Can you force a business to be responsible?

On Saturday I spoke to a packed Battle of Ideas festival audience at the Royal College of Art, and then listened and debated whether we can trust big business.

Economist Phil Mullan, one of my fellow panellists, argued that businesses’ sole aim should be to make profit and that any attempt to make the company look responsible to society was either a cynical attempt to improve the company’s reputation or, in the worst case, a deceitful side show.

Mullan explained that good business almost entirely meant being fair and reasonable to customers, staff, and suppliers. You could feel the heckles of the audience raise, but his opening remarks were a great backdrop for the debate that ensued.

Business needs to make a profit and provide a return to shareholders, and without doubt this should be the overriding objective of any business leader. But to do this, the company has to have the trust of its stakeholders including its customers and shareholders.

Listed companies especially will not be forgiven by shareholders when there is even a whiff of impropriety. In September 2008, when confidence in the banking system reached rock bottom, the banks’ share prices nose-dived as confidence and trust in the sector evaporated. The banks didn’t even trust each other enough to lend to. Many banks and financial institutions failed.

In 2002, when accounting firm Arthur Andersen was convicted of obstruction of justice for shredding documents related to its audit of Enron, the damage to the Andersen name was so severe, its 89 year history ground very swiftly to a halt.

The irony in the banking sector is that it’s one of the most heavily regulated industries. But far from this regulation helping, it seems to have created a “tick box” or a “can we get away with this?” mentality. Regulation should encourage corporate responsibility, not rescind that responsibility to a regulator through an approvals process or become a substitute for sound business judgement.

So if regulation is not the answer, how do we ensure companies act responsibly? We need to do something simpler; make companies more transparent about what they’re doing and therefore more accountable. This will open up their actions even further to market and stakeholder scrutiny. More transparency will encourage an ongoing two way debate about business activities. This will tie the company’s actions and responsibility even more clearly to their executives’ wallets via the share price.

Contemplating a falling share price will always focus the mind of a board executive; more than a phone call from a regulator or a polite email from the company’s own head of corporate responsibility.

Throughout October and November, The Independent Online is partnering with the Battle of Ideas festival to present a series of guest blogs from festival speakers on the key questions of our time.

Richard Janes is a director of Hotwire’s Banking & Finance practice. Hotwire is hosting a Battle of Ideas satellite event in London on Wednesday 10 November to launch its report into what it will take to restore confidence in the UK financial services sector.

Picture:Getty Images

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• http://www.abercrombieukstore.com abercrombie

  Oh !It’s so nice !I like it so much ! Thank you for you give me so wonderful information !

• Chippychap

  “Mullan explained that good business almost entirely meant being fair and reasonable to customers, staff, and suppliers.”
  Just like the way HMG treats the UK population?

• http://blogbasics.com Paul Odtaa

  So the classic business ethics problemYou are in a partnership with JimA blind person comes into the shop and buys a $5 item. Mistakenly he pays you with a $100 note instead of a $10 note.Problem: Should you keep the $90 for yourself or split it Jim?

• SuitBoi

  The answer is remove moral hazard by not propping up failing businesses, and greater customer protection in terms of watchdogs and legal aid funding for claims against bad practice brought by the public. With the banks, living wills to allow orderly winding down of companies and trust saving accounts backed up by gilt purchaces so that savers’ money is safe. If customers want better returns, they should understand that there’s going to be risk involed.

• LortonView

  Surely that depends on whether you want a quick buck or not? Are you planning to stay the course or get out quick?

• Jasonsmith17

  I’m afraid your kidding yourself Richard if you think transparency will make large corporations more popular. It will just create demand for ever more transparency. The problem doesn’t really rest with big business, although it doesn’t always help its own case. Society is going through a rather cynical period. You’re human Richard and humans make the wrong decisions, on top of this you’re the Director of a company and are therefore probably responsible for climate change. No amount of transparency will rid you of your guilt.
  Big business should continue to do what it does best, making good products and spreading it’s reach ever further – people in Africa want iPhones too. The problem of cynicism in Britain needs to be addressed politically by everyone. The negative ideas awash in society need to be challenged and the best thing corporations can do is become more efficient and make their products ever cheaper and available to the world.

• Guest

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• http://www.facebook.com/joe.bauwens Joe Bauwens

  Interesting that since this is buried in the business section almost all the comments reject the idea that businesses should have ethics. I’ve worked with a lot of organisations over the years and I’ve noticed that managers and directors that considered themselves ‘tough’ and ‘business orientated’ and tended to ride rough shod over ethical concerns also tended to be the ones that clutzed up and cost the companies employing them lots of money (or occasionally just stole it). Sometimes because they were ignoring rules that were there for a reason (break environmental regulations and you can get heavily fined, treat staff badly and the best ones will leave and the rest treat you badly back), and sometimes because they had a general inability to keep their eye on more than one thing at a time.
  So no, you can’t force a business to be responsible, but if it starts to do otherwise you can avoid it like the plague, not just because it is irresponsible, but because you like your own wallet.