Reference no: EM13811340

Ethics and Social Responsibility in Business

Summarize:

People have been debating the place of ethics and social responsibility in business for many years. Throughout history, there are examples of companies that have treated ethics and social responsibility very seriously. But there are also many examples of companies that have appeared to completely ignore these issues.

The same is true today. Some companies have a keen interest in ethics and social responsibility while other companies concentrate purely on profits and the financial bottom line. However, evidence is mounting that ethics and profits are not incompatible.

Ethical investment means choosing to invest in a way that reflects your values and screening out companies deemed to be involved in unethical practices. Not only are ethical investment funds growing much more rapidly than conventional funds, but studies have shown that ethical investment funds often perform slightly better. In this program, we're going to discuss what we mean by social responsibility and ethics in business. To help us examine these topics, we're going to profile two companies that have successfully incorporated ethics and social responsibility into their core business strategy-- Bendigo Bank and The Body Shop.

Defining social responsibility in business is a complex task because there are a wide variety of possible interpretations. Perhaps the most basic form of social responsibility is shown by companies that do everything required by law to address a social problem, but nothing more. Because these companies aren't breaking the law, they could be deemed to be socially responsible. However, many would argue that this is not sufficient.

For example, tobacco companies have tried many ways of circumventing bans on tobacco advertising. While these methods may be legal, many people would not consider them to be socially responsible. So for the purposes of this discussion, we'll use a more specific definition. Social responsibility and business must protect and enhance the welfare of society. But even this definition can be open to interpretation.

For example, many companies don't actively seek out ways to benefit society, but may provide funding and support in response to requests from organizations like charities, art groups, and community groups. This can be characterized as a reactive position. Other companies, such as The Body Shop and Bendigo Bank, adopt a more proactive approach. They actively seek out opportunities to protect and enhance the welfare of society.

In some cases, these opportunities maybe divorced from a company's commercial pursuits and not exploited in advertising and marketing campaigns. However, it's important to remember that to some degree, all companies act out of social responsibility because it makes good business sense. Being socially responsible can provide many benefits to a company, such as attracting and retaining customers and employees, and these benefits can maintain or increase profits, which is ultimately what a business depends upon for survival.

Bendigo Bank started right here in Bendigo in 1958. At that point, Bendigo was basically just a series of gold diggings, and there were no permanent dwellings. And a group of local people got together to form a building society to actually finance miners to build permanent homes and basically create a community from scratch. We continued as a building society for the next century or so, until the 1970s, when really the Bendigo started to grow very quickly.

We're now a bank with 240 branches. We have almost two and a half thousand staff and about $11 billion under management. And we operate in every state in Australia.

We don't see how you can operate a business successfully without being socially responsible. Because in our view, in order for Bendigo Bank to be successful, you have to be operating in successful communities. It's therefore in our interest to invest in creating more vibrant, more socially aware, and more prosperous communities. So we actively have a program of investing in community in order to produce the sort of markets that Bendigo can bank for the long term. So in effect, we're investing in our own future.

Social responsibility is actually a core part of Bendigo Bank's business strategy. I suppose there's no better example of that than Community Bank. Throughout Australia during the 1990s, one in every three bank branches closed. So we had a lot of communities come to us as a community-based bank, saying, can you come and open up in our town?

For a variety of reasons, we didn't think that that was possible. Number one, because it was very expensive for a small business. But secondly, we felt that just putting back the same sort of bank branch that had closed was almost doomed to failure. So we hit upon this strategy of actually involving the local community in solving their own banking problem. The result of that was Community Bank, which works as a partnership between Bendigo Bank and the local community.

The community actually owns and operates a Bendigo Bank branch and in return for that, they get a guaranteed share of all the revenue that comes through that bank branch. Bendigo Bank takes care of all the banking to ensure privacy and security of funds, but it's basically a partnership between the two of us. It works because the local community has an incentive to use the local bank branch, because they actually own it and directly benefit from banking there. That means from Bendigo Bank's point of view that they can generate much more [? custom ?] through that branch than we can acting alone as a company who just comes and plunks a business in their town.

So in some communities, for example, we're getting market share of 75% to 80%, which is unheard of in traditional business practices. So it works very well for the community. It also works very well for Bendigo Bank, so it's the classic win-win. One of the great things that our strategy has produced is an enormous sense of fulfillment in the people that are actually working for us. It's a great thing to get out of bed in the morning and think that you're happily going into work for the day.

A great example of that was at San Remo recently, when we opened our 100th Community Bank branch. It was like a street carnival in Rio. The local community had hired the hotel for the morning for a breakfast, and then they had a jazz band lead them down the street to the bank branch for the opening.

And we had shopkeepers coming out and embracing the corporate mascot and dancing with people in the street. And at the end of the day, you think, hang on, this was the opening of the bank branch, and here we had a whole community out partying and celebrating. And it just gave you an enormous sense of pride, as a Bendigo Bank employee, to think that we'd contributed in some way to the success and to the festive mood of the community on that particular day.

We don't regard our investment in social responsibility as a cost. We do regard it as an investment. The benefits of our socially responsible approach have been enormous. For example, we very quickly created a unique position for Bendigo Bank in a very crowded financial marketplace. People almost intuitively know that there's something different about Bendigo Bank because of the way we operate.

The Body Shop started in England in Brighton in 1976. It started off as a franchised organization. The way it's expanded around the world is to select like-minded people to act as head franchisees in different markets. We started The Body Shop here in Australia with the head franchise in 1983. As of today, there's about 2,000 stores around the world, and we've got 71 here in Australia.

The history of it is that it has a very strong base in social responsibility. The business itself set up, not just to sell products, but actually do some good in society. We say that our business is the interlinking of three circles. One is economic success, then the stakeholder fulfillment, and then this positive social environmental change. No project gets undertaken if it violates one of those three circles.

We put back into the society in lots of different ways. I think probably the most fundamental way is through our own staff. We start off with a community project basis, so the idea is to encourage people personally to put back in.

So people will sit down with young people in hospital, particularly young girls who suffer from anorexia or bulimia, and sit with them and talk and discuss how their life is at a very simple level. We've got people who plant trees. We've got people who propagate trees for the people who plant the trees. We have people who, like myself, would participate on boards of not-for-profit companies and use our own business expertise to help others create businesses.

And we give our staff two days a year, 16 hours paid time, which they can devote to a community project. It bonds the staff together, makes them feel like they're doing something good. I think that's part of the joy of it all.

You shouldn't have to leave your humanity on the hatstand when you go into your office. You take it in with you and apply it. If you think about it, most people spend most of their waking time at work. It's a sad situation if they can't put that time to a social good, if they turn it on and off like a switch. It's not really a very productive use of time, and you can integrate the two things very, very easily.

Other levels at which we participate would be through setting up what we call economically sustainable models for helping those less fortunate help themselves. The big issue was started up because it provides a way for people who are out of work and homeless, perhaps, to get their dignity back by interacting with society selling a magazine, which they buy for $1.50 and sell for $3.00. We've got quite a few projects that Body Shop International started off and we've incorporated here in Australia.

Community trade is very important to us because it's very linked up with our business. It's not just going out there and doing some good. We have a real reason for sourcing ingredients that we can use in our products. And in Australia, we're working with an Aboriginal community up in northern New South Wales to collect their tea tree oil.

So they have a tea tree plantation. We've worked with them. We work on making it a sustainable model so they can then get into the tea tree oil market. And the oil that they produce is put into Body Shop products that go around the world. So we're working with them, not just to buy the oil, but to help them create the economic structures that will make it sustainable, and that happens in lots of different countries around the world.

Ethics can be defined as an individual's personal beliefs about what constitutes right and wrong behavior. Ethical judgments and ethical, or unethical decisions, are made by people or individuals, not abstract organizations.

Because everyone's ethical standards are different, cohesion in society is maintained by social norms, certain attitudes and modes of behavior that are largely taken for granted. These social norms change over time, and like the rest of us, businesses need to adapt to these changes. Ethics affect virtually all business decisions and actions. An example of a complex ethical area is when a business needs to hire or fire employees. However, even a simple act like using the company phone or photocopier for personal use is an ethical decision.

While people and individuals are responsible for ethical judgments and decisions, companies develop an ethical culture which influences employees, customers, suppliers, and stakeholders. To establish an ethical culture, many companies produce a code of ethics, which provides a guide for ethical behavior. This code may be framed in different ways.

It may be a set of minimum standards which people are expected to meet. Or it may be very high standards towards which people are expected to strive. It's important that an ethical culture is adapted and modeled throughout a company. For example, an employee can't be expected to act ethically if they can see their managers or fellow employees acting unethically.

For this reason, whistle-blowing should also be encouraged. This is the process by which a member of an organization reports the unethical behavior of other members. Business may develop an ethical culture for many different reasons. For some companies, ethics are fundamentally ingrained in their history, whereas other companies may use various ethical positions as part of complex marketing strategies.

Let's now examine the ethical culture at Bendigo Bank and The Body Shop.

Acting ethically is deeply ingrained within our business. We feel that one of the advantages we have is that we happen to be based in a country town. We're the only Australian bank based in a country community. That means that our directors and our senior managers get to hear from our customers in the street when they're buying their lunch. So it's pretty direct feedback as to whether the company is acting ethically.

When we do make mistakes, we hear about it very quickly and we get to rectify it very quickly. It's deeply ingrained. It's in our corporate value statement, which all our employees are measured on. When they do their yearly assessment, part of what they're assessed on is how ethically they've behaved, how well they've modeled the company's corporate values.

Just over 10% of our staff have been with the company for longer than 15 years, which means that we have a very good pool senior mentors to young staff. We also have that corporate memory, which is very important to any business, to ensure that the corporate practices, the corporate ethics, the corporate standards are passed on from generation to generation. We're here to actually bank people.

People don't get out of bed in the morning and think, oh, terrific, I need to go down to the bank this morning. Banking is a necessity in life to obtain other goals personal goals such as buying a home, saving for the kids' education, planning marriages. We're very aware that our role here is to use our skills as a banker to help people attain the sorts of goals that they're trying to achieve in life.

At the corporate level, our business strategy demands that we focus not on our own success, but on the success firstly of our customers, and secondly of the communities in which they live. Because in our view, successful customers and successful communities create a successful bank. But it happens in that order.

The real benefit at the end of the day is the company's reputation. You can take all the elements of banking-- every bank, for example, has deposit products. Every bank has savings accounts, investments, loans. Every bank has branches. Every bank has the Internet.

What sets you apart at the end of the day, and what's essential, is the trust that the community and your customers have in you as a company. If you're not acting ethically, then the trust isn't there. And if you don't have that trust as a bank, then basically, you don't have a business.

I think any business that wants to be sustainable today has to operate with a moral code of behavior. We like to think that our business has the opportunity to make a positive impact on the morality of business. So we've put a lot of effort and time into that. I think it's very important that we teach our staff that this is a good way of behaving.

Honesty, care, and respect are the three things that they particularly highlight when we survey them as being important to them in an employer. To be treated with respect, to have honesty in everything-- in the dealings that are done with them, and to be in a company that cares. And that's an important part of it.

We have a social audit process here, which is part of our commitment to understanding ourselves and creating the change that will make us a better company. And through that process, over the last six or seven years, we've developed a real understanding of what our staff particularly want, what the employees of the company want. And they've developed their own code of conduct. They've taken the charter of The Body Shop from the very beginning and put their own points of view into it, and said, this is how we would like to be treated within this company.

It basically gives us an ethical framework in which to operate. Hopefully, we're there anyway, but having that code of conduct there means that everybody's got a benchmark on the way they're treated. The social audit process also ensures that we behave ethically outside. So we survey our suppliers. We survey other people-- we survey our customers, we survey people in the community with whom we interact, to ensure that the way we talk is the way we walk.

Ethics and social responsibility are becoming increasingly important concerns for businesses throughout the world. The rapid growth of ethical investment shows that many people expect companies to take these issues seriously. And it's also clear that this can make good business sense. Companies such as The Body Shop and Bendigo Bank have proven that ethics and social responsibility in business can be highly successful.