By Daniel Litvin – This article was originally published by Ethical Corporation magazine
Companies wishing to formulate policies on social issues, such as human rights and corruption, should beware quick fixes.
These days major companies are facing ever-growing demands to develop policies on non-financial issues. Once a corporate HSE policy might have been sufficient in this respect. In recent years – particularly for firms investing in developing countries – pressure has been mounting to develop positions also on social issues, such as human rights, labour standards, conflict and corruption.
This pressure comes from a number of sources. Companies are being encouraged to sign up to any number of initiatives, requirements, codes and guidelines on ethical behaviour in which social and human rights issues feature prominently. These include the GRI, FTSE4Good and the Global Compact. There is also regulatory pressure – such as the recent UK legislation making bribery of foreign public officials a criminal offence.
And perhaps the biggest driver is the string of controversies in recent years in which high-profile firms have been accused – fairly or unfairly – of complicity in rights abuses or of involvement in corruption. Most of these controversies have focused on the firms’ investments in developing countries such as Nigeria, Indonesia, China and Angola. The fear of bad headlines motivates management action probably more than any other factor.
This much is well known. But less widely appreciated is that policies – unless developed through a careful and strategic process – often provide relatively little protection for the corporate reputation. This has become apparent to me both from my research in recent years and from my direct experience working with large organisations.
For those firms that chose to develop social policies at all (and many of course ignore the pressure on them to do so), a standard response is for managers in corporate headquarters to draft a nice-sounding statement – for example that the company is “committed to the Universal Declaration on Human Rights” or that it “prohibits bribery in all its forms” – and to issue this as an effective command to corporate operations across the world.
This certainly will satisfy the requirement of some of the external codes and initiatives that companies must have policies on such issues. It may also be welcomed by a few CSR specialists. But the important point is that such an approach will do little to reduce the other main pressure: the risk that the company concerned will become embroiled in a public controversy.
Open to attack
There are two main reasons for this. The first is that the task of actually implementing policies on the ground often proves more difficult and challenging than companies expect, thus leaving them still exposed to criticism. (In fact stating policies publicly sometimes may raise the risk of attack, as campaigning NGOs actively seek to highlight discrepancies between a company’s pronouncements and its behaviour.)
The main problem in this respect is not so much that managers in local operations consciously choose to ignore instructions issued by corporate headquarters, although this sometimes may happen. It is rather that large organisations often find it genuinely difficult to ensure that all managers and employees understand the practical implications of their policies, and are adequately equipped to deal with them. Systems of internal control and information flow on social issues also may be at an early stage of development, if in existence at all.
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Significantly, local managers may have a different conception of what the policy in question means than does the corporate headquarters. Their view of what constitutes bribery, for example, is likely to be conditioned by local practices. Some developing countries have a deeply-embedded culture of gift-giving and of making and returning personal favours. Such behaviour might not be considered unethical by local standards, and hence managers may not fully appreciate the extent to which it contravenes the corporate policy – and hence could trigger international criticism.
The second reason is that, even once such misunderstandings are ironed out and even once a policy is fully implemented, there will always remain opportunities for NGOs to criticise the company concerned. This is because, on social issues such as human rights and corruption, there is often no commonly agreed position on what a corporation can and cannot be held responsible for.
Critical NGOs will always be able to identify a third-party with whom the company has some relationship – be it a supplier, the supplier of a supplier, a politician, a police force or a government department – that has behaved badly in some way. The company may protest that it has little influence over the actions of such groups. But this will be unlikely to silence an NGO intent on mounting a hostile campaign. A policy alone, however carefully worded, will be unable to bridge this difference of perspective.
An example of this can be seen in the continuing reputational risks being run by the many western apparel and retailing multinationals which source their goods from developing countries. A number of these firms have issued policies on labour standards and have also developed systems to monitor the behaviour of their principle suppliers. But even if these monitoring systems were foolproof (and few are), any campaigning NGO worth its salt would probably still be able find an instance of labour abuse by looking further up these companies’ supply chains, among the myriad, small-scale suppliers of their suppliers. For this reason, criticisms of such firms is likely to continue.
A parallel problem now confronts the big energy, construction and mining firms which have developed policies on human rights and corruption. Such policies, provided they are implemented, reduce the risk of unethical behaviour on the part of their own employers and managers. But merely by contributing taxes to governments which are corrupt or abusive of human rights in some respect, many of these companies remain open to the criticism – whether fair or unfair – that they are guilty of wrongdoing by association.
The long and short of it
So what does all this suggest? How should companies go about formulating policies on social issues? Certainly these difficulties should not deter them from doing so. Companies operating in unstable countries without such policies probably run an even greater risk of becoming involved in controversies. But equally, I’d suggest, a more strategic and informed approach would help. I am planning to develop a generic methodology for the development of corporate policies in this area over the coming months. But some of the basic principles are already clear:
• Companies should hesitate to sign up to any of the external initiatives or codes in this area if their aim is simply to secure a short-term boost to the corporate reputation, as this is unlikely to protect them from attack in the long run.
• Companies should drive policies forward, but should not race ahead of their organisation’s capacity to put them into practice. A limiting factor is likely to be internal reporting and control systems. Before any policy is finalised, an objective assessment of the company’s ability to guarantee its implementation can help prevent any rash commitments.
• The process by which policies are developed can be used to maximise their effectiveness. Repeated internal consultation on early drafts can help build a common understanding across the organisation of key issues. This also can provide an opportunity for local operations facing difficult issues and running a high risk of non-compliance with the proposed policies, to raise their problems without fear of criticism from headquarters.
• The process of policy development can also be used to develop a common understanding within the firm of the boundaries of its responsibilities. The extent to which the company is willing to influence third parties – such as governments or suppliers – to uphold its own ethical principles needs to be explicitly discussed and agreed, and ideally stated within the policy.
• Inviting comment from NGOs on early drafts of policies can raise understanding among such external groups of the dilemmas faced by the company and of its justifiable need to set some definable limits to its responsibility. This is will not win over all NGOs, for sure. But if such groups know the company has developed a credible and serious position on this issue, they may think twice before tarring its reputation by associating it with third parties over which it has little influence.
The clever companies, in short, may be those that take time to develop their social policies, embedding them within their organisations, and using the process of policy development to full effect. That approach may be wiser than two of the other common tactics these days: ignoring social issues entirely, or promising too much too soon.