Business ethics. Should they be integral to procurement?
Recent events would suggest that less-than-glowing business ethics can cause business failure, damage share prices and have adverse consequences along the supply chain.
Corporate and social responsibility (CSR) may have traditionally been regarded as a ‘nice to have’ by some, but when it is absent, this can end up casting a long shadow across a business, its employees, partners and suppliers.
Imperfect employment and payment practices were reported to have led to a drop in share price at a leading sports retailer and its founder being called to appear before a House of Commons select committee. The collapse of a British retail chain is said to be a result of minimal investment and money taken out of the business into the personal hands of owners, with 11,000 jobs at risk as of June 2016.
When it comes to procurement, there could be a case for business ethics to take a fair ranking alongside cost, health and safety and other vital criteria, if these two business lessons are to be learned more widely.
Are lessons still to be learned?
lthough the impact of not-quite ethical practice has made itself dramatically felt by both of the above businesses, it would appear that many UK businesses are yet to heed the warning, with visibility of business ethics appearing to be a work-in-progress for many.
The FT has reported that most UK listed companies say they are ethical but are not actively demonstrating this through information on their websites. It’s entirely possible that many of these companies have a code of ethics but are not adequately communicating these. One exception is said to be mining company Fresnillo which in its annual report gives a detailed explanation of how it enforces its code of conduct.
There is a consensus among some experts that where ethics are not integrated, the greater the ultimate risk is to the business and all others along the chain. ACCA,
the global body for professional accountants, addressed ethical behaviour and the role that regulators and business culture could play, in a roundtable discussion with regulators, economists and academics in 2014, where this was one of several conclusions.
One solution is for company annual reports to be broader and more integrated to include financial, human, intellectual and social capital, giving a business the opportunity to show investors, customers and suppliers how it is creating and sustaining value to the benefit of the whole supply chain.
Carrot, stick or both?
Many would argue that while regulation has a role to play, it can only have a limited impact, because it often deals with situations already in progress and helps to punish bad practice rather than encouraging good practice to begin with.
Creating open, transparent workplaces where people are able to raise issues without putting their jobs on the line may be key. Where an ethical baseline is in place it will be much easier for owners, directors, managers and staff at the front line free to make decisions on a long term viability basis, rather than an immediate cost one. This kind of culture is considered by many to be the key to preventing businesses storing up problems for the future.
It may be that we will eventually see a clear move away from short term thinking and pure profit to ensuring growth is sustainable and long term. This will mean introducing an ethical culture and encouraging behaviours that will ultimately change the way business is done.
Recruiting the brightest and best
In its annual Generation Y survey, Deloitte found that 75% of the young workforce want to work for organisations that foster innovative thinking, develop skills and make a positive contribution to society. Many are said to see themselves doing this by 2025, which means those businesses that are not showing ethical performance may struggle to recruit the brightest and best in the years to come.
Whatever the motivation for introducing and communicating a code of ethics, the bottom line would appear to be that not doing so can have consequences, with poor ethical behaviour impacting on financial performance and reverberating along the supply chain.