Will ethics and social responsibility become the biggest drivers of corporate reputation going forward? Article icon

Will Helen Dunne reviews a lively morning debate

Michael Prescott, director of corporate affairs, BT

The notion that ethics and social responsibility are becoming ever more important rests in part on the fact that in the industrialised developed world, consumers are better educated than ever, better informed than ever, more quickly informed than ever, courtesy of social media, and more vocal than ever. And that amplifies a simple truth that people like people who like people and, by extension, people like companies that like people or care about people and, therefore, this becomes a bigger factor in corporate reputation.
 
Philip [Gawith] and I worked some time ago on the Cadbury Salmonella scare when some MPs told us that they were keeping quiet and not stirring things up because they had had such contact with Cadbury over such a long period that they knew it was a company that always tried to do the right thing and they trusted it.
 
BT devotes one per cent of its pre-tax profits to good causes. When we hire people, we'll give consideration to how we do that, and that has led to such things as a focus on recruiting former members of the armed forces.
 
While it is important for companies to do good things, it is probably more important for companies to make good stuff or to deliver services effectively. The purest case study is Apple. When Steve Jobs returned, one of the first things he did was to cancel all its philanthropic programmes. Most recently Apple has had the suicides at its manufacturer FoxConn, exposing details of its Chinese supply chain, but when these stories emerged, the cash registers at its stores did not go silent. And the anger on social media was very muted. People love Apple because they love its products and Apple has got away with doing very little about the issues that the people in this room care about.
 
Capitalists are useless about explaining the virtues of capitalism. Everyone in this room, I would warrant, is a capitalist and half of you will bridle that I have just said that. Most of our shareholders are big pension funds. We have to service our shareholders because that, in the end, pays pensions and all sorts of bills that contribute to society.
 
To run a company to maximum effectiveness, you have to have motivated, engaged employees. Employees feel better if the companies they work for are doing good things that they know about and can talk about.
 
It is not necessarily that a company's board says We must campaign on taxes, and get them down to zero per cent, it is down to differentials. It is one of life's tug of wars. Companies will lobby for lower taxes so they can invest more, reward other stakeholders more, and it is up to government to look at the international environment and decide where to set tax rates.
 
I did think Amazon, Starbucks and Google could and should have gone on the attack [when they appeared before the House of Commons Public Accounts Select Committee]. The fact of the matter is MPs, ministers, lawmakers set the laws and companies may lobby for different laws but we abide by the current ones. None of those companies had done anything illegal.
 
Fraser Hardie, senior partner, Blue Rubicon
  
Reputations are built on millions of acts and deeds that you do every day, and that starts with the way you do business. Reputation is and always will be important, but underneath that is the fundamental truth that any interactions are based on trust. A poor reputation, if it is driven by low levels of trust, does cost business money. Access is one cost, risk premiums, political interventions; there are lots of costs that accrue to industries and businesses that have low trust.
 
More important [than corporate social responsibility and sustainability] is the net effect of what you do and how you do it. Business is very poor at explaining its social value properly. In trying to professionalise the way we do CSR and manage sustainable businesses, we become metric obsessed and that drives us into a particular direction and allows us to ignore the net reality which is that, as a company, you'll be judged in the round: it is what people believe about you. It isn't as tidy as having a metric, a number, and things you can add up.
 
The biggest social good that companies deliver is jobs. And technology and inventions that transform people's lives, save lives or just make lives easier and create new levels of productivity that ultimately deliver growth. That is an enormous social value.
 
Companies are populated by people. Ethics, social responsibility and behaviour are governed by individual responsibilities. Individuals are guided by a corporate framework, so leadership is important. People follow leaders, and leaders are the culture setters of business and ultimately that affects their performance. To often the cost of poor leadership and decision making is not counted.
 
Often people say that the problem with being socially responsible is that the market doesn't reward it. In reality, it is more complex. If it was a simple linear decision about whether I buy that brand versus that brand, which is socially responsible, then yes, the market probably doesn't reward socially responsible brands because they are more expensive. The reality is that the decision framed around that is more complex and longer-term.
 
We are beginning to see companies, such as Procter & Gamble and Unilever, put their brands on the front of their products because they understand that, where the product comes from and the aggregate reputation of the corporation, is important to the decision making of consumers. If they have a long history of excellence in everything that they do, that adds to that brand. 
 
We are often too conservative about dealing with non-governmental organisations (NGOs) and other interests. Our natural instinct as corporations is to have a dialogue behind closed doors in a sophisticated way. But we should be more confident than that, confident about our place in society, and be willing to debate out in the open because public support would be there. And to find a way to articulate the value in what we do.
 
Philip Gawith, managing partner, StockWell Communications
  
Performance is the first responsibility of companies. I don't think that there are any examples of companies that fail to perform on a sustained basis that have a good corporate reputation. Let's take, for example, Tesco. In the second half of the previous decade, Tesco was absolutely flying - complete City darling, great strategy, hugely respected leadership but it ended up having a poor reputation among the chattering classes, and that was a real problem when, for example, they were trying to open stores in new locations.
 
Good intentions are not enough to get you a good reputation. Let's take the Co-operative Group and John Lewis Partnership, which have similar values. I would say that John Lewis has an excellent reputation and that Co-op has a mixed reputation. Both have great intentions but one appears to be executing it at a much greater level.
 
What is a good corporate reputation? It is an amalgam of reputations among different groups of stakeholders. If you take the banks as a sector, you have a convergence where some investors are now talking about quite explicit value-driven behaviours, but if you jump into another sector like mining, there is a very clear message coming from shareholders - give us more of the money.
 
Would we have had the same discussion ten years ago? I don't think we would. The cost of not managing your corporate reputation vis-à-vis society has gone up, and there are greater threats to it. On the day that AB Foods released its results, Oxfam released a report Behind the brands looking at ten brands in the food sector and their supply chain, and ranking them against seven criteria. Who comes bottom? AB Foods. This type of [action] did not used to happen and is a good reason why companies need to think harder about the issues.
 
Ian Wright, corporate relations director, Diageo
  
It's already the case that ethics, social responsibility, the way companies behave is a big driver of corporate reputation. The question of what is the biggest driver of reputation is, to some degree, a bit of a chimera. We can get carried away with trying to allocate 51 per cent to this, and 21 per cent to that particular driver. I do believe that, particularly in the corporate world, performance will be the biggest driver. If you don't perform then you probably won't get to the ethical question, which in some ways is a subsidiary question, particularly for bigger companies.
 
It is abundantly clear from the events of the last 18 months to two years, partly driven by austerity and the Prime Minister's dictum that we are all in it together, has generated a degree of public interest in the way corporates behave that we haven't had before.
 
[The focus on tax payments] absolutely hit Starbucks. Sales were 25 per cent down in the period when they were in the headlights. I think that is something to do with substitutability. If there is a substitute brand that you can turn to, then people will exercise their choice on an ethical basis. They won't be so ethical that they'll deny themselves something that they think they need; Amazon doesn't have many competitors so people didn't punish them.
 
I think the way companies behave, what we have called in Diageo over the past 15 years 'holistic performance', the way they deliver their numbers, the way they meet their goals, the way they produce their products is critical.
 
This is not just an issue in the West. It is very much an issue in the new, emerging economies. Our business is more than 50 per cent in emerging economies, and it is undoubtedly the case that in Africa, Asia and Latin America, the way a company behaves is critical in, firstly, getting a licence to operate and, secondly, in the way that consumers view that business.
 
We are a beer company in Africa. We bid for a business in Ethiopia when Meles Zenawi was still prime minister and very powerful. This was an important acquisition for us as it was the second biggest beer company in Ethiopia, where there are 80 million beer drinkers. We lost the tendering process but Meles reopened it because he wanted the most ethical, socially responsible bidder to win and that, in his judgment, was us. We have a very big responsible drinking programme and very strong environmental credentials, particularly around water. We got that business solely because of our reputation, so we know there is a commercial advantage. And we also know that consumers in Africa are increasingly turning to companies that locally source the staples that go into beer. We are beginning to see in emerging markets a very practical application of the need to have a great reputation.
 
We have compiled economic footprint reports for our 40 biggest markets, by country, particularly in Africa, Asia and Latin America. In our business, we pay tax on our profits, excise duties and sales tax. Showing how much you contribute to a country is a critical first step in engaging the government in a debate about how much tax you should pay. The first time I visited our Kenyan business, East African Breweries, which is not just the largest beer business but the largest in the country, there were three absolutely enormous cups in the reception area. I said Oh, I didn't realise we sponsor football, and the chap showing me round said No, those are the trophies the government rewards for the largest corporate tax payer. In emerging economies, the amount of tax you pay and how much you contribute is very important to the government.
 
It may sound counter-intuitive, but it is not in our interest for people to binge drink because what that does is threaten and certainly constrain our licence to operate. People abusing our products is unhelpful, and we will do anything we can (within reason) to stop that. We spend hundreds of millions of pounds every year trying to stop people drink driving, which is a huge problem in some countries. One in six road accidents in India results in a fatality, and half of those are caused by drink. In the US, the equivalent figure is one in 600.
 
The game [when it comes to corporate tax] has moved on. Perhaps the most interesting point in the current debate is the way that we use current standards and views and project them onto issues and debates and decisions that were taken years ago. Unless you can get a temperature of the times when decisions were taken, you will not get a very good understanding of what happens and why things happen.
 
We have to be very careful about hypocrisy: the same British public who get in a lather about Starbucks are the people who pay their decorator in cash and think nothing of it.
 
It is important to realise that some of the noise generated by NGOs is a result of them competing with each other. But the better ones do engage with corporates, and, assuming they are generally well intentioned, then working with them is something you have to do.
 
We are in the middle of a refresh of our sustainability and responsibility strategy. An independent third party is conducting 30 or 40 very detailed interviews with external stakeholders, who include NGOs and critics, such as doctors. Engaging with them and listening to what they say is now essential. Working with NGOs on projects is a bit different and, in our case, has usually floundered as a result of their reluctance to take part.