Global Warming Threat: Construction industry in Australia is wasteful and needs to change radically
Despite efforts to be more efficient, Australia’s emissions of carbon dioxide have risen at almost twice the world average rate over the last 20 years - to more than 100 million tons a year. That’s 5 tons for every person. With only 0.32% of world population, Australia produces 1.43% of global emissions.
While huge savings can be made by generating electricity from carbon more efficiently, or by using alternative power sources, there is also urgent need to cut energy use – and to reduce peak demand.
A key target for energy saving has to be the construction industry. 40% of Australia’s energy is used to heat, light or cool buildings, build them or knock them down. Most buildings in Australia were designed for a different era where electricity, coal, oil and water were cheap, and the greatest challenge is going to be refitting them for the third millennium.
Many of the most inefficient buildings are offices and factories. The lazy option is to pull them down and start again but this is really costly for the environment. If a building only survives 30 years before demolition, up to 40% of all the energy used in its lifetime will be spent building it, destroying it and carrying away the rubble.
That’s why we can expect huge efforts to retrofit older buildings - but we need to take great care to get it right, or more refits will be needed every decade as regulations and needs change. Compliance with today’s standards is a fast way to waste billions of dollars. You’ll have to upgrade again tomorrow, and the week after.
That’s why we need bold, radical, long term vision. We need to get ready for a future where energy is twice as expensive as today when carbon taxes are added. A world where energy saving has become a global obsession.
Retrofitting old commercial buildings can be an expensive nightmare – particularly as many of them are near the end of their original design life. It is a wasteful scandal that most office blocks built in the last 30 years were only intended to be lived in for three decades.
We need a radical change in mindset of architects, planners, developers, builders and property investors. New commercial buildings should be designed with at least 50 years in mind. That will require government action: big changes in building regulations and far stricter planning standards. Without these things there will always be a temptation to cut building costs and go for the short term.
You cannot imagine such short-sightedness when building private homes. Who wants to buy a new family house that is almost guaranteed to auto-destruct by 2040? Developers who try to build such trash for the domestic market will land up in prison – but in the commercial sector they are regarded as heroes: fast build, low cost and who cares about the future.
We have a moral duty to build for the longer term. Not just to save carbon emissions. There are huge numbers of other environmental benefits in terms of reduced demand for steel, copper, wood, reduced landfill and many manufactured items that can be conserved.
This is not just about more efficient air conditioning, better insulation, saving water or making buildings more intelligent. Such steps are only a small part of the answer. Expect nothing less than a total rethink about the kind of world we want future people to live in.
We are literally building the future: of communities, neighbourhoods, working places, leisure and home environments, places of learning and of healing. Great buildings pass on a legacy for many generations, and should last hundreds of years.
Building long term means it really matters what the construction looks like. Tomorrow’s world will expect many more landmarks of quality, which endure not only in their materials, but in the affections of those who use them. The Sydney Opera House is a wonderful example of design, harmony in location, and emotional attachment. We don’t build Opera Houses to knock them down a couple of decades later – so why do we tolerate such short-termism and poor quality elsewhere?
The technologies we need are already available for next generation buildings. Take geothermal heating and cooling. These systems use up to 50% less energy than alternative systems. 45% of new homes in New Zealand have them, 70% in Sweden and 30% in Switzerland. They work like refrigerator pumps, heating or cooling pipes laid a metre below ground. Systems pay for themselves in 15 years. The global market for geothermal installations could be more than US $40bn a year.
The gold standard will be zero emission buildings: where on-site power generation from solar, wind or other sources is more than enough to meet all heat, light and cooling needs. We are already seeing demands in Europe by governments that builders create carbon-neutral homes. It’s just the beginning. We can expect zero-emission new buildings to be forced on the industry in many parts of the world over the next decade. And as that happens, the gap will grow even wider between new and old building efficiencies.
Government regulations and subsidies can set up national industries to seize these new markets. Look what’s happened in Germany where government action has resulted in the country buying 70% of all solar cells made in the world every month – and German solar cell manufacturers are dominating globally.
So we can expect aggressive and radical changes in the way buildings run. But we can also expect a major rethink about how much energy is used in actually building them in the first place.
A key target for attack will be the concrete industry which is responsible for 5-7% of all global carbon emissions. Concrete is a bulky, low value, two-thousand-year-old commodity which uses massive amounts of energy in a wasteful way. We urgently need an alternative – and there is one.
Expect widespread use in future of geoplymers such as E-crete, a product using power station waste, developed by Jannie Van Deventer, a chemical engineer at the University of Melbourne, and founder of Zeobond. If we replaced half the world’s concrete production with e-crete it would save a billion tons of carbon dioxide in the next decade alone.
E-crete is just one of thousands of examples of new innovation we can expect over the next five to ten years.... representing tens of thousands of new business opportunities, and billions of dollars of new revenues.
But the transformations we need will only happen as the construction industry pulls in a younger generation of highly talented, innovative and creative business leaders, designers, architects, engineers, surveyors and developers. It is often hard for these sectors to compete with more glamorous and well paid careers in industries such as banking, marketing, computing or telecommunications. So how will it happen?
The best talent will only be drawn into the construction industry when a younger generation see huge, exciting opportunities for new highly-profitable business innovation and creative action, and a chance quite literally to help build a better future, driven not just by commercial pressures but also a mission to help save the world.
* Dr Patrick Dixon is a leading authority on global trends, author of 12 books including Futurewise and Building a Better Business. He works with many of the world’s largest multinationals. Over 10 million different people have used his website or watched his videos on the future. www.globalchange.com
Future of your Business, Family and Wider World by Dr Patrick Dixon, Futurist Speaker, Keynotes on Growth Strategies and Leadership, Lecture Slides, Articles and Videos from Conferences - 15 million unique visitors to MAIN Futurist site (articles / keynotes / videos) - link on right to www.globalchange.com
May 30, 2008
Business Values - Corporate Ethics and Motivation at Work
Business Values: Ultimate Test
“A well run business must have high and consistent standards of ethics”
Richard Branson Virgin Airways
“Defining the purpose of the corporation as exclusively economic is a deadly oversimplification, which allows overemphasis on self-interest at the expense of consideration of others.” Originally published in 1989 – former editor of Harvard Business Review and Professor at Harvard Business School.
The purpose of business is a better world
The promise to customers is a better life
Corporations that are passionate about purpose, deliver on promise, and focus on process (provision of proven products and services for profit), are likely to be rewarded with long-term success - so long as they also pay attention to one other factor.
One vital element is still missing, hence all the attention given recently to single issue activism, consumer campaigns, corporate values, social responsibility, corporate governance and mission statements. We have already touched on many of these things in earlier chapters on leadership, marketing, advertising, change management, war for talent, motivation and strategy.
“Capitalism is the astounding belief that the most wicked of people will do the most wickedest of things for the greatest good of everyone” Milton Keynes
Keynes was making a joke in this famous quote, but at the same time was making a serious point which is that capitalism does not always deliver on the business promise of a better future.
History shows that “market forces” are often unstable, erratic, violent, dispassionate, blind to human suffering, insensitive to tragedy and deaf to cries of injustice, tyranny and environmental destruction.
In growing recognition of this problem, business ethics is now attracting huge media attention, which in the current climate can be far more damaging to profits and customer relationships than winning or losing a legal battle. Public opinion often changes long before regulations and the legal process, and can be a powerful warning to corporations to clean up their act.
People talk about ethics in business but the real issue is ethics in life. Bill Pollard
70% of chief executives say that Corporate and Social Responsibility is (now) an essential issue to their business. The reason is that they know the world has changed and companies run on a narrowly defined shareholder-value philosophy are likely to hit a crisis. 89% of marketing directors say that business should be involved in addressing social issues of the day – because they can’t sell otherwise.
But what should those business ethics be based on, and how should that be expressed in community action?
I believe business has a social responsibility. In the communities where you work you ought to help create an environment where you can develop and attract the kind of people you need.” Lawrence Weinbach, Unisys
Many organisations have tried to define their own Codes of Conduct. Huge efforts have been spent spelling out what should or should not be done, how people should behave, what their wider responsibilities should be. At the same time, business schools have made attempts to adjust old-style MBA programs and executive training.
So where do we draw the line between right and wrong, ethical and immoral? The lazy response is to hide behind the law – deferring all ethical questions to politicians. “If it’s legal, it must be alright”. But laws vary between countries which is very confusing for a law-obsessed global corporation. Are we saying that a particular action is morally right in Poland but not in Spain? Getting corporations to obey laws is certainly a major challenege: two thirds of 500 largest US corporations have acted illegally in the last decade.
“Managers would be mistaken to regard legal compliance as an adequate means for addressing the full range of ethical issues that arise every day. “If it’s legal it’s ethical” is a frequently heard slogan. But conduct that is lawful may be highly problematic from an ethical point of view”. Paine. Ethics HBR
If strict legal compliance cannot keep a corporation ethically sound, what then?
Many organisations talk about bench-marking against so-called best-practice, but best-practice is not enough either: it merely implies conformity with informal guidelines, or accepted ways of doing things.
“Best-practice” is usually associated with “operational excellence” more than morality – and the two can be in direct conflict, for example in a manufacturing facility that copies “best-practice” to reduce costs, but also poisons the water-supply.
“Living well and beautifully and justly are all one thing” Socrates
“Bench-marking” is completely useless from the ethical point of view, because all it does is encourage corporations to copy each other’s “bench-mark” or ways of working – a foolish and hazardous course, unless we are sure that example is ethical in the first place.
Corporations often hide behind “bench-marking”, by arguing that they followed “widely accepted practice”, but this is cowardly and demonstrates total abdication of moral responsibility. There are too many examples in history of collective madness or moral blindness.
“Morality transcends not only markets but also cultural boundaries” Robert Soloman
We can see from all this that we urgently need a simple ethical test for all corporate activity, which works in every culture and every time-zone, and will continue to provide safe guidance for executives in future. We need a widely-applicable moral value, against which all decisions can be measured: an easy-to-grasp, universal principle of business action, which provides an practical reference point for those faced by ethical dilemmas.
“Cultural relativism is morally blind. For relativists, nothing is sacred and nothing is wrong. For absolutists, many things that are different are wrong. Neither extreme illuminates the real world of business decision making. The answer lies somewhere between.” Ethics HBR Donaldson
“People want their company to be a good citizen. They want it to show true concern for the world, for the environment. They want it to have a social conscience.” Jorma Ollila, CEO of Nokia
Donaldson proposes three principles:
1. Respect for core human values which determine the absolute moral threshold for all business activities eg right to health, economic advancement and improved standard of living.
2. Golden Rule recognised in all major religions and ethical traditions – treat others as you would like to be treated yourself
3. Respect for local traditions: the belief that context matters when deciding what is right and what is wrong.
But his three principles can be reduced almost entirely into a central core ethic for all business decisions – his Golden Rule in fact summarises most things, once one spells out what it actually means:
Treat others as you would like to be treated
Or put another way perhaps more relevant to corporate activity:
Behave as you would like others to behave
Treat other customers, workers, shareholders, communities, nations, competitors, business partners as you would hope to be treated if you were in their place. We should also extend this with the importance of example, which is closely related.
Universal Code of Business Practice
• Serve as you would be served
o principle of reciprocity
• Set good examples in all you do
o Principle of reproduceability
Serve as you would be served
This principle of reciprocity is based on timeless truths expressed by Confucius, Jesus Christ and many others, and rephrased in a thousand ways:
• Do as you would be done by
• Do unto others as you wish them to do to you
• What you do not wish done to you, do not do to others
Some further questions:
• Is this how I would like to be treated?
• Is this how I would like my own family to be treated?
The Principle of Reciprocity applies in practical ways to all we do:
• Lead as you would like to be led
• Advertise as you would like others to advertise
• Honour commitments as you would like others to honour theirs
• Do business as we hope all business will be done
• Trade as you wish others would trade
• Buy as you would wish others to buy
• Sell as you would wish others to sell
• Work as you would wish others to work
• Pay bills as you would wish to be paid
Set good examples in all you do
The Principle of Reproduceability is this: is this a sustainable pattern of business assuming that many others will act the same way? If everyone else acted in a similar way, would it be a good thing?
• Is this how you would like others to behave?
• Does this set an example worth following?
• Is this a great example for others?
• What would happen if many other corporations behaved like this?
• Are we setting an example in cultural sensitivity?
• Is our example sustainable in the long term?
These two principles together form a Rule of Business against which all activity can be measured.
Run your business as others should be run, setting a good example in all things
When we serve as we would be served and set good examples in all we do, we not only act in ways that all regard ethical, but also enhance corporate reputation, brand image, customer relationships, workplace morale and strengthen the fundamentals of the business.
Unchanging values in a changing world
“Morality transcends not only markets but cultural boundaries too” Robert Soloman
But do these two principles of “doing as we would be done by”, and “being a good example”, really work in all cultures? Standards and expectations vary, and the yardstick needs to be applied with care.
Take for example the stresses and strains arising from the growing inequality between wealthiest and poorest nations, perhaps the greatest moral challenge of our generation. If the poorest and most marginalised three hundred million people in Africa were already as politicised as many Islamic groups in the Middle East, there is little doubt that we would now be experiencing a very turbulent new chapter in human history.
How can we create a better world without tackling evils such as hunger and violence first? Eckhart Tolle - The Power of Now: A Guide to Spiritual Enlightenment
For many hundreds of millions of people, daily life has got worse over the last twenty years, despite huge earnings in some countries from oil or minerals, plus large amounts of development assistance. Two factors in this are AIDS and civil wars.
The combined assets of the world’s top three billionaires exceed the combined GDP of all the least developed countries, where over 600 million people live. One in five of those alive today consume 86% of the world’s good’s and services – hardly surprising when you realise that 66% of the world’s population lives on less than $2,000 a year, and most Africans earn less than $1 a day.
DeBeers, the diamond mining corporation, told a London gathering of executives that it costs around $1bn to create a new mine. Based on the daily wages of workers in the area, for the same cost you could employ 100,000 local workers for 30 years. That’s People Power Parity: measuring costs not in $ but in multiples of a daily wage.
The growth machine rolls on. The combined assets of the world’s top three billionaires exceed the combined GDP of all the least developed countries, where over 600 million people live. One in five of those alive today consume 86% of the world’s good’s and services.
Expect mood and fashion swings in wealthy nations to clash with the aspirations of poorer nations, resulting in resentment, conflict and added pressures for mass migration.
We need to be careful not to impose a set of current Western values which are the product of 150 years of industrialisation, on nations which are just emerging from rural subsistence living.
Oil and mineral mining – huge ethical challenges
If fundamental problems of injustice and corruption are not sorted, extraction of oil or minerals could become almost impossible due to terrorist targeting of uniquely vulnerable and costly infrastructure. Quite simply, some of these companies will be out of business.
10% of all Shell profits come from Nigeria, the 6th largest crude oil producer in world. A single barrel of oil buys a local labourer for more than a month. Mineral resources are 25-90% of exports in Botswana, Ghana, Guinea, Liberia, Senegal, Mauritania, Namibia, Niger, Central Africa Republic, Sierra Leone, Congo, Zambia, Zimbabwe. In theory the economies of these countries should be roaring ahead, but the reverse is largely true.
A 2003 World Bank study shows the curse of extraction wealth on the poorest nations: countries with greatest income from mining / extraction usually see lower economic growth, more corrupt and oppressive regimes and greater contrasts between wealthy and poor. They are also more likely to suffer from wars and ethnic violence. There is often a coalition of interests between a wealthy and well-armed ruling elite and a multinational looking for stable conditions for long-term extraction.
Mineral wealth means the currency becomes valuable, so small business exporters can’t sell what they grow or make and go out of business, making the country as a whole even more dependent on extraction.
Answer: Identify multinational profits by nation, so that it is easier to justify ploughing back some profits into the relevant communities. Make sure that such community funding is totally transparent at every level, with community involvement, health and education infrastructure, encouragement of small enterprises, encouragement for human rights and no forced resettlement without proper compensation.
The age of the very special child
Child labour is an example of a very controversial issue where some in poor nations are being severely judged for acting in a way that would have been completely legal in developed nations at a similar stage in their economic development.
Child labour was only abolished in countries like Britain around 150 years ago. Developed nations now live in an acutely child-sensitive age. It’s partly because many parents in these countries are having fewer children and often later in life. Children have become a symbol of innocence and purity in a worrying world.
It’s all part of a natural desire to create the best kind of life for children, without pain, suffering, unhappiness, violence, emotional abuse, seduction or rape.
At least that’s the idea…..
Every time a young child is discovered in India working in a factory making products for Western markets the same thing happens. The company gets into big trouble, and the children get into mortal danger.
Over 50 million children in India depend for their daily existence on whatever they can get by begging, selling or working. If you don’t work in some way you starve, and if you starve you’re soon dead.
So every child in India is a working chid, unless completely supported by parents. But over a hundred million families in India are so poor that a child has to earn his or her own food. Everyone from the age of five has to help – whether harvesting crops, carrying water, making a fire, or sitting on the pavement selling flour.
And then there are the runaways. And the orphans. And the outcasts.
My wife and I have visited a railway station in Mumbai which is home to hundreds of children, aged three to fifteen. Twenty to thirty new children arrive every day, each a runaway from home. One girl has given birth three times alone on the roof of one of the platforms – aged thirteen , fourteen and fifteen..
Girls of ten to twelve get picked up on the streets within hours by older boys, who offer affection and a meal. Wthin a week, many of these vulnerable young girls are on a one-way ticket to almost certain death. Recruited as commercial sex workers, they are forced to have unprotected sex up to ten times a night. It’s only a matter of time before they get HIV.
Building a better world for children is a noble ideal but if we are not careful, we can find that blind pursuit of Western ideology can kill the very children we want to protect.
So how do we apply our universal code in such a situation?
Treat others as we would like to be treated – may lead us to place ourselves in the shoes of destitute, orphaned children who beg at the factory gates. At the very least it leads us to find small ways to make a big difference, even something as little as feeding those who come, for a handful of dollars a day, right through to setting up some kind of a work-skills programme with food and shelter at night.
Setting an example worth following – leads us to be very sensitive to local situations, resistant to knee-jerk moralism and misplaced charity, but actively investing back into the impoverished communities from which our workers and customers come.
Quite often there is a disconnection for historic reasons between where the business operates, and where community donations land up. So for example, a large US multinational may have offices in most of the poorest nations, and major revenue from some of them, yet the entire donations policy may be to support community projects in American cities.
Community development develops markets
66% of the world’s population lives on less than $6 a day. It is easy to write off such a vast number of people from the commercial point of view, but it is a large market with significant collective buying power. That is one reason why revenue growth for multinationals with the right products for poorer nations is often so rapid eg Avon Cosmetics in Russia with annual growth rates of up to 70%.
Another example is Hindustan Unilever which introduced candy made from fruit juice and sugar for a penny in India. The new candy became the fastest growing item in their product range – with estimated sales potential of $200m a year. They have seen similar results with low-priced detergent and iodized salt.
Slum-dwellers pay larger proportions of income on basics like food and phone. Water can cost up to 100 times more than elsewhere, food 20-30% extra. Local moneychangers may be charging 10-15% per day or as much as 2000% a year.
As a result, non-profit micro-banking has flourished, offering small loans to groups of around 14 women who act as security for each other. Typical repayment rates are around 99.5% within 12 months and defaults almost unknown.
Investing in microbanking, education, health and infrastructure is a sound policy from the corporate point of view, as the result in general terms is development of future markets.
Why Milton Friedman’s views look so out-dated
Friedman argued that business should only spend money to make owners wealthy, and anything else was wrong. But as we have seen, this approach can actually damage the very wealth one seeks to protect.
Well-directed community support can improve corporate image, consumer loyalty, product attractiveness, morale, workplace productivity and the size of local markets. Indeed, strategic philanthropy can provide such strong business advantages that some argue that it hardly deserves to be called philanthropy.
Friedman’s second assumption is that giving is no more effective when done corporately, than by people, so there is no moral logic to it: reward your shareholders and let them decide themselves how much to donate. But Friedman failed to see that corporate donations can have far greater impact than large number of acts of individual generosity, grouped together in a donation of identical size.
Larger corporations can encourage changes in law, local practices and government action – for example by offering conditional support for national programmes. Business can also encourage staff largesse with donation-matching schemes, or volunteer release programmes or with gifts in kind of services or products.
This multiplying effect has been created by Pfizer over the last few years. The corporation has an excellent treatment for trachoma – a common cause of blindness in the poorest parts of the world. They made a decision to attack the problem on a massive scale. They not only donated drugs, but also worked in close partnership with Edna McConnell Clark Foundation and the World Health Organisation to distribute therapy and set up clinics.
In 12 months alone the incidence of trachoma fell 50% in target populations of Morocco and Tanzania. The programme has grown with support from Bill and Belinda Gates and the British government, aiming to treat more than 30 million people.
Cisco knows the power of developing your own markets and workforce with strategic philanthropy. Cisco created Networking Academies: training centres and virtual training environments designed to produce a rapid increase in the number of people who can set up and repair computer networks – vital to a corporation who sells them.
When it comes to social engagement, more than 50% of Americans prefer companies to be active on a local (59%) rather than national (26%) or global (9%) basis, with priority on quality of public schools, youth programs and environment. People prefer specific programmes with tangible results. 56% of global companies have not reduced their social responsibility programme spending in the recession – 4% have actually increased spending.
"A civilization flourishes when people plant trees under which they will never sit" Greek Proverb
YPO stories – Alex Cappello
Competitive advantage of corporate philanthropy
Michael Porter is perhaps the world’s leading authority on competitive advantage. With Mark Kramer he has argued that corporate philanthropy can create competitive advantage.
5 steps to identify context-focussed philanthropy investments
• Examine competitive context in each territory
• Review existing donations pattern
• Assess existing and potential giving in light of advantage
• Seek possible collective action / clustering
• Evaluate results eg sponsorship of sports event in brand awareness, using mailing list of organiser / club and so on
Porter dislikes the term “Strategic Philanthropy” – often loosely used. He feels that cause-related marketing is not really philanthropy at all, because of the obvious commercial benefits. But this is hair-splitting: the end result is still a very different relationship between community and corporation than Friedman ever approved of.
Foundations may not be the answer
Many large corporations have set up charitable foundations, but donor benefits have often been disappointing – they would be like to fail the strategic philanthropy test. These charitable bodies are usually independent, and strongly resist pressure from founding companies to make donations that could help their business. It is unfortunate that corporations can find they are attacked for lack of philanthropy, despite generous gifts of capital or shares in the past.
For example, the Wellcome Foundation was endowed by the Burroughs Wellcome drug company, for medical research. The corporation was later swallowed up into GlaxoSmithKline, who has been attacked for high-priced anti-AIDS therapies, despite the fact that the Wellcome Foundation continues to make huge donations to AIDS research, but under the old name.
Motorola code of conduct - bribery
Motorola code of conduct: “We will always act with constant respect for people and uncompromising integrity”. Bribery: “funds and assets of Motorola shall not be used directly or indirectly for illegal payments of any kind” and spells out “the payment of a bribe to a public official or the kick-back of funds to an employee of a customer…” Codes of conduct need to be specific eg.. “Employees of Motorola will respect the laws, customs and traditions of each country in which they operate, but will at the same time engage in no course of conduct which, even if legal, could be deemed to be in violation of the accepted business ethics of Motorola or the laws of the United States relating to business ethics.”…
Bribes as an example of varying culture and standards
Whose ethics and whose values? Until recently bribes were tax deductible in Germany, encouraged actively therefore by Inland Revenue. Some differences in culture have been described as Conflicts of Relative Development: situations where it is helpful to ask what kind of decisions we would have made in our own country at a similar stage of economic development. Examples include wage levels, safety standards – and bribery. Is it right for a large ship, contaminated with asbestos, to be stripped and refitted in a developing country using dangerous processes which would be widely condemned if carried out in a European or American port? Is it right to pay these workers less than 10% of what Europeans would be paid? And is it right if the contract was only won after providing a generous holiday in the Bahamas to an official and his family?
Bribes or other irregular financial inducements were until recently tax-deductible expenses. The definition of corruption used to be : “Use of public profit for private gain” , but many have broadened the definition to “use of entrusted powers for private benefit”.
Embezzlement, nepotism, bribery, extortion, interest peddling, fraud and other irregular benefits – these things challenge development, undermine democracy and government, distort the legal process and weaken leadership (because a bribe wins power). In corrupt countries people get promoted by who they know rather than by what they know.
Corruption destroys rules of competition, since only the most corrupt get the best deals, rather than those with the best products and services.
“A well run business must have high and consistent standards of ethics”
Richard Branson Virgin Airways
“Defining the purpose of the corporation as exclusively economic is a deadly oversimplification, which allows overemphasis on self-interest at the expense of consideration of others.” Originally published in 1989 – former editor of Harvard Business Review and Professor at Harvard Business School.
The purpose of business is a better world
The promise to customers is a better life
Corporations that are passionate about purpose, deliver on promise, and focus on process (provision of proven products and services for profit), are likely to be rewarded with long-term success - so long as they also pay attention to one other factor.
One vital element is still missing, hence all the attention given recently to single issue activism, consumer campaigns, corporate values, social responsibility, corporate governance and mission statements. We have already touched on many of these things in earlier chapters on leadership, marketing, advertising, change management, war for talent, motivation and strategy.
“Capitalism is the astounding belief that the most wicked of people will do the most wickedest of things for the greatest good of everyone” Milton Keynes
Keynes was making a joke in this famous quote, but at the same time was making a serious point which is that capitalism does not always deliver on the business promise of a better future.
History shows that “market forces” are often unstable, erratic, violent, dispassionate, blind to human suffering, insensitive to tragedy and deaf to cries of injustice, tyranny and environmental destruction.
In growing recognition of this problem, business ethics is now attracting huge media attention, which in the current climate can be far more damaging to profits and customer relationships than winning or losing a legal battle. Public opinion often changes long before regulations and the legal process, and can be a powerful warning to corporations to clean up their act.
People talk about ethics in business but the real issue is ethics in life. Bill Pollard
70% of chief executives say that Corporate and Social Responsibility is (now) an essential issue to their business. The reason is that they know the world has changed and companies run on a narrowly defined shareholder-value philosophy are likely to hit a crisis. 89% of marketing directors say that business should be involved in addressing social issues of the day – because they can’t sell otherwise.
But what should those business ethics be based on, and how should that be expressed in community action?
I believe business has a social responsibility. In the communities where you work you ought to help create an environment where you can develop and attract the kind of people you need.” Lawrence Weinbach, Unisys
Many organisations have tried to define their own Codes of Conduct. Huge efforts have been spent spelling out what should or should not be done, how people should behave, what their wider responsibilities should be. At the same time, business schools have made attempts to adjust old-style MBA programs and executive training.
So where do we draw the line between right and wrong, ethical and immoral? The lazy response is to hide behind the law – deferring all ethical questions to politicians. “If it’s legal, it must be alright”. But laws vary between countries which is very confusing for a law-obsessed global corporation. Are we saying that a particular action is morally right in Poland but not in Spain? Getting corporations to obey laws is certainly a major challenege: two thirds of 500 largest US corporations have acted illegally in the last decade.
“Managers would be mistaken to regard legal compliance as an adequate means for addressing the full range of ethical issues that arise every day. “If it’s legal it’s ethical” is a frequently heard slogan. But conduct that is lawful may be highly problematic from an ethical point of view”. Paine. Ethics HBR
If strict legal compliance cannot keep a corporation ethically sound, what then?
Many organisations talk about bench-marking against so-called best-practice, but best-practice is not enough either: it merely implies conformity with informal guidelines, or accepted ways of doing things.
“Best-practice” is usually associated with “operational excellence” more than morality – and the two can be in direct conflict, for example in a manufacturing facility that copies “best-practice” to reduce costs, but also poisons the water-supply.
“Living well and beautifully and justly are all one thing” Socrates
“Bench-marking” is completely useless from the ethical point of view, because all it does is encourage corporations to copy each other’s “bench-mark” or ways of working – a foolish and hazardous course, unless we are sure that example is ethical in the first place.
Corporations often hide behind “bench-marking”, by arguing that they followed “widely accepted practice”, but this is cowardly and demonstrates total abdication of moral responsibility. There are too many examples in history of collective madness or moral blindness.
“Morality transcends not only markets but also cultural boundaries” Robert Soloman
We can see from all this that we urgently need a simple ethical test for all corporate activity, which works in every culture and every time-zone, and will continue to provide safe guidance for executives in future. We need a widely-applicable moral value, against which all decisions can be measured: an easy-to-grasp, universal principle of business action, which provides an practical reference point for those faced by ethical dilemmas.
“Cultural relativism is morally blind. For relativists, nothing is sacred and nothing is wrong. For absolutists, many things that are different are wrong. Neither extreme illuminates the real world of business decision making. The answer lies somewhere between.” Ethics HBR Donaldson
“People want their company to be a good citizen. They want it to show true concern for the world, for the environment. They want it to have a social conscience.” Jorma Ollila, CEO of Nokia
Donaldson proposes three principles:
1. Respect for core human values which determine the absolute moral threshold for all business activities eg right to health, economic advancement and improved standard of living.
2. Golden Rule recognised in all major religions and ethical traditions – treat others as you would like to be treated yourself
3. Respect for local traditions: the belief that context matters when deciding what is right and what is wrong.
But his three principles can be reduced almost entirely into a central core ethic for all business decisions – his Golden Rule in fact summarises most things, once one spells out what it actually means:
Treat others as you would like to be treated
Or put another way perhaps more relevant to corporate activity:
Behave as you would like others to behave
Treat other customers, workers, shareholders, communities, nations, competitors, business partners as you would hope to be treated if you were in their place. We should also extend this with the importance of example, which is closely related.
Universal Code of Business Practice
• Serve as you would be served
o principle of reciprocity
• Set good examples in all you do
o Principle of reproduceability
Serve as you would be served
This principle of reciprocity is based on timeless truths expressed by Confucius, Jesus Christ and many others, and rephrased in a thousand ways:
• Do as you would be done by
• Do unto others as you wish them to do to you
• What you do not wish done to you, do not do to others
Some further questions:
• Is this how I would like to be treated?
• Is this how I would like my own family to be treated?
The Principle of Reciprocity applies in practical ways to all we do:
• Lead as you would like to be led
• Advertise as you would like others to advertise
• Honour commitments as you would like others to honour theirs
• Do business as we hope all business will be done
• Trade as you wish others would trade
• Buy as you would wish others to buy
• Sell as you would wish others to sell
• Work as you would wish others to work
• Pay bills as you would wish to be paid
Set good examples in all you do
The Principle of Reproduceability is this: is this a sustainable pattern of business assuming that many others will act the same way? If everyone else acted in a similar way, would it be a good thing?
• Is this how you would like others to behave?
• Does this set an example worth following?
• Is this a great example for others?
• What would happen if many other corporations behaved like this?
• Are we setting an example in cultural sensitivity?
• Is our example sustainable in the long term?
These two principles together form a Rule of Business against which all activity can be measured.
Run your business as others should be run, setting a good example in all things
When we serve as we would be served and set good examples in all we do, we not only act in ways that all regard ethical, but also enhance corporate reputation, brand image, customer relationships, workplace morale and strengthen the fundamentals of the business.
Unchanging values in a changing world
“Morality transcends not only markets but cultural boundaries too” Robert Soloman
But do these two principles of “doing as we would be done by”, and “being a good example”, really work in all cultures? Standards and expectations vary, and the yardstick needs to be applied with care.
Take for example the stresses and strains arising from the growing inequality between wealthiest and poorest nations, perhaps the greatest moral challenge of our generation. If the poorest and most marginalised three hundred million people in Africa were already as politicised as many Islamic groups in the Middle East, there is little doubt that we would now be experiencing a very turbulent new chapter in human history.
How can we create a better world without tackling evils such as hunger and violence first? Eckhart Tolle - The Power of Now: A Guide to Spiritual Enlightenment
For many hundreds of millions of people, daily life has got worse over the last twenty years, despite huge earnings in some countries from oil or minerals, plus large amounts of development assistance. Two factors in this are AIDS and civil wars.
The combined assets of the world’s top three billionaires exceed the combined GDP of all the least developed countries, where over 600 million people live. One in five of those alive today consume 86% of the world’s good’s and services – hardly surprising when you realise that 66% of the world’s population lives on less than $2,000 a year, and most Africans earn less than $1 a day.
DeBeers, the diamond mining corporation, told a London gathering of executives that it costs around $1bn to create a new mine. Based on the daily wages of workers in the area, for the same cost you could employ 100,000 local workers for 30 years. That’s People Power Parity: measuring costs not in $ but in multiples of a daily wage.
The growth machine rolls on. The combined assets of the world’s top three billionaires exceed the combined GDP of all the least developed countries, where over 600 million people live. One in five of those alive today consume 86% of the world’s good’s and services.
Expect mood and fashion swings in wealthy nations to clash with the aspirations of poorer nations, resulting in resentment, conflict and added pressures for mass migration.
We need to be careful not to impose a set of current Western values which are the product of 150 years of industrialisation, on nations which are just emerging from rural subsistence living.
Oil and mineral mining – huge ethical challenges
If fundamental problems of injustice and corruption are not sorted, extraction of oil or minerals could become almost impossible due to terrorist targeting of uniquely vulnerable and costly infrastructure. Quite simply, some of these companies will be out of business.
10% of all Shell profits come from Nigeria, the 6th largest crude oil producer in world. A single barrel of oil buys a local labourer for more than a month. Mineral resources are 25-90% of exports in Botswana, Ghana, Guinea, Liberia, Senegal, Mauritania, Namibia, Niger, Central Africa Republic, Sierra Leone, Congo, Zambia, Zimbabwe. In theory the economies of these countries should be roaring ahead, but the reverse is largely true.
A 2003 World Bank study shows the curse of extraction wealth on the poorest nations: countries with greatest income from mining / extraction usually see lower economic growth, more corrupt and oppressive regimes and greater contrasts between wealthy and poor. They are also more likely to suffer from wars and ethnic violence. There is often a coalition of interests between a wealthy and well-armed ruling elite and a multinational looking for stable conditions for long-term extraction.
Mineral wealth means the currency becomes valuable, so small business exporters can’t sell what they grow or make and go out of business, making the country as a whole even more dependent on extraction.
Answer: Identify multinational profits by nation, so that it is easier to justify ploughing back some profits into the relevant communities. Make sure that such community funding is totally transparent at every level, with community involvement, health and education infrastructure, encouragement of small enterprises, encouragement for human rights and no forced resettlement without proper compensation.
The age of the very special child
Child labour is an example of a very controversial issue where some in poor nations are being severely judged for acting in a way that would have been completely legal in developed nations at a similar stage in their economic development.
Child labour was only abolished in countries like Britain around 150 years ago. Developed nations now live in an acutely child-sensitive age. It’s partly because many parents in these countries are having fewer children and often later in life. Children have become a symbol of innocence and purity in a worrying world.
It’s all part of a natural desire to create the best kind of life for children, without pain, suffering, unhappiness, violence, emotional abuse, seduction or rape.
At least that’s the idea…..
Every time a young child is discovered in India working in a factory making products for Western markets the same thing happens. The company gets into big trouble, and the children get into mortal danger.
Over 50 million children in India depend for their daily existence on whatever they can get by begging, selling or working. If you don’t work in some way you starve, and if you starve you’re soon dead.
So every child in India is a working chid, unless completely supported by parents. But over a hundred million families in India are so poor that a child has to earn his or her own food. Everyone from the age of five has to help – whether harvesting crops, carrying water, making a fire, or sitting on the pavement selling flour.
And then there are the runaways. And the orphans. And the outcasts.
My wife and I have visited a railway station in Mumbai which is home to hundreds of children, aged three to fifteen. Twenty to thirty new children arrive every day, each a runaway from home. One girl has given birth three times alone on the roof of one of the platforms – aged thirteen , fourteen and fifteen..
Girls of ten to twelve get picked up on the streets within hours by older boys, who offer affection and a meal. Wthin a week, many of these vulnerable young girls are on a one-way ticket to almost certain death. Recruited as commercial sex workers, they are forced to have unprotected sex up to ten times a night. It’s only a matter of time before they get HIV.
Building a better world for children is a noble ideal but if we are not careful, we can find that blind pursuit of Western ideology can kill the very children we want to protect.
So how do we apply our universal code in such a situation?
Treat others as we would like to be treated – may lead us to place ourselves in the shoes of destitute, orphaned children who beg at the factory gates. At the very least it leads us to find small ways to make a big difference, even something as little as feeding those who come, for a handful of dollars a day, right through to setting up some kind of a work-skills programme with food and shelter at night.
Setting an example worth following – leads us to be very sensitive to local situations, resistant to knee-jerk moralism and misplaced charity, but actively investing back into the impoverished communities from which our workers and customers come.
Quite often there is a disconnection for historic reasons between where the business operates, and where community donations land up. So for example, a large US multinational may have offices in most of the poorest nations, and major revenue from some of them, yet the entire donations policy may be to support community projects in American cities.
Community development develops markets
66% of the world’s population lives on less than $6 a day. It is easy to write off such a vast number of people from the commercial point of view, but it is a large market with significant collective buying power. That is one reason why revenue growth for multinationals with the right products for poorer nations is often so rapid eg Avon Cosmetics in Russia with annual growth rates of up to 70%.
Another example is Hindustan Unilever which introduced candy made from fruit juice and sugar for a penny in India. The new candy became the fastest growing item in their product range – with estimated sales potential of $200m a year. They have seen similar results with low-priced detergent and iodized salt.
Slum-dwellers pay larger proportions of income on basics like food and phone. Water can cost up to 100 times more than elsewhere, food 20-30% extra. Local moneychangers may be charging 10-15% per day or as much as 2000% a year.
As a result, non-profit micro-banking has flourished, offering small loans to groups of around 14 women who act as security for each other. Typical repayment rates are around 99.5% within 12 months and defaults almost unknown.
Investing in microbanking, education, health and infrastructure is a sound policy from the corporate point of view, as the result in general terms is development of future markets.
Why Milton Friedman’s views look so out-dated
Friedman argued that business should only spend money to make owners wealthy, and anything else was wrong. But as we have seen, this approach can actually damage the very wealth one seeks to protect.
Well-directed community support can improve corporate image, consumer loyalty, product attractiveness, morale, workplace productivity and the size of local markets. Indeed, strategic philanthropy can provide such strong business advantages that some argue that it hardly deserves to be called philanthropy.
Friedman’s second assumption is that giving is no more effective when done corporately, than by people, so there is no moral logic to it: reward your shareholders and let them decide themselves how much to donate. But Friedman failed to see that corporate donations can have far greater impact than large number of acts of individual generosity, grouped together in a donation of identical size.
Larger corporations can encourage changes in law, local practices and government action – for example by offering conditional support for national programmes. Business can also encourage staff largesse with donation-matching schemes, or volunteer release programmes or with gifts in kind of services or products.
This multiplying effect has been created by Pfizer over the last few years. The corporation has an excellent treatment for trachoma – a common cause of blindness in the poorest parts of the world. They made a decision to attack the problem on a massive scale. They not only donated drugs, but also worked in close partnership with Edna McConnell Clark Foundation and the World Health Organisation to distribute therapy and set up clinics.
In 12 months alone the incidence of trachoma fell 50% in target populations of Morocco and Tanzania. The programme has grown with support from Bill and Belinda Gates and the British government, aiming to treat more than 30 million people.
Cisco knows the power of developing your own markets and workforce with strategic philanthropy. Cisco created Networking Academies: training centres and virtual training environments designed to produce a rapid increase in the number of people who can set up and repair computer networks – vital to a corporation who sells them.
When it comes to social engagement, more than 50% of Americans prefer companies to be active on a local (59%) rather than national (26%) or global (9%) basis, with priority on quality of public schools, youth programs and environment. People prefer specific programmes with tangible results. 56% of global companies have not reduced their social responsibility programme spending in the recession – 4% have actually increased spending.
"A civilization flourishes when people plant trees under which they will never sit" Greek Proverb
YPO stories – Alex Cappello
Competitive advantage of corporate philanthropy
Michael Porter is perhaps the world’s leading authority on competitive advantage. With Mark Kramer he has argued that corporate philanthropy can create competitive advantage.
5 steps to identify context-focussed philanthropy investments
• Examine competitive context in each territory
• Review existing donations pattern
• Assess existing and potential giving in light of advantage
• Seek possible collective action / clustering
• Evaluate results eg sponsorship of sports event in brand awareness, using mailing list of organiser / club and so on
Porter dislikes the term “Strategic Philanthropy” – often loosely used. He feels that cause-related marketing is not really philanthropy at all, because of the obvious commercial benefits. But this is hair-splitting: the end result is still a very different relationship between community and corporation than Friedman ever approved of.
Foundations may not be the answer
Many large corporations have set up charitable foundations, but donor benefits have often been disappointing – they would be like to fail the strategic philanthropy test. These charitable bodies are usually independent, and strongly resist pressure from founding companies to make donations that could help their business. It is unfortunate that corporations can find they are attacked for lack of philanthropy, despite generous gifts of capital or shares in the past.
For example, the Wellcome Foundation was endowed by the Burroughs Wellcome drug company, for medical research. The corporation was later swallowed up into GlaxoSmithKline, who has been attacked for high-priced anti-AIDS therapies, despite the fact that the Wellcome Foundation continues to make huge donations to AIDS research, but under the old name.
Motorola code of conduct - bribery
Motorola code of conduct: “We will always act with constant respect for people and uncompromising integrity”. Bribery: “funds and assets of Motorola shall not be used directly or indirectly for illegal payments of any kind” and spells out “the payment of a bribe to a public official or the kick-back of funds to an employee of a customer…” Codes of conduct need to be specific eg.. “Employees of Motorola will respect the laws, customs and traditions of each country in which they operate, but will at the same time engage in no course of conduct which, even if legal, could be deemed to be in violation of the accepted business ethics of Motorola or the laws of the United States relating to business ethics.”…
Bribes as an example of varying culture and standards
Whose ethics and whose values? Until recently bribes were tax deductible in Germany, encouraged actively therefore by Inland Revenue. Some differences in culture have been described as Conflicts of Relative Development: situations where it is helpful to ask what kind of decisions we would have made in our own country at a similar stage of economic development. Examples include wage levels, safety standards – and bribery. Is it right for a large ship, contaminated with asbestos, to be stripped and refitted in a developing country using dangerous processes which would be widely condemned if carried out in a European or American port? Is it right to pay these workers less than 10% of what Europeans would be paid? And is it right if the contract was only won after providing a generous holiday in the Bahamas to an official and his family?
Bribes or other irregular financial inducements were until recently tax-deductible expenses. The definition of corruption used to be : “Use of public profit for private gain” , but many have broadened the definition to “use of entrusted powers for private benefit”.
Embezzlement, nepotism, bribery, extortion, interest peddling, fraud and other irregular benefits – these things challenge development, undermine democracy and government, distort the legal process and weaken leadership (because a bribe wins power). In corrupt countries people get promoted by who they know rather than by what they know.
Corruption destroys rules of competition, since only the most corrupt get the best deals, rather than those with the best products and services.
What are we educating people for? Preparation for Life
What kind of world will students and MBA participants face? Fundamental global changes. Obsession with exams, grades, syllabus and traditional methods of assessment. Need to prepare students for life challenges, for rapid change, to make wise choices with long term aims in mind. Failure of students ability to form long term relationships. Need for education on relationships, marriage, friendship, conflict resolution, anger management, communication. Romantic dream still alive in young people, teenagers. Why students are looking for answers on love and relationships. Failure of colleges and schools to teach students about relationships, obsessed with narrow view of what education is about. Secrets of long term relationship success. Divorce and relationship breakdown is major cause of failure to achieve in other areas. Teaching secrets of personal happiness and contentment. Why personal fulfilment is increasingly important in education. I am a physician and welfare of pupils is a deep concern. Ultimate purpose and meaning. Video on future of education, high schools, colleges, universities, curriculum, trends, syllabus, exams, assessments, business schools, MBAs, degree courses - by Dr Patrick Dixon, Futurist conference keynote speaker for NAIS.
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