Bosses set the tempo for ethical leadership

See my article in the Yorkshire Post today.http://www.yorkshirepost.co.uk/news/debate/columnists/judith-cork-bosses-set-the-tempo-for-an-ethical-change-1-6984613

Is limiting growth brave sector leadership or just risky marketing?

Patagonia and North Face are well known as front-runners in the field of ecologically responsible companies. Organic fibers, ethical treatment of workers, minimizing emissions from company workshops, and transparency on business ventures are the orders of the day for both companies. - See more at: http://groundswell.org/the-bottom-line-patagonia-north-face-and-the-myth-of-green-consumerism/#sthash.TX5AgyCb.dpuf

 Patagonia, the outdoor wear supplier, is known as an ecologically responsible company using organic fibres, ethical treatment of workers, transparency of business venture etc.Over a year  ago it set out an interesting marketing goal of limiting growth. It claims it wants to make less than in previous years as a way of serving the environment better and it calls this initiative "the responsible economy".

As part of the campaign it asks prospective purchasers whether they really need a new jacket or are they just bored with labels saying "don't buy this jacket" for example .  It has also started to sell used Patagonia clothing in some of its stores. The key to this strategy therefore has to be whether consumers believe what the company says. It has to be more than just a marketing gimmick for it to work long-term.  It has to be consistent  with all other actions to be credible because otherwise there is a huge reputational and financial risk from increasingly cynical consumers. What is interesting is that its growth has increased over the last year which it claims is from attracting new customers.

So what happens over the next 5 years. For the strategy to achieve its objectives presumably Patagonia needs to both grow its market share and see sales growth fall ie it manages to influence buyers across the sector to reduce their purchasing impacting all their competitors (and helping the environment) and when they do then buy Patagonia is up there as first choice.

One of the benefits of ethical business practices is not just competitive advantage but sector leadership but this transformation as a front-runner comes with massive risks as well as potentially huge benefits. Time will tell whether this is just a clever marketing campaign or sound thinking but for now it does challenge the norm and that's what we really need.

Key to decision making: what does my gut tell me is the right thing to do?

One of the world's most ethical  companies (WMEC) makes it crystal clear to employees what to consider when making day-to-day decisions.  "If an employee is in any doubt about whether something is ethical then the internal guide spells out what is expected through key decisions  such as "what does my gut tell me is the right thing to do?" If the employee is still unsure after these questions then they can stop and ask for help from the Ethics and Compliance helpline."

The world's most ethical companies talk openly about "how things are done around here". They have vocal and visible ways of doing things their way for example "will it help build trust in you and the company?" Their "way" is continuously reinforced in day-to-day life providing a common terminology and language to help challenge unethical decisions which are outside the norm.

They unashamedly talk about ethics, ethical behaviours, doing the right thing, responsibility and corporate citizenship and there is clear pride in this. Employees have regular training on ethical conduct backed up by internal documents which explain explicitly what is expected, how this translates into ethical behaviours with examples of ethical decision making stories. This has become part of their ritual and routine.

The key perhaps for companies looking at responsible business practice therefore is to develop a culture of confident and comfortable challenge where accounting for how you feel (what my gut tells me) plays a valid and valuable part.

Creating reasons to believe

Many companies now have their vision and value statements as part of standard business practice, but the key difference shown by the research conducted into the world's most ethical companies entitled "changing the story: reasons to believe" was the fact that these companies provided on-going, genuine, committed  "reasons to believe" what was being stated to all stakeholders. They showed the difference between stating something and acting out the statement in practice ie how they do it.

They don't just put their customers first ( a now overused value statement) they demonstrate how they do this e.g. by treating customers like family and genuinely putting the customer before profits. They don't just talk about transparency they are open e.g. one company posts its political donations on its website.They don't just expect high standards from their suppliers they share best practice with them. They don't just talk about the environment they act like the "best neighbour they can be".

And in doing all this they are still profitable. But changing the corporate story in this way requires huge and unrelenting energy from the top team, what the paper terms "tempo from the top" to ensure that business and ethical performance are aligned and fully functioning. While building and retaining trust in this way does require a lot of effort, it is surely worthwhile in creating a motivating,fulfilling and enjoyable place to do business, which has spin-offs for all stakeholders, including the investors.

Banks don't give a XXXX for their clients' For Ex.

Today the FCA fines 5 banks a collective £1.1 bn, the largest fine ever imposed, for misconduct in the foreign exchange markets. It states that the banks put  "their interests ahead of their clients" and behaved "unacceptably".

This is another fine example of why ethical behaviours are so important to business. Without them an organisation is at risk of both large direct costs (the fine itself), huge reputational damage and a continuing erosion of trust ( much harder to rebuild than lose) and regulatory interference and scrutiny (the FCA will be undertaking an "industry-wide remediation programme on root causes") which damages and impacts the whole of the sector.

 It is therefore a competitive imperative not only to act ethically but also to take the lead in engendering responsible behaviours and ethical business practices for the benefit of the whole sector. Whether you're one of the banks directly involved or nor, the result is that all banks are maligned and damaged. This is something their leaders should a give a xxxx about.

Tempo from the top to create momentum from the middle

In a review of the world's most ethical insurance companies, produced for the Chartered Insurance Institute (CII) as part of its ethical guidance series, one of the key points was for the main change agents ie the leaders, to demonstrate "tempo from the top", a term coined to replace the more passive "tone from the top". Leadership tempo is seen as a key way in driving "momentum from the middle" ensuring that the organisation fires on all cylinders, essential elements in gaining competitive advantage (sector leadership) both financially and ethically. Their success does not happen overnight It requires determined and sustained communication and feedback with stakeholders and a real sense of business purpose.

To read more see  the "changing the story: reasons to believe" report.http://www.cii.co.uk/media/5693987/c14j_9286_ethical_culture_5_reasons_to_believe_-_v3_web.pdf

More of the findings will be covered in this blog over the forthcoming days.

The living wage is good for business

Today the UK Living Wage rate has been set at £7.85 per hour, an increase of 2.6% on the 2013 rate and 21% higher than the national minimum wage of £6.50 per hour; improving the take home pay of 35,000 low-paid workers across the country who are employed by over 1,000 Living Wage accredited organisations.

Mike Kelly, Head of Living Wage at KPMG stated that the “Business benefits of the Living Wage include higher retention and productivity, and over 1,000 responsible businesses recognise this. The Living Wage may not be possible for every business, but is certainly not impossible to explore the feasibility of paying it.”

 Stephen Uden, Head of Corporate Citizenship, Nationwide reinforces this message“To celebrate Living Wage Week we are proudly displaying the Living Wage logo to demonstrate we are part of a movement of responsible businesses. Increased staff motivation and retention rates, reduced absenteeism and recruitment costs are common benefits reported following implementation of the Living Wage".

As the Living Wage companies are showing fair treatment of employees is a key factor in building reputation and trust in a business which in time will help to boost sustainable long-term value.

Maybe the "dividend of mutuality" doesn't mean much anymore?

Yesterday there was another example of why treating customers fairly pays. The Yorkshire Building Society was fined £4m by the FCA for treating mortgage borrowers unfairly when they were struggling with repayments. In addition the YBS agreed to refund £8.4m to 34,000 customers.Tracey McDermott, the FCA’s director of enforcement and financial crime, said: “Customers in financial difficulty need to be treated fairly and sensitively. Firms must ensure that they are taking into account the particular circumstances affecting customers who find themselves in difficulty.”

Some of the causes of the problems were said to be poor training of staff (when dealing with customers getting into financial difficulties) and poor procedures where management were not aware of the problems.  As a mutual, mortgage customers effectively own the organisation and customer service is seen by the sector as one of their main market differentiators - they don't have to pay dividends to shareholders so they can treat their key stakeholder better investing in service for example. But it looks from this example that the Yorkshire Building Society is struggling to define what its "dividend of mutuality" really means. If it can't up its game in customer service terms, when many of the banks and competitors are doing just this, then it really needs to think hard about its future.

Chris Pilling, Yorkshire’s chief executive, said: “As a mutual organisation owned by our members, the service we give to customers is fundamental to us and we are very sorry for letting them down".  Being sorry is fine and a good start but, as the head of the second largest building society, what is he and his leadership team going to do now to make the defining difference to customer outcomes?. The mutual sector provides an appealing alternative business model to many, but in order for it to provide meaningful competition it needs to address the sector's "strategic drift" and get a grip.

Ethicists on the board as the conscience of the organisation?

“Organisations often face difficulty in managing ethical dilemmas because they are designed as profit-maximisers” states Drs Paul Baines and Howard Viney in an article for Cranfield University alumni. They go on to say that “to overcome this, there needs to be a commitment on the part of organisations towards openness”.

It is worth continuing to quote them directly “Organisations could take the extra step to build confidence by introducing an ‘ethicist on the board’, appointing a non-executive director whose sole responsibility is to offer advice on the ethical aspects of any organisational decisions. The non-executive ethicist would act as the conscience of the organisation, tasked with the responsibility to act as a devil’s advocate, challenging major decisions to ensure they are defensible on ethical grounds and anticipating public responses to actions so that they may be communicated to stakeholders without reputational damage.”

Many/(most?) NEDS have been taken from financial backgrounds reflecting the importance of sound financial decision making in running a business. While two of the key qualities for NEDs are independence and challenge it is becoming clearer, as this blog site has tried to illustrate, that significant sums can be lost if the main NED challenge is focused predominantly on the short-term requirements of one stakeholder, the shareholder. It would be good to see boards, head-hunters and recruiters looking for a new pool of NEDs where evidence of real ethical challenge in decision making is given priority, reflecting the longer-term impact on all stakeholders.  This would surely help to build trust and confidence in business generally.

How ethical is “variable pricing”?

Big data is starting to get interesting or scary depending on how you look at it. Sal Thomas writes in on-line “Marketing” this week about B and Q which is testing electronic price tagging i.e. altering the price of an item based on the profile of the customer.  Basically the system uses data stored from loyalty cards and spending habits then uses chips in customers’ mobile phones to work out a price to be displayed next to the goods on a shelf.  This apparently is being “sold” as a way of rewarding loyal shoppers but the reality is more likely to be “price optimisation” for the retailer. “Smart shelves” are already being trialled (e.g. Tesco) so the question Sal Thomas asks is “when does dynamic pricing risk turning personalisation into discrimination?” 

It is going to be a difficult ethical call for businesses as they compete for, and manipulate, customer data in more complex ways.  These companies could do with taking time out to look at the bigger picture re building sustainable customer trust and keep asking themselves, “just because we can doesn’t mean we should” use the data in these ways. Uber in the US for example showed a lack of ethical judgement when it increased prices dramatically during a snow storm in New York resulting in extensive public criticism (and resulting in official price curbing in emergency situations).  It would be interesting to think about what would have happened in customer loyalty and trust terms if they’d done the exact opposite and showed a genuine interest in customers’ well-being during times of crisis. Until the cultural mind-set of business shifts genuinely towards the customer big data will surely continue to be weighted to exploitation not reward?

Businesses need to take a square out of Green and Black's bar?

Jo Fairley, one of the founders of the chocolate brand Green and Black, spoke at the Kirklees Business conference yesterday about how the business evolved "one square at a time". One of the keys to the company's success was her uncompromising attitude to customer service which involved personally picking up the customer service phone which was on her desk, listening and talking to customers, gaining direct feedback about her products, both good and bad, and then taking the appropriate action.

Within today's fast moving and frenetic business world, leaders surely need to give priority to listening to their key stakeholders to get the feedback that can help shape the future success of their companies. As Jo Fairley said, leadership is about communication, listening has a key part to play as well as "conjuring up a vision as to how your product makes the world a better place".

This suggests that direct contact with stakeholders provides valuable opportunities to both hear and inspire and should possibly be higher up the leadership bar?

You could have a lot to lose: the importance of treating employees fairly

A study produced by the ACE Group showed that c75% of senior risk executives in the luxury goods industry stated that reputation is their company's greatest asset and 80% agreed that reputational risk is the most difficult individual risk category to manage.

These luxury goods companies, along with those operating in the mass market, are likely to be busy managing cyber and environmental risks for example but the main risk to their reputations is much, much closer to home: their employees. The greatest damage to these companies can come from employees behaviour either simple human error or negligence or deliberate misconduct.  For example an employee at Morrisons stole payroll data of almost 100,000 employees and posted it on a website. It is therefore vital for all organisations, if they want to engender trust and ethical behaviours in their employees that they start by treating them fairly. This approach includes diversity of  opportunity, on-going learning and development, fair terms and conditions etc etc. If reputational risk is now going up the corporate agenda then this surely has to be good news for employees and other stakeholders?

Putting more women in charge is the key to a better future for business?

"Can women fix capitalism?" is the title of Joanna Bush's article in September's Mckinsey Insights. She imagines a future where women " replace capitalism's relentless push for ever-increasing short-term profits with long-term value for all stakeholders". But this isn't a sexist view because she aspires to something better "where men and women lead as equals delivering meaningful impact over the long-term".

However, she is propounding that the feminine archetypes of leadership could be the answer and in her research looks at women leaders who both love working at the top and have a life outside to help shape a new leadership approach that actually values feminine qualities. She calls this "centred leadership" and this it is what "centred leaders "do:

• lead from a core meaning by tapping into strengths and building shared purpose, with a long-term vision for positive impact
• reframe challenges as learning opportunities by shifting underlying mind-sets to replace reactive behaviour patterns
• leverage trust to create relationships, community and a strong sense of purpose
• mobilise others through hope,countering fears to take risks and act boldly on opportunities
• infuse positive energy and renewal through deliberate practice to sustain high performance.

 The research showed that these were the minimum factors for a distinctive leader and that the qualities resonated with men, The suggestion is that if centred leadership was embraced by both men and women it could be a game changer transforming business into more "conscious capitalism" with long term value and sustainability key. A new way of engendering ethical behaviours, fair treatment and trust.

Wonga's loan write-off shows treating customers badly doesn't pay

The FCA has recently taken over responsibility for payday lenders and yesterday forced Wonga to write-off loans and interest to 375,000 customers who should never have been targeted. Andy Haste, the new CEO said Wonga had been "more concerned about the loan outcome than the customer outcome" as money had been lent to people who could never afford to repay. It is another clear example that short-term, unethical behaviour and unfair customer treatment is not sustainable long-term

This is going to be a major wake-up call for the payday lenders as the FCA imposes its "treating customer fairly" (TCF) policy where, among other things, making sure that products and services are appropriately targeted and understood by customers has to be proven. The focus on "customer outcomes" rather than just financial return is a big ask for many in financial services and the payday sector is going to need a major mind-set change to get even close to the requirements of its new regulator. Let's hope the new CEO can make haste with the changes.

New Governance Code Encourages Focus on Long-term Value Creation

A new version of the UK Corporate Governance Code comes into force today for listed companies with accounting periods beginning on or after 1st October.

A noticeable and encouraging emphasis within the code is about Boards managing for the longer term and the sustainability of value creation.  Remuneration for Board members will reinforce this longer term commitment by aligning rewards with sustained value creation, important aspects bearing in mind the increasing number of shareholders voting against their board remuneration policies this year.

In addition, Board directors will be expected to lead by example encouraging good behaviours across their organisations, the so called " tone from the top," (something that might already be expected of leadership).Hopefully, as the FRC (Financial Reporting Council) behind the new code also emphasises the need for more constructive and challenging debate aided by greater board diversity (including gender, race, approach and experience) a new breed of more varied, enlightened and ethical individuals will start to lead our major companies helping to rebuild public and consumer trust in big business.

It’s a safe bet that responsible gambling advertising alone won’t be effective.

Today 4 gambling companies, William Hill, Ladbrokes, Coral and Paddy Power, advertised that they would be advertising “responsible gambling” from 1^st October with new campaigns in the new year.

The problem with advertising is that, because it is expensive, it can be mistaken for a serious attempt to address an issue. Too often it is used as a quick, visible and short-term tactic to address a problem rather than an important and integral part of an overall marketing strategy.  This action could be seen as a promising move for the protection of vulnerable customers such as children if the advertisements were just a small part of a committed and integrated action strategy to change culture and ethical behaviours across all four companies.

Undoubtedly the stakes are high for these companies following the outrage expressed by government and the public at their exploitation of the vulnerable in the last few years, resulting in changes which have decimated their profits. Maybe they are more sincere about deep-rooted change and only time will tell.  But it is highly improbable that their cultures have changed so quickly and if the advertisements are “it” without changes in the leadership vision, values and actions over the long-term (perhaps replacing Paddy Power’s so called “Head of Mischief” with "Head of Responsible Business" for example) it is a pretty safe bet that the actions will not help vulnerable customers; but they might just reduce some of the heat on the sector which is presumably their real game plan.

Warning:10 is the average for children to start buying on-line

According to research conducted by the charity Pfeg, the personal finance education group, 10 is the average age that children start to purchase items on line. It is therefore just as well that financial education starts to be embedded into the maths and citizenship curriculum at schools this month in an attempt to help people manage their money better.

However, Business also has a responsibility in ensuring there is no exploitation of vulnerable customers such as children when it comes to money management.  And if they don’t there may be a big price to pay for their unethical behaviours as we have seen recently when Google agreed to refund c$19 million dollars to parents whose children ran up enormous bills by downloading apps from its Play store without their parent’s authorisation (an amount imposed by the US Federal Trade Commission).  Some of the children who downloaded apps went on to incur large bills through in -app purchases.  

Google is accused of allowing the purchase of items without a password and of not displaying information about charges. It has agreed to change its billing procedure so that it obtains the consent of the consumer before charging.  This is another example of poor behaviour damaging reputation and the need to engender a culture of fair treatment and transparency of operation to build trust.  Hopefully the new curriculum, which includes learning through financial games, will help to engender more savvy teenagers and adults, equipping them to deal more effectively with the increasing complexities of technology where privacy, implicit consent and big data are now fundamental parts of the digital game.