowledge.  But it is incumbent upon boards to ensure that – in the long term – emotionally honest conversations can flow without the intervention of specialists.

An organisation’s reputation is a direct function of the emotions it stirs up, good or ill.  The board needs a 360-degree understanding of what is happening if it is to apprehend hidden vulnerabilities and opportunities in the organisation.  If it can’t create a culture in which emotionally-laden messages can be communicated and understood, it may shut itself off from some of the most important information it needs to hear.

Image courtesy Seattle Municipal Archives.

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Valoro VGW launches to advise boards on reputation issues

Posted on 11 May 2011 by

I’m pleased to announce the launch of Valoro VGW, a company I’ve formed with two of my colleagues from the BBC: Michele Grant and Mark Wakefield.

From our website:

Valoro VGW are experts in reputation: what defines it, where it’s at risk, and what action boards should take to strengthen and protect it.

With our roots in analytical journalism, we dig deep to uncover what needs to be fixed rather than applying a PR spin. We understand how to pinpoint what has the propensity to provoke emotions – the spark that can ignite a crisis.

Regular readers of this blog may have noticed that recent posts have been reflecting my interest in this subject area.  I’ll be directing my thoughts on reputation issues in future to the Valoro VGW blog and my main focus here will be on more general coaching matters.

We have a Twitter feed @ValoroVGW.  If you’re a Twitter user, please give us some follow love.

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China’s disrespect for the law undermines its businesses

Posted on 8 April 2011 by

Ai Weiwei on a video link shortly before his detention in China

The FT reports on Huawei’s difficulties breaking into the US market.  Over the past decade, the Chinese firm has risen to become the world’s number two supplier of network equipment with growth in most major markets outside America.  But America’s growing distrust of China is proving a huge obstacle and it has failed to win any major contract with a leading US telecoms network:

This is in part because of the rocky state of Sino-US relations, including reports of cyberattacks on US companies such as Google in China. Fairly or unfairly, says James Lewis of the Center for Strategic and International Studies in Washington, America will be loath to entrust a Chinese group with access to its communications network if it has reason to suspect doing so would bolster cyberwarfare capabilities.

“Awareness in the national security policy community of threats in the cyber domain has greatly increased,” says Mr Mancuso. “So if you believe that the Chinese government is engaging in cyber-intrusion, you’ll have a problem with Huawei because Huawei sits smack in the middle of the industry supplying the critical infrastructure.”

The FT describes how Huawei has modelled itself on leading American businesses, taking advice from the likes of IBM, Accenture and Hays Group in order to win acceptance in the business community around the world.  But in contrast to the Europeans, Americans calculate that they cannot trust their communications networks to a firm that is suspected of receiving financial support from the Chinese state.  They fear Huawei may lack the autonomy to resist complicity with cyber-espionage.

The story brings to mind Abraham Lincoln’s lesson that we cannot escape history.  The FT quotes a Huawei executive complaining that Ericsson does not face the same difficulties in the US.  But Ericsson eminates from Sweden, which has a good reputation for respecting the rule of law and is not attracting a name for involvement in cyber-warfare.

Huawei, on the other hand, has a great deal to overcome in terms of the cultural baggage that comes with being a big Chinese player in the sensitive field of technology.  In the week of the detention of China’s most famous artist, Ai Weiwei, there are plenty of reminders that Beijing has at best a loose relationship with the rule of law.  Take this from The Economist:

The government now dismisses the idea that one function of the law is to defend people against the arbitrary exercise of state power. On March 4th a Chinese foreign ministry spokeswoman told foreign journalists who had been beaten up by Chinese police while going about their work: “Don’t use the law as a shield.” Some people, she said, want to make trouble in China and “for people with these kinds of motives, I think no law can protect them.”

One could argue that the treatment of dissidents and journalists has little relevance to the conduct of business.  But, as Jamil Anderlini argues in the FT, corporations too find that the assumptions and traditions that engender trust in business are lacking in China:

China, just as it has been for millennia, is ruled by individuals who make use of weak institutions, including the legal system, to achieve their own objectives. Many thousands of private businessmen have been on the receiving end of this behaviour in recent years, as their companies were swallowed up by competitors owned by the state or by politically-connected individuals. Numerous foreign companies involved in business disputes in China can attest to the frustration of dealing with a judiciary that must do the bidding of the local Communist party and the powerful individuals who control it.

There is a connection between the civic culture and the corporate culture of a nation.  If a state fails to respect the rule of law in relation to its citizens, why would it do so in relation to businesses?  Google decided that the compromises involved in conducting business in China were too great.  Having submitted to four years’ of self-censoring search results for the Chinese market, its Gmail security was penetrated from China in an apparent attempt to spy on Chinese dissidents.

All companies seeking growth in markets with repressive regimes must weigh risks against the potential for profits.  The stakes are infinitely higher when it comes to opening access to sensitive domestic infrastructure to companies with questionable links.

It is perhaps not surprising therefore that Huawei finds it faces higher hurdles in America than its competitors to demonstrate its trustworthiness as a telecoms supplier.  The question arises, though, as to why the Europeans are not so fastidious.  Will they one day regret being so sanguine?

Image courtesy Jurvetson.

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Reputation deconstructed

Posted on 7 April 2011 by

Googleplex, Mountain View, California

Amazon tops the Reputation Institute’s 2011 survey of the most reputable American companies. Google leads the global survey.

In relation to the US study, the RI found that the excellent companies were:

  • 2.5 times more likely to have the CEO set the strategy for their enterprise positioning
  • 1.5 times more likely to include reputation metrics as part of their senior management “dashboard”
  • 15 times more likely to manage corporate reputation across company functions
  • 1.7 times more likely to use an outside partner to assist with corporate reputation management

There’s some interesting detail on how reputation affects consumers’buying decisions. The RI found that people take into account their whole impression of a company, not just their view of its products or services, when deciding whether to buy:

Reputation Institute’s analysis of the seven dimensions of corporate reputation shows that perceptions of the enterprise (Workplace, Governance, Citizenship, Financial Performance and Leadership) trump product perceptions (Products & Services plus Innovation) when it comes to driving behaviors. The five enterprise dimensions drive 61% of purchase consideration and 58% of recommendation/advocacy behavior with consumers. This provides further proof of what Reputation Institute calls the “reputation economy” – a place where people increasingly choose among competing products and services based on their impressions of how the companies behind them behave.

Apparently, Amazon’s success marks the first time an online company has come top of the US survey. Forbes provides a useful summary of the foundations of its reputation:

Amazon earned its No. 1 rank by providing value to users, staying ahead of the curve in technology and innovation and responding quickly and ethically to scandals. The Seattle-based company flourishes on transparency and trust. It offers customers a dependable online shopping experience with trustworthy third-party vendors. Users trust and value its product recommendation system, which suggests products based on one’s purchasing history.

The online retailer also capitalized on the success of its Kindle e-reader last year as e-book sales soared. That, combined with developments in cloud computing, an Android app store and digital movie streaming helped Amazon do especially well in the products and services and innovation dimensions.

Consumers also got a glimpse of the company’s values in November when it responded to thousands of outraged users by quickly removing a pedophilia book from its digital shelves.

While Amazon’s lead seems intuitively correct, Google’s position at the top of the global poll is more puzzling. The analysis seems to be that Google has won trust for the way it responded to revelations that elicited criticism of its business practices. Forbes again:

When the Mountain View, Calif., company pulled out of China to avoid showing censored search results to users there in late March, Google sent a message to the rest of the world that its values would be placed ahead of its profits. The decision resonated strongly in Central and Northern Europe, Central and South America and in North America, where consumers rated the company within the top five most-reputable businesses.

When privacy issues arise around its business, Google usually responds quickly: Recently the search giant said it would keep its Street View cars from picking up wireless networking data after Google revealed that these vehicles had collected content of users’Internet communications on open Wi-Fi networks.

My take is that these kind of incidents are more damaging than the RI’s survey is picking up. Google was widely criticised when it went into China and it pulled out only when it found that the profitability was not sufficient to justify the reputational flak, which extended to the compromising of its security when the Gmail accounts of Chinese dissidents were hacked. (See this analysis at the time by John Naughton.)

In the recent ruling on Google Books, Judge Denny Chin was highly critical of the way Google had gone about digitising books without the permission of copyright owners:

The ASA [Google's proposed agreement with publishers] would grant Google control over the digital commercialization of millions of books, including orphan books and other unclaimed works. And it would do so even though Google engaged in wholesale, blatant copying, without first obtaining copyright permissions. While its competitors went through the “painstaking” and “costly” process of obtaining permissions before scanning copyrighted books, “Google by comparison took a shortcut by copying anything and everything regardless of copyright status.” As one objector put it: “Google pursued its copyright project in calculated disregard of authors’rights. Its business plan was: ‘So, sue me.’”

Similarly, the US Federal Trade Commission found recently that Google violated its own privacy policy in the launch of Google Buzz and it identified other shortcomings in Google’s practices:

The FTC said “deceptive tactics” were used to populate the network with personal data gained from use of Gmail, and that when users were given the change to opt-out of Buzz, they were still enrolled in some of its features. For those that did decide to opt-in, the FTC says the implications of that were not made clear. “Google also offered a ‘Turn off Buzz’option that did not fully remove the user from the social network,” it said.

The remedies put in place in both these cases will go some way to assuring consumers and other stakeholders about the ethics and trustworthiness of Google’s business practices in future. With respect to Google books, it is likely that Google and publishers will agree a system whereby authors and copyright owners will opt-in to the digitisation of their work rather than having to opt out of it. And the outcome of the Google Buzz case is that the company will be subject to an annual privacy audit for 20 years.

However, the impression is created of a company that pushes the ethical boundaries until it is successfully held to account. Google makes fantastic products which offer innovation and ease of use at apparently negligible prices. These products are the foundation of Google’s positive reputation. But Google’s enterprise-wide story contains narratives which are problematic. In other words, it presents the inverse of the RI’s model for excellence and this can’t be encouraging for Google’s reputation in the long term.

Image courtesy Marcin Wichary.

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The social purpose of business

Posted on 5 April 2011 by

Cadbury's packing room at Bournville

Since the start of 2011, I’ve been noticing increasingly common references to the social purpose of business – an idea which, until recently, many would have regarded as an oxymoron.

The first sighting was a Harvard Business Review cover article by Michael Porter and Mark Kramer called Creating Social Value.  This argues that capitalism is facing a crisis of legitimacy which can be overcome only if businesses put aside the notion that there is an inherent trade-off between profitability and attention to social needs.

After that, references came grouped together like buses.  Matthew Taylor referred to Porter and Kramer in a blog post he wrote on the contribution businesses could make to David Cameron’s Big Society (they have potential to deploy their brands and their product development on encouraging socially desirable behavioural change).

Last month, the Governor of the Bank of England, Mervyn King, contrasted the behaviour of banks with the moral purpose of manufacturing firms:

Such firms pay far lower rewards than financial services but have “an incredibly successful record. They care deeply about their workforce, about their customers and, above all, are proud of their products”. With the banks, it’s different: “There isn’t that sense of longer-term relationships…”  Since the Big Bang in the late 1980s, Mr King goes on, too many in financial services have thought “if it’s possible to make money out of gullible or unsuspecting customers, particularly institutional customers, that is perfectly acceptable”. Good businesses “keep a clear vision of who their customers are, and are run by people who don’t think they should simply maximise profits next week”. But in the past 25 years, banks have increasingly “taken bets with other people’s money”.

The Chief Executive of GlaxoSmithKline, Andrew Witty, has also spoken of the importance of companies being rooted in their societies:

I don’t buy that you can be this mid-Atlantic floating entity with no allegiance to anybody except the lowest tax rate… We have given a lot to Britain, but Britain has given a lot to this company. The company wouldn’t exist without the work of British people, without the contribution of British universities, without the support of the British government.

The core of Porter and Kramer’s idea of shared value is that contributing to society can be a source of competitive advantage and profitability for corporations.  I was struck as much by the provenance of the argument as the fact of it, since Michael Porter is one of the most renowned of strategy gurus – the propagator of concepts such as the value chain and the five forces model of competitiveness.  As you might expect, then, he and Kramer emphatically distance themselves from approaches to social impact which bolt on “doing good” to a firm’s activities:

A good example of this difference in perspective is the fair trade movement in purchasing. Fair trade aims to increase the proportion of revenue that goes to poor farmers by paying them higher prices for the same crops. Though this may be a noble sentiment, fair trade is mostly about redistribution rather than expanding the overall amount of value created. A shared value perspective, instead, focuses on improving growing techniques and strengthening the local cluster of supporting suppliers and other institutions in order to increase farmers’ efficiency, yields, product quality, and sustainability. This leads to a bigger pie of revenue and profits that benefits both farmers and the companies that buy from them. Early studies of cocoa farmers in the Côte d’Ivoire, for instance, suggest that while fair trade can increase farmers’ incomes by 10% to 20%, shared value investments can raise their incomes by more than 300%.

Porter and Kramer outline three broad approaches to shared value: developing businesses around products and services that meet society’s needs; tackling the value chain to reduce the environmental impact of operations and optimise the welfare of employees; and developing the social and infrastructural fabric around firms to encourage the emergence of economic clusters like the IT industry in Silicon Valley.

Only the first of these strikes me as a new contribution.  There has always been a social dimension to business.  As a 2002 article from The Economist points out, not only do companies operate under the state-granted priviliege of limited liability, they also tend to recognise their long-term interest in supporting the welfare of their employees.  The firm of Cadbury’s, which was founded by Quakers and created the model town of Bournville, is typical says The Economist of an Anglo-Saxon tradition of capitalism which has “often willingly taken on social obligations without the prompting of government.” Substantiating this claim, The Economist goes on:

Nor has corporate social responsibility been the preserve only of a few do-gooders inspired by religion. The notorious “robber barons” built much of America’s educational and health infrastructure. Company towns, such as Pullman, were constructed, the argument being that well-housed, well-educated workers would be more productive than their feckless, slum-dwelling contemporaries.

Companies introduced pensions and health-care benefits long before governments told them to do so. Procter & Gamble pioneered disability and retirement pensions (in 1915), the eight-hour day (in 1918) and, most important of all, guaranteed work for at least 48 weeks a year (in the 1920s). Henry Ford became a cult figure by paying his workers $5 an hour—twice the market rate. Henry Heinz paid for education in citizenship for his employees, and Tom Watson’s IBM gave its workers everything from subsidised education to country-club membership.

Critics tend to dismiss all this as window-dressing. But Richard Tedlow, an historian at Harvard Business School, argues that they confuse the habits of capital markets with those of companies. Capital markets may be ruthless in pursuing short-term results. Corporations, he says, have always tended to be more long-termist.

It was the free-market era ushered in by Margaret Thatcher and Ronald Reagan in the 1980s that put more of a focus on the shareholder interest pure and simple.  But recent crises – stretching from the Enron scandal to the banking collapses – have brought to the fore again the mutual interdependence between shareholders’interests and those of wider society.

It was an article by Geoff Mulgan at the weekend which crystallised for me why it is the first part of Porter and Kramer’s thesis – the potential to create economic value by meeting social needs – that is most timely and relevant.  Mulgan describes how the Victorian tradition of technical innovation by lone pioneers was industrialised through the 20th century by companies who created markets for mass-produced goods.  He believes we are now reaching the end of this long era in which capitalism flourished through meeting material needs:

Wealth remains preferable to poverty and the queues for the iPad2 show the continuing appeal of new things, as do the forecasts that by mid-century the roads of India and China will, between them, be making room for 800 million cars.

Yet for all the impact of technology on everything from cutting carbon emissions (through the use of smart grids or hybrid cars) to organising demonstrations (like UK Uncut) it is no longer so obvious that the innovations that matter most are innovations in things.

Mulgan argues that there is a need and an opportunity for enterprises to apply their capacity for innovation to meeting social needs:

If you ask which sectors will dominate the economy of 10 or 20 years’time the answer is not cars or steel or ships, let alone agriculture. Instead, the industries of “wellness” look most likely to prosper. Health is already a dominant sector in most societies and the one most guaranteed to grow.

Business has been slow to grasp this shift but there are some good examples of business engagement in social innovation. One such is M-Pesa, which uses mobile phones in east Africa to provide an entirely new banking system for poor people, without the costs of a branch network. This is a classic social innovation that meets needs and promotes happiness, but is being run as a commercial operation.

This is spot-on.  The reason why Porter and Kramer are right to argue that businesses, if they do, should stop seeing a trade-off between profitability and societal benefit is because there are diminishing returns in their focussing on the production of things.  The commoditisation of material goods and the abundance of choice that now faces consumers mean that addressing social needs is the next area of competitive advantage.  As Abraham Maslow might have recognised, companies have done such a good job of taking care of people’s lower level material needs that its the higher level social needs that now present the best opportunities for profits.

The old debate about the social responsibility of companies for employee welfare or sustainability in the value chain concerns how companies do business.  The new discussion about the social purpose of companies concerns what businesses they are in.  The opportunity exists for businesses to create economic value for business owners by applying corporate ingenuity to social problems that governments and communities find it hard to address.

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Welcome to London

Posted on 8 March 2011 by

Home to the reputationally challenged

There’s some interesting coverage today of the reputational fallout of Britain’s relationship with Libya.

Philip Stephens, in the FT, examines London’s status as a place where dictators can launder their image.  He portrays a city where it is just so much a part of the everyday culture of business to deal with unsavoury regimes that the risks are normalised.

Britain, he says, has become a “coin-operated laundry for the reputationally challenged.” He’s referring not only to the PR agencies which cast dictators in a more benign light, but the investment advisors, hedge funds and private banks that help them recycle ill-gotten money into more legitimate vehicles.

But, in contrast to the fashionable view that the modern media environment – with its Wikileaks and social networks –  leaves no place to hide, he minimises the capability of the media to publicise this kind of activity.  This is because Britain offers another advantage to those wanting to launder their reputation:

“It comes in the form of draconian libel laws and, this goes without saying, a battery of lawyers ready to ensure that the protection of the courts is put at the disposal of anyone with sufficient riches to pay their exorbitant fees.

“The media has been muzzled. To dig deep into the dealings of peripatetic billionaires and foreign despots is to invite instant legal challenge. The law demands journalists provide absolute proof of dubious dealings. That’s hard to find in the wild west of the former Soviet Union or the closed world of Middle Eastern autocrats. So, in spite of the occasional bouts of indignation, Britain shrugs its shoulders and gets on with the washing.”

This may provide some comfort to dictators and oligarchs.  But as Michael Skapinker, also in the FT, points out there are many who are now having to account for their relationships with dictators.

While he emphasises that few organisations are immune from the perils of doing business with dodgy regimes, he suggests that it is at least reasonable to expect companies to avoid actually becoming agents of repression.

But even here, it is hard to draw a firm line.  Vodafone was criticised for complying with a request from Hosni Mubarak’s regime to shut down its network in Egypt.  It had to choose between the interests of the regime and the safety of its workers and chose the latter.

As Michael Skapinker argues, companies cannot avoid have a clear understanding of their ethical position:

“The battle for corporate principle is one you fight every day but it is easier when you have a firm idea of the line your company will not cross.

“Every organisation needs its own sense of where that line is. It might be that it will never be complicit in torture or act in a way that will put regime opponents at risk or, as Vodafone argued, that it will put its employees’ safety first.”

Sensible advice.  There’s a beguiling safety in aligning one’s practice with the prevailing consensus.  But when the reckoning comes, there’s no substitute for one’s judgment having been reached with integrity.

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