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?