More than profits: The need for a corporate conscience

Business as usual, in isolation, without reference to a social contract where doing the right thing means more than compliance with neo-liberalist norms, will not deliver the type of business success that a profit through principles approach (Haas, R, D. 2002) can deliver, for not only the business but for society at large.

Society at large, is indeed, increasingly demanding higher standards of social responsibility from corporations, that go beyond existing business practices (Florini, A. 2003). In her writings for the Brookings Institution, Senior Fellow, Ann Florini, wrote in 2003, drawing from her book “The Coming Democracy” that corporations had no choice to embed in their economic activities a social contract, otherwise face a public backlash. At that time human rights groups had forced pharmaceutical companies to drop a legal battle which was attempting to protect patent rights but by trying to protect these rights hundreds of thousands of South Africans died of untreated AIDS. Though they had dropped the case the companies found themselves labelled as profiteers that were complicit in the deaths of millions (Florini, A. 2003). Florini wrote that the lack of regulation to protect the rights of workers, communities and the environment, was seeing a powerful movement of consumers, pressure businesses to adopt codes of conduct and socially responsible policies. One
of these codes, the Social Accountability 8000 standards was the first global ethical standard and based on conventions of the International Labour Organisation and the Universal Declaration of Human Rights and sought to promote the ethical sourcing and production of goods and services. The Commercial Bank of Dubai (CBD) was seen as a pioneer when in 2008, some 11 years after the setting of the SA8000 standards, they signed up to the code stating that not only was it a demonstration of their commitment to corporate social responsibility, but that it would allow
CBD to build and re-inforce customer and employee loyalty which had the potential for a greater impact on profitability (CPI Financial News, 2008).

There is no guarantee, however, that the adoption of standards or codes of conduct can avert behaviour that is contrary to not only the codes themselves, but of what is good for society and actually meets the ambition of business to make a profit. Focussing only on profit
as a measure of success and by remunerating business leaders on metrics tied to profit, relies on what Lynn Stout, a professor at UCLA, and others call a homo economicus model (Stout, L. A. 2010) that is based on extrinsic motivations such as bonuses that drives selfishness. Treating people to care only about their own material rewards is a fait d‟accompli that they do just that. Some of the biggest corporate scandals in history, (Enron, WorldCom) are associated with a failure of business ethics and financial services companies, especially banks and brokerage houses present
employees with the homo economicus model where they are conflicted between the pursuit of their own material goals and being honest (Ariely, D., Mazar, N. 2006 and Stout, L. A. 2010).

An analysis of the failures in the financial system that led to the global financial crisis highlighted three themes: a flawed method of remuneration, a failure of government, and a lessened focus on risk (Elliott, D. J. 2010). With regard to remuneration, it was the bonuses paid
to bankers tied to annual profits that saw financial incentives paid to investment professionals for generating short term profits regardless of the risk associated with the strategies adopted. More risk was taken with less capital and more debt and the distribution model that was utilised had at its core the intent to make risky financial instruments appear less risky and appear to perform well in the short run. For the sake of profitability, with that being the sole focus and measure of success, people delivered what was required of them and in so doing delivered on the homo economicus model where the higher the external rewards from being dishonest, the higher the degree to which an individual engaged in dishonest behaviour (Ariely, D., Mazar, N. 2006).

There must be more to business success than just profit. Responsible commercial success can be achieved and be built on trust and a social contract that not only delivers to society but to the legal beneficiaries of a corporation, the shareholders. Robert D. Haas of the Levi Strauss family advocated in 2002 after the tech-wreck and the shock of September 11, that corporations had to deliver more than growth in shareholder value and that doing the right thing was about business practices that, protected and supported workers, that cared for the environment and that supported the community through philanthropic activities. Having leaders in the business lead in community service endeavours could see the business win in the battle for attracting talent, improve morale
and generate community good will (Haas, R, D. 2002). Haas's profit through principles approach, and Florini‟s observations that corporations have no choice but to embed such approaches have seen a myriad of companies espouse their commitment to corporate social responsibility (CSR). Businesses like the banks state that their objective is to do the right thing and many have built CSR statements and programmes that give generously to the community. However whilst the focus and measure of success remains solely profits (and the need to increase profits year on year) and whilst remuneration is linked to creating shareholder value, the CSR statements run the risk of being mere aspirations rather than values to be measured, implemented and ultimately true definition of success.