GoodCorporation

The Case for Health and Safety

2012-01-17T10:51:00.002Z

Choosing to repeal legislation that has led to an 80 per cent reduction in work place fatalities would seem to be an odd political choice. That this decision should be lauded by the media might seem even more perverse, yet this is precisely what happened when David Cameron announced his decision to "kill off Britain's health and safety culture for good".

What is even more strange, is that the UK is rather good at Health and Safety. Our fatal injury rate is one of the lowest in Europe and has been for the last six years. The number of deaths has fallen from 651 per annum in 1974, when legislation was introduced, to 171 last year (Health and Safety Executive information). That's still 171 lost lives, which hardly suggests we should be doing away with measures to keep people safe at work.

Contrary to the statement that Health and Safety is an "albatross hanging round the neck of British Business" that hampers growth, figures from the Health and Safety Executive (HSE) show that Health and Safety representatives save almost £600m per year based on the reduction in lost time from occupational injury and illness. This is based on the reduction of between 286,000 and 616,000 lost days per year.

While no one in business would support unnecessary bureaucracy, much of the hoohah surrounding Health and Safety is more fiction than fact. Banning the fireman's pole and school ties; requiring small businesses to have a health and safety consultant; making children wear goggles to play conkers - these are all fiction.

While we welcome any measures to simplify procedures and avoid unnecessary hurdles that could impede a return to growth, abandoning Health and Safety regulation is not the way forward. A health and safety culture is the very thing that responsible business managers have been striving to instill for the past two decades. Far from being an albatross or a monster, Health and Safety promotes productivity, it also saves lives.

Shareholders wrong to turn a blind eye to ethical standards

2011-12-20T16:26:00.001Z

Last week’s report by the Chartered Institute of Internal Auditors revealed that only 8 per cent of FTSE 100 firms measure ethical performance in their annual report. This comes as no surprise.

When conducting audits of responsible business behaviour, GoodCorporation interviews shareholders as part of the process and the lack of concern for ethics is very noticeable. Shareholders admit that they only take an interest in ethical codes of conduct and environmental issues once a problem has occurred.

The principle reason for this is that ethics issues are long-term and a growing majority of shareholders are short-term, interested only in immediate returns.

The shareholders’ lack of interest in ethics, however, should not be a reason for failing to measure ethical performance. Boards need to take ethics seriously because failures in this area can be extremely costly in terms of management time, reputational damage and often in financial and profitability terms as well.

The implementation of the Bribery Act has focussed attention on anti-corruption practices and this is clearly vital. But it has also meant that there has been a shift in focus away from other areas of ethical conduct such as conflict of interest, illegal work practices and environmental mismanagement. All of which have led to high profile scandals in the last 12 months alone. Whether shareholders are demanding it or not, companies need to get a firmer grip on ethical conduct. Providing a clear and easy to understand measurement of ethical performance in the annual report would be a good start.

GoodCorporation House of Lords debate

2011-12-20T11:59:00.002Z

Ethics vs Compliance

Host: Baroness Kingsmill

Speaker: Isabelle Deschamps

The most recent GoodCorporation debate at the House of Lords contemplated the roles of ethics and compliance in today’s corporations. Our guest speaker began by suggesting that there is a tendency to separate the two into distinct business areas; with ethics leaning towards corporate responsibility, while compliance focuses on legal obligations. Albert Camus once said; "Integrity has no need for rules", but can you run an ethical company without rules? Camus' principles are clearly based on trust, but how far can and should a business trust its employees? Can we base corporate behaviour on trust and do away with the rules?

While compliance, by necessity, focuses on the rules, to ensure that it isn't just a box-ticking exercise, it needs an ethical direction that gives a more long-term view for the business. Compliance, it was said, deals with the rules as they exist today - what a business needs to do in the here and now, whereas ethics looks both forwards and backwards. What is needed, it was suggested is a helicopter view that brings the two together as both are necessary to make a company run smoothly. Being good is good business.

Compliance and ethics, our speaker urged, need to form part of the DNA of a company and be driven from the top. Looking forward, we need to ask, not just how we can ensure ethical behaviour in business, but how can we raise the bar across corporates and across industries? How can we train the leaders of tomorrow to ensure that they will deliver?

Those present were asked if they felt their organisations were moving away from compliance and towards ethics or vice versa, with the majority voting for a move towards ethics.

It was suggested that some organisations were afraid of the 'E-word', and as a result, focused on compliance, which could be left in the safe hands of the legal department. Compliance also deals with the compulsory; businesses have to have it. It creates a reference point and is easily measured, whereas for some, ethics is too amorphous. In many businesses and industries therefore, compliance comes before ethics.

However, in a number of industries, there has been a move away from rules based to principles based regulation and with that there has been a shift towards ethics and integrity.

As organisations become more global, inculcating a set of values and a strong code of conduct will be increasingly vital. These values will need to permeate the whole organisation on a global scale or businesses face the prospect of reputational damage. Consequently, it will become ever more important for businesses to base their decision making on what is right, fair and proper. If ethical behaviour is instilled throughout organisations, businesses will become more compliant as ethical corporate conduct it was felt, leads to greater compliance.

To achieve this, it was suggested that ethics should focus on the tone at the top, the murmuring in the middle and the babble at the bottom of every organisation. The CEO must be on the ethics committee and people should be encouraged to ask the right questions. In doing so more businesses will put the E (ethics) before the C (compliance). Some felt this was already happening.

Businesses clearly need both ethics and compliance. They are not two separate silos, but should be part of the same goal. Nor should one be considered superior to the other. Ethical values should inform all decision making, be part of everything a company does, while compliance ensures all legal and regulatory requirements are met. We have seen from industries such as financial services that compliance alone doesn’t work.

The key ethical question for businesses is "how do you behave when no one is watching?" The debate concluded that businesses must comply with legislation while basing their decision making on ethical values. By embedding the right way of working across all departments businesses can ensure the right behaviour at all times.

The High Pay Debate

2011-11-22T20:13:00.002Z

Comment on executive pay tends to put the cat amongst the pigeons. Those at the top refer to criticism as sour grapes: the resentment of the unrealistic who simply don’t understand how business works. Those lower down the food chain see high paid executives as greedy and out of touch. All this polarisation does is preserve the status quo.

A look at some of the figures, however, would indicate that the current situation is, at the very least, unsustainable. The recent report from Incomes Data Services revealed that the total earnings of FTSE-100 directors rose by an average of 49 per cent over the last financial year, at a time when overall wages were falling in real terms.

The High Pay Commission shows that over the past 30 years, some FTSE-100 companies saw top pay rise from 14 times the average salary to 75 times. The fact that company performance has shown no sign of a commensurate increase in performance over the same period should concern us all.

A new approach is needed which takes a more responsible view of executive remuneration. First and foremost we need greater transparency and clarity. The complexity of executive pay is such that it is often passed by shareholders who do not fully understand the deal and give boards the benefit of the doubt.

Payment for failure also needs to be addressed. While few would argue that directors who generate profit and deliver growth deserve healthy remuneration, what business would agree to a deal that pays more for delivering less?

It is also time for representatives of major shareholders such as the Association of British Insurers to hold remuneration committees to account. If the share price goes down, those at the top should take a little less, not a little more. Base pay should be the default if share prices are not rising. Bonuses should be clearly linked to performance that benefits shareholders.

Trust in business is at an all time low. A recent editorial in the Financial Times urged shareholders to exert greater pressure on pay, as with other costs, to help British businesses rebuild that trust. It is time to have the debate and create a more balanced structure for the benefit of the country as a whole.

Good Business/Bad Business

2011-10-04T11:02:00.002+01:00

Last week Ed Miliband unveiled Labour's new policy thrust to reward good companies and penalize bad ones. The idea provoked generally negative business comment, much of it with a ‘hot air' theme.

As a company keen to promote responsible business, we’re inclined to pause before dismissing it as another short-lived Big Idea.

The two key questions it poses are: what distinguishes good from bad and what would these rewards/penalties be?

As for the first, the distinction is clearly broader than the simplistic "apprentices good, private equity bad" which came out of the speech. Some private equity firms can be good businesses, depending on what they do with the assets they buy.

Some companies that employ apprentices have been found to pay bribes to get business. In fact the party leader was quick to clarify that his speech contained examples (easy targets, given his audience) rather than a blueprint for policy.

So what is a ‘good' business? We would argue that responsibility is at the core of good business. A responsible business tries to be fair to its stakeholders as a whole, namely its own employees, its customers and suppliers, as well as taking care about the environment and the community where it operates.

A business needs to be successful commercially, and hence create value and jobs, while taking responsibility for all its actions wherever they are carried out. It should be transparent, honest and accountable.

The Milton Friedman days, when the social responsibility of a company was to make profits, are long gone, because the few who still think like that have been in hiding for the last three years.

The complexity and variety of what constitutes good would suggest that the rewards and incentives can't be a silver bullet, like a tax break, but rather a whole raft of measures.

Such as tax incentives for R&D and training carried out in the UK; fines for environmental damage which match the social cost; tougher regulation on mis-selling products and services; penalties for paying suppliers late; disqualification of companies from public contracts if they commit serious corporate offences.

Also on the agenda, dare I suggest, may be a regime where tax is paid in the UK if the company's value added is here, never mind if its HQ has been moved to Dublin or Zug. International tax advisers may be very content with the flexibility of the current tax environment. But Mr Miliband probably more than suspects that the public as a whole just doesn't get it.

A version of this blog appeared as an opinion piece in Accountancy Age - Oct 3 2011

Could Corporate Responsibility be the key to growth?

2011-09-13T12:51:00.002+01:00

With economic forecasts bearing an uncanny similarity to our dismal UK weather, business attention, not surprisingly, is being focused on surviving the recession. Budgets are being squeezed, growth is slow and jobs are in the balance.

At times like these, businesses tend to focus on the ‘must haves’ rather than the ‘nice to have’ and many in the field of Corporate Responsibility have been asking into which category CR will be placed?

The answer may well depend on a company’s view of CR. Many equate corporate responsibility with being green, philanthropy and social causes, all neatly packaged in a glossy CR report.

Social causes and philanthropy could easily be argued as the preserve of the good times. CR reports are already in decline. And while being green can provide businesses with a chance to cut costs in the form of energy savings and waste reduction, it is only part of the corporate responsibility mix.

Despite numerous calls from politicians and commentators alike for greater responsibility, they struggle to provide a clear definition of what this actually means.

While Milton Friedman famously argued that the only responsibility of a company is to make a profit, we would argue that a responsibly run organisation makes more profit. Businesses that participate in the Corporate Responsibility Index regularly out-perform other FTSE 100 companies.

So how would we define responsibly run? In our view, Corporate Responsibility is less about planting trees and building schools – although we would be the last to knock those that do - and more about good management practices and processes that protect the interests of all stakeholders equally. It’s about treating those that work for you well in order to produce a product or service that people trust and want without damaging the community in which you operate or the wider environment.

Given that any business, however large or small, needs management practices, making sure that these are good ones seems like an obvious choice. A Corporate Responsibility team (increasingly including compliance officers) that works at the heart of a business, ensuring that practices and processes are properly in place, plays an essential role in the future success of that business and should therefore be seen as a ‘must have’. Far from being a casualty of the recession, we believe that Corporate Responsibility can help us find a way out by building better businesses that people trust, that become more profitable and ultimately provide the growth that is currently proving so elusive. For the sunshine to return we need a far more ethical approach to business management that will restore customer trust and deliver the growth that the economy so badly needs.

Business and Human Rights

2011-07-28T13:54:00.001+01:00

The demonstration outside Vedanta’s annual meeting this week demonstrates that there is an increasing need for companies to focus on human rights in their business operations.

Many multinationals 'got' this some time ago and have been working on systematic processes for identifying and eliminating risk areas where there might be direct or indirect abuses of human rights. Others are laggards on this subject, believing that if they keep their own houses in order and do the right thing by their own employees, the job is done.

This is way off being right. Many human rights abuses are happening at the third party level - suppliers, contractors, franchisees and others that work directly on the principal's behalf and even in their name. There is also a competition issue at stake for those who are making strenuous efforts in overseas markets. In many markets, respect for human rights is little in evidence and poorly monitored. It's cheaper to do things this way so they have an unfair advantage over ethical competitors.

The UN's guiding principles are right to emphasise that due diligence is a key element of an ethical human rights policy and those merely paying lip service to this need to rise to the challenge.

GOODCORPORATION PUBLISHES WEAKEST ANTI-CORRUPTION PRACTICES

2011-07-28T13:42:00.003+01:00

Failure to establish strong and effective due diligence processes is the area where businesses are most likely to fail now that the Bribery Act has come into force – see table below. The management of agents to make sure they don’t pay bribes on behalf of companies is also a significant weakness.

Four of the ten most poorly implemented Anti-Corruption policies involve the due diligence and management of agents, intermediaries and suppliers. Weaknesses include a failure to examine the ethical practices of current and prospective agents, intermediaries and suppliers and the failure to ensure that they have their own strong anti-corruption policies.

Gifts and hospitality policies, the area under considerable scrutiny by both business and the media, also come in for criticism, with many companies still failing to set up processes to record and monitor the receipt and offer of gifts and hospitality.

Top Ten weakest anti-corruption practices

1. Failure to publish information about anti-bribery and corruption (ABC) policies and implementation

2. No clear due diligence procedure to examine the ethical practices of current and prospective agents, intermediaries and key suppliers

3. No clear rules for agents and intermediaries to ensure that lobbying does not have undue influence on government and customer decisions

4. Failure to engage in constructive dialogue with government and authorities when corruption discovered

5. No process for deciding when anti-bribery and corruption due diligence is required

6. Failure to ensure that appointed sales agents and intermediaries follow the organisation’s ABC policies

7. Interactions by agents and intermediaries on behalf of the company are not properly recorded

8. Failure to record all gifts and hospitality

9. Failure of senior management to actively participate in anti-bribery and corruption initiatives

10. No clear due diligence procedures to examine ethical practices of acquisitions and JV partners

Under the new law, failure to implement Adequate Procedures to prevent corruption from taking place could mean board directors facing 10 years in prison and unlimited fines should corruption occur.

Many FTSE 100 companies in high risk sectors such as aerospace, oil and gas, pharmaceutical and mining have used their significant resources to strengthen their procedures. However many FTSE 250 companies with fewer resources have not done enough and lower down the size chain, a lot of companies are really struggling. From our list of weak practices it seems that companies are most at risk from a failure to check the behaviour of third parties. This is undoubtedly one of the hardest areas to manage, but is where businesses will be seriously vulnerable to charges of failing to put Adequate Procedures in place.

The Ministry of Justice has made it clear that reasonable levels of hospitality will be acceptable. However, past prosecutions show that there will be a keen interest in the activities of agents working on a company’s behalf.

Will we ever trust our banks again?

2011-06-22T15:47:00.000+01:00

Our high street banks have hit the headlines again. While George Osborne has laid out plans to ring fence the essential operations of our large High Street banks, Panorama has revealed that consumer trust in our banks is still at an all time low.

The purpose of ring fencing is to insulate the essential operations of our retail banks from the high-risk activities of investment banking and securities trading, addressing the “too big to fail” question which led to the bank bail-out of 2007-8.

Osborne’s proposal will require retail banks to hold more capital in order to absorb any potential losses. Consequently, in the event of a major crisis, a retail bank could be hived off and saved by the Bank of England, at much less cost to the taxpayer, while the investment banking arm could be allowed to fail.

While we welcome effective steps to avert a repeat of the last financial crisis, Osborne’s announcement has been met with criticism in some banking quarters. Stephen Hester, chief executive of HSBC, has warned that requiring banks to hold more capital could raise the cost of banking to the consumer. He has also pointed out that “creating a protected beast that the government would support” could encourage excessively risky strategies within the ring-fenced operation.

Does the real problem, therefore, boil down to the issue raised by Panorama: can we trust our banks? As John Kay in the Financial Tines argues, “the core problem is that banks have no intention of abiding by the spirit rather than the letter of any regulatory rules.”

The FSA must be well aware of this. Despite the introduction of its Treating Customers’ Fairly regulatory framework 2007, an estimated 10,000 complaints against our banks made each day. Almost 50 per cent of these complaints are upheld by the Financial Ombudsman and millions of pounds have been paid out in fines.

Panorama showed Financial Advisors operating more like salesmen and sharp ones at that, incentivised through bonuses and foreign holidays. In a number of instances, undercover filming revealed the advice to be inaccurate, misleading and in direct contravention of FSA codes.

Banks have been criticised for developing highly complex financial products that few people really understand and this has been identified as contributing, not only to customer dissatisfaction, but also to the recent financial collapse.

In a bid to counteract that, the Financial Services Authority is due to publish a Product Limitation Paper next week. This is designed to control the products on offer in order to protect consumers. While any measure to protect consumers is clearly welcomed, it is mis-selling that really must be stopped. After all, most of the fines have been as a result of bad selling not bad products.

The failure of the FSA to implement its Treating Customers Fairly framework successfully would seem to bear out the words of John Kay. Until banks are forced to abide by the spirit as well as the letter of any regulatory framework, no amount of ring fencing or product limitation seems likely to prevent the banks from misleading us and taking excessive risks with our money. Until then, they remain along way from regaining our trust.

Business debates Bribery Act at the House of Lords

2011-05-17T14:01:00.003+01:00

Now that the Ministry of Justice has published its guidance on the Bribery Act, the new legislation will be coming into force at the beginning of July. GoodCorporation invited business leaders to debate the impact of the new Act at the House of Lords.

The debate began with a reminder of the existing legislation of corporate criminal liability that remains unchanged despite the passing of the Bribery Act. What the new legislation means however, is that the senior leadership team, or the ‘operating mind’ as it was called, can no longer claim a lack of knowledge, turning a blind eye if wrong-doing has been committed within its organisation. Ensuring that Adequate Procedures are in place will provide Boards with knowledge upon which they must act.

Prosecution

Comparing prosecutions under the Bribery Act and the FCPA, we were told that the FCPA draws an inference based on probability, prosecuting those that should have known if illegal acts were being committed by the organisation.The Department of Justice has a zealous approach to prosecution it was said and consequently there is a strong culture of self-reporting.

To avoid prosecution in the UK, companies must ensure that they know what is going on and that they are seen to be taking steps to prevent corruption from happening and certainly from recurring. If a Board is aware of corruption and does nothing its executives will be guilty under the Act.

The aim of the Act, it was said, is not to prosecute the ethical, but rather to catch those who continue to pay bribes and operate a tick-box approach to prevention. Ten years ago, officers faced a ’policing’ stand-off with businesses, but increased regulation in a number of areas has lead to a culture change and an increase in the reporting of wrong-doing.

What the Act is likely to mean in terms of prosecutions is that although only one or two more prosecutions are likely to reach the courts each year, there may be 10-15 more cases investigated by the Serious Fraud Office. Consequently businesses will really need to ensure that their defence of Adequate Procedures is properly in place. The attitude of the company regarding genuine efforts to avoid and prevent corruption will be critical to prosecutorial decision-making it was said. One danger of this, however, could be that the emphasis moves towards Adequate Procedures systems, rather than really stamping out corruption.

The Guidance

When asked for views on the government’s guidance on the Act, the majority view was that it lacked the clarity that business had hoped for. Facilitation payments, joint venture partnerships, agents and intermediaries and corporate hospitality were still areas of considerable concern.

Facilitation Payments

While some argued that the guidance on facilitation payments should be simple: don’t do it, others felt that it was not as easy as it might seem and called for specific guidance on how the demand for payment could be eradicated and how to refuse payment without damaging business interests. It was suggested that things were changing, that businesses should refuse to pay, or work collectively to say ‘No’ and that this had proved to be an effective strategy in various parts of the world.

It was also suggested that the demand for bribery is changing, as more countries want to be party to the OECD’s Anti-Bribery Convention. It was even felt that the UK’s tougher line on facilitation payments may even challenge the FCPA line, although the UK will have to demonstrate that it has the same zeal to enforce for this to come into effect.

Conflicting views were expressed regarding the recording of facilitation payments with some arguing that companies must record to know what’s happening in order to eliminate it and others saying it could be potentially risky to do so.

Venture Partners, Intermediaries and Agents

Managing the activities of joint venture partners, agents and intermediaries is considered one of the greatest challenges under the Act, particularly for global enterprises working in some of the world’s most difficult environments. If all joint venture partners are not covered by the legislation then how can you make them abide by your rules? Businesses were hoping that the guidance would be specific about the likelihood of prosecution under these circumstances and are seeking greater clarification. Ensuring that systems are in place to prevent corruption will be crucial.

Consequently, it will become increasingly important for companies to undertake risk assessments and due diligence to ensure that they really know who they are doing business with and importantly, how they are being paid. Businesses must ensure that they always know who is acting on their behalf, even in complicated transactions involving third parties.

Corporate Hospitality

While much has been written in the press regarding the potential for business lunches to lead to a court case, it was become clear that hospitality will not trigger the offence as long as it is reasonable. Despite the headlines, it would seem that most companies have a real grasp of this and many already have strict policies in place to assess and manage these activities.

Adequate Procedures

The challenge of developing effective procedures that apply to all parts of the business in all jurisdictions was discussed. Some felt that a ‘one size fits all’ policy might not prove adequate across the business as a whole. Others felt that it was easier to impose the same rules throughout an organisation, including third parties, based on common principles of sound business ethics that are easily understood. This approach, it was suggested, would be easier to roll out across the whole organisation. Others felt that training should be directed at those who were most at risk from corruption to ensure that everything had been done to guarantee that the messages had been received and understood.

The debate revealed that UK based companies are preparing seriously for life under the Bribery Act. It was said that if British companies become a benchmark for clarity and ethical leadership it will be good for business and good for the UK. We have the opportunity now to raise the bar and set the tone globally for demand and expectation in terms of business behaviour.

GoodCorporation gives 7/10 to Bribery Act Guidance

2011-03-30T12:01:00.001+01:00

Government guidance on the Bribery Act (published today) brings a period of uncertainty for British business to a close. GoodCorporation welcomes the clarity the guidance brings to hospitality and facilitation payments, but questions a number of major omissions and out-dated exemptions.

Much of the guidance is clear, straight forward and broadly in line with best practice. Many companies already operate within such rules. However there are a number of areas that are still unclear or even permit activities that many companies ruled out long ago.

The guidance gives the green light to corporate hospitality providing it is both ‘bona fide’ and proportionate stating that it was never the intention to criminalise activities that sought to ‘improve the image of a commercial organisation (…) or establish cordial relations’. This is common sense and will be welcomed by business. Luxury trips with no business purpose will rightly be regarded as questionable.

Yet the guidance muddies the water here by stating that spouses may accompany a business executive on a foreign visit to meet a prospective supplier. Most organisations stopped doing this long ago and would be surprised to see it permitted here.

Facilitation payments to public officials are definitely outlawed, though not where employees are placed under duress, such as being detained by authorities for no good reason. In addition, public interest will be taken into account to ensure prosecuting resources are not spent on minor offences.

Areas most likely to cause concern are the exemption from the Act of companies listed in London but conducting their operations and activities outside the UK and the lack of clarity regarding acts of bribery by agents and subsidiaries.

The guidance states that prosecutors will need to see proof of intention to gain advantage, not just the gaining of advantage. This feels like a watering down of the Act and hardly clarifies the task of ensuring that a business has adequate procedures to prevent bribery.

For business it is now all systems go in preparing for the Act. Companies that have done this already are unlikely to need to change much after this guidance. Those who have been waiting and seeing no longer have an excuse to dilly-dally. Those who have not yet woken up to the Act, will have to hope for the best.”

It simply isn’t cricket

2011-03-09T14:02:00.001Z

An investigation by the Sunday Telegraph, published over the weekend, has revealed that senior managers in the NHS are routinely entertained at top sporting events, both at home and overseas, by private companies touting for NHS contracts. http://www.telegraph.co.uk/health/healthnews/8363416/NHS-bosses-score-freebies-to-top-sports-fixtures.html

While some NHS trusts admitted that officials had broken the rules in accepting such hospitality, others insisted that the entertainment had been in line with that Trust's policy on gifts and hospitality. While this investigation reveals that there is some confusion among Healthcare Trusts regarding what may or may not be acceptable, one thing is crystal clear, such exposure makes the business arrangements between NHS senior managers and private service providers look more than a little murky.

Interestingly, the future of such entertainment has been called into question by critics of the soon to be implemented Bribery Act. While Justice Secretary Ken Clarke stated in an interview in the Financial Times that the Bribery Act will not make taking a client to a hospitality box at Twickenham a criminal offence, the Act will require businesses and organisations, in both the private and public sectors, to implement a carefully thought through policy on gifts and hospitality which clearly distinguishes between client liaison and influencing business decisions.

GoodCorporation has developed a decision-tree on corporate hospitality that provides a step-by-step process to ensure that companies stay on the right side of client liaison. Our final point asks; “Would you be embarrassed if this were in the papers?” I wonder what decision NHS managers would have reached if they had asked themselves this question?

In implementing the Act, the Government should start be ensuring that our senior public officials have thorough and clear guidance on what is acceptable and what is not.

The business of human rights

2011-02-24T17:31:00.003Z

The debate about whether or not Vodafone should have allowed the Egyptian government to take over its mobile network because of fears of human rights abuses, shows just how complex these issues have become. The revolution sweeping the Arab world is also prompting a new debate about what companies are doing working in countries with poor human rights records in the first place.

We see an increasing need for companies to focus on human rights in their business operations in emerging markets. Many multinationals 'got' this some time ago and have been working on systematic processes for identifying and eliminating risk areas where there might be direct or indirect abuses of human rights. Others are laggards on this subject, believing that if they keep their own houses in order and do the right thing by their own employees, the job is done.

This is way off being right. Many human rights abuses are happening at the third party level - suppliers, contractors, franchisees and other that work directly on the principal's behalf and even in their name. There is also a competition issue at stake for those who are making strenuous efforts in overseas markets. In many markets respect for human rights is little in evidence and poorly monitored. It's cheaper to do things this way so they have an unfair advantage over ethical competitors.

The UN's guiding principles are right to emphasise that due diligence is a key element of a ethical human rights policy and those paying lip service to this need to rise to the challenge. Where companies choose to operate in environments with poor human rights records, there is a clear obligation to go beyond passive respect of human rights and to move towards active support for human rights.

The Bribery Act could be good for British competitiveness

2011-01-28T11:20:00.003Z

The government is concerned about the competitiveness impact of the new Bribery Act and that it might impede the UK's recovery from the recession.

There are two important reasons why this may be a misreading of the reality of the situation.

The first is that the Act could be used by the UK government to make the international landscape more competitive for UK businesses that are competing overseas. The way the US administration is using the Foreign Corrupt Practices Act (FCPA) highlights the point. Eight of the top ten monetary fines imposed by the US have been on European headquartered corporations, not US ones. The US administration has used the legislation in effect to try to help US corporations to compete by pursuing unfair competitors in Europe. The UK Bribery Act, which is cast even more widely than the FCPA can be used in the same way. This is not to say that the UK government should not also pursue corrupting UK companies - as these firms make it unfair for good British companies to succeed.

The second reason is that actions are already being taken in preparation for the UK Bribery Act which are putting enormous pressure on foreign companies to improve their practices and to reduce corruption. SEDEX the not-for-profit information exchange used by the UK retailers to screen suppliers is greatly enhancing the amount of information required from its 17,000 suppliers about their anti-corruption stance and policies. Over 4,000 of these suppliers are in China. A global telecoms company is screening tens of thousands of its suppliers and, like many other large UK companies, is now asking searching questions in its tender and bidding processes to ensure that overseas suppliers are free from corruption, as a price of doing business with the UK firm. Our French and German large clients are all working in the UK in some form and as a result are amending their practices to explicitly acknowledge the Act and to tighten up rules on facilitation payments as a result.

Forget the moral case for the Act and get on with it - if it is implemented and scrutinised well the Act could and should be good for British competitiveness.

Financial regulators must keep focussed on sales tactics

2011-01-25T14:43:00.001Z

Having worked with financial institutions on business ethics, we welcome any initiative designed to protect consumers further and rebuild public confidence in the financial services sector.

Intervening earlier in the product chain is long overdue and should be welcomed, but will it lead to a lack of focus at the sharp end where these products are sold? Most of the fines and scandals of recent times have been about bad-selling not bad products. No matter how good the product, consumers need to be protected from smooth talking sales staff with incentives to sell a particular product that the customer neither needs nor understands.

We are concerned that the neither the FSA nor the future Comsumer Protection and Markets Agency will have the resources to increase scrutiny of products without relaxing the monitoring of selling. Without sufficient monitoring, bonus-driven sales tactics will still leave consumers unprotected and mistrust of financial service providers will remain high.

Hospitality not Bribery

2011-01-18T11:22:00.001Z

The news that the Bribery Act is to be reviewed by the government has thrown new question marks into the mix for project managers who are busy preparing for the launch of the Act in April. The government’s intervention has raised questions as to what might happen to the Act - will it be delayed, will it receive further amendments, will it be reworded? Our understanding is that the guidance (currently being finalised at the Ministry of Justice (MoJ) and still scheduled to be out at the end of the month) will deal with most of the grey areas of concern and should give greater clarity to companies preparing their adequate procedures. We watch this space with interest.

One of the concerns regarding the Act that seems to be on the mind of many businesses is that hospitality will henceforth be a no-no in British business life. Neither the Bribery Act nor the draft guidance suggests this. The guideline that many businesses follow these days is that hospitality should be at reasonable levels and should not be seen by either party as putting an obligation on the receiver. There should be clear daylight between this and favours given in return for business decisions. Where levels of entertainment are more opulent and frequent for the same individual or company, then shareholders as well as prosecutors would be entitled to ask questions. Nothing which the MoJ or SFO have said should cause concern that a business will be prosecuted for taking someone to the British Open. Indeed, in an interview on the Bribery Act, Vivian Robinson, QC, General Counsel at the SFO, commented that there has been a widespread misconception in this area. He said the SFO has been at pains to assure corporates that the SFO would not regard sensible, proportionate promotional and entertaining expenditure as unlawful under the Act. Only if the hospitality were lavish and disproportionate would it be an issue.

An end to slavery

2010-12-08T16:25:00.001Z

Another story of slave labour in Britain hit the headlines this week with the trial of yet another gang exploiting migrant workers for vast profit. This would be shocking if we hadn’t heard it all before.

While many large companies do audit their supply chain, including Tesco and Waitrose who had purchased the produce harvested by the labourers in question, it is clear that the steps taken to monitor conditions were insufficient. Visits to the fields by representatives from the supermarkets were said to have been infrequent and by prior arrangement. If such due diligence is so ineffective in the UK, it’s hard to imagine how inhuman labour conditions can be eradicated as far afield as India and China.

So why does this keep happening? It is clear that the balance between the drive for profit and the need to provide low-cost produce creates the potential for such a risk. Furthermore, the damage to reputation from such revelations is clearly perceived as temporary. Today’s headlines, as the saying goes, are tomorrow’s fish and chip papers.

While this may encourage inaction, it doesn’t excuse it. GoodCorporation applauds Tesco’s visits to the fields, but their process must become more rigorous. Visits should be unannounced and an effective whistleblower line established to encourage the reporting of such poor labour conditions, allowing people anywhere in the supply-chain to report abuses to the supermarket at the top of the chain.

Supermarkets and other retailers should consider blacklisting suppliers, wholesalers and other intermediaries who allow such labour standards down the supply-chain. This might sound totally obvious, but it does not happen at present.

Supermarkets should also be prepared to give active support for prosecution. We know that loss of future business can act as an effective deterrent, if suppliers, wholesalers and other intermediaries faced debarment if caught for such abuses, it could go a long way towards stamping the practice out.

Fiscal responsibility

2010-11-24T14:00:00.002Z

Corporations would be well advised to take note of the recent blockades outside Vodaphone stores by protesters wielding “tax dodgers” banners. As Vanessa Holder pointed out in the Financial Times recently, tax is becoming an important source of reputational risk. Whether in court, in the press or in the street, campaigners are beginning to draw attention to the issue of corporate taxation payments with as much zeal as the more immediately emotive problems of the environment or child labour.

As public deficits skyrocket all over the Western world and the public braces itself for a period of austerity, the comparison between welfare cuts and corporate tax avoidance is likely to be made increasingly vociferously. Organisations such as the Tax Justice Network, the Publish what you Pay Coalition, Global Financial Integrity and the European Network on Debt and Development are successfully raising the profile of this issue, and they are grabbing cash-strapped governments’ attention.

In the UK, in 2005-6, seven per cent of businesses in the Large Business Category (50 businesses out of 700) contributed two thirds of the total Corporation tax raised. Around 220 companies (one third) paid no Corporation Tax at all and a further 210 businesses paid less than £10 million each (Source: the National Audit Office). Similarly in France, only four of the CAC40 companies pay the full 33 per cent tax on corporate profits (Source: Commission des prelevements obligatoires).

Civil society groups now link the issue with the fight against poverty in developing countries. According to some estimates by the US-based campaigner Global Financial Integrity, the mis-pricing of transactions between companies’ headquarters in the West and their subsidiaries located in the developing world, syphons close to $500 billion of legitimate tax revenue from African, Asian and Latin American countries each year. Subsidiaries pay inflated prices to their parent structure for goods and services, thus diminishing their local tax base by decreasing profits reported in developing countries. Campaigners compare these financial flows to the $50 billion developed countries spend globally on aid.

The calls for companies to report their profits and tax bills for each individual country they operate in (country-by-country reporting) are increasingly common and vocal.

Some corporations have started heeding the call. Fiscal responsibility is more frequently being inserted in corporate Codes of Conduct as a core value of governance.

Governments have also started to take notice. In the US, the recent Dodd-Frank act requires US-listed oil, gas and mining companies to disclose all payments made to foreign governments.

Business failing to demonstrate transparency and integrity on this issue will run a growing risk of reputational damage. This is an issue that is gaining momentum and businesses would be well advised to take note.

Taking Risks with Risk

2010-09-16T10:37:00.001+01:00

BP has been widely criticised for playing the blame game with the publication of its report on the Deepwater Horizon disaster. The report concludes that the explosion and resulting oil spill were caused by a complex series of mechanical failures and misjudgments by several companies.

While the report has been interpreted by many as a calculated attempt at mitigation, it has not and should not absolve BP from the responsibility of managing the contractors that work on its behalf. As this disaster has shown, taking risks with risk management can carry a hefty price – in the case of BP that’s several billion and counting.

The problem with risk management, as the Deepwater Disaster shows, is that it does not always focus on the real risk. Safety audits and evaluation systems currently focus on a detailed understanding of the technical equipment used and the methodologies applied. While this is obviously important, on its own, it is wholly inadequate.

What GoodCorporation has learned is that the most important elements to manage are the human ones. Most disasters stem from a poor decision, be it to cut corners or pretend that something has been done when it hasn’t.

Employees need to be empowered to speak up and stop even the most expensive practice or process when they can see that it isn’t working or worse, is likely to lead to a disaster on the scale of Deepwater or the Texas oil refinery. The latter is a case in point. Employees who could see the problem were working within a culture that provided no opportunity for them to speak up. Whistleblowing is not just about highlighting or exposing corrupt practices. A well-run business should encourage feedback from those at the sharp end. Without it, can those that manage a global business really know what’s going on?

Men, Money and Morality – can it work?

2010-07-08T12:26:00.001+01:00

You wouldn’t expect large numbers at a public lecture, on the evening of a World Cup semi-final. So I was astonished to find myself in the company of 1,200 people at St Paul’s Cathedral on Tuesday 6 July to hear Niall Ferguson’s lecture on Men, Money and Morality: How Can Trust in Banking be Restored?

The lecture was organised by the St Paul’s Institute, recently re-launched by Giles Fraser (Thought for the Day regular and the least vicar-like like vicar you will ever come across).

The lecture marks the launch of Ferguson’s book, a biography of Siegmund Warburg that describes how he had to flee Nazi Germany and managed to re-establish his merchant banking business in London. The lecture focused on Warburg’s astonishing influence on the City of London, bank regulation and the management of banking and finance in the City.

Ferguson argued in the lecture that Warburg’s strong moral sense was essential to Warburg’s culture and central to establishing ‘relationship banking’ based on fundamental values of fairness, honesty and decency. Ferguson went on to argue that the City now needs a new generation of financiers who are educated in ethics and have a sound moral base to the way they work. He went on to argue that the swathes of new legislation that the US and EU are bringing in to regulate banking more tightly are doomed to fail without this strong ethical framework in financial institutions.

Ferguson’s argument was passionate and the insights into Siegmund Warburg’s life were fascinating. But his argument is unsustainable. While an appeal for greater ethics training has its place, it is not enough. How many of the bankers that presided over the recent crisis consider themselves devoid of morality or ethics?

Ferguson is right to be skeptical about the legislation direction, but is completely wrong in arguing so strongly against it. What we have seen from GoodCorporation assessments is that in areas of complex products where the regulator is always on the back-foot, principles based regulation is the answer, not lots of rules, which can easily be circumvented.

What we need now is new legislation that empowers the regulator to regulate properly. Take the example of ‘treating customers fairly’. This is a sensible principles based regulation, with woefully inadequate and wrongly directed backing. This type of legislation should be used to ensure that banks do not over-lend and ensure that the products provided to customers are tailored to the customers’ true needs, not the banks’ current sales targets.

The TCF regulation requires an intelligent regulator to review how banks sell to customers and to have the courage to make a judgment about whether sales are made fairly. Instead we have a regulator who asks banks for “management information” about how they make their sales, and the banks comply by sending the FSA lorry loads of the paper.

This type of intelligent regulation will require money and very good people – with an independent mind. We therefore also need to address the current conflicts of interest where bankers are sent to the regulator for a spell before returning to the banks. We actually need to develop a set of professional regulators who remain independent. They should get their real banking experience at the banks’ expense. They should be auditors with courage, conviction, knowledge and power, with the courage to make judgments about how banks operate.

Of course Ferguson’s appeal to better moral and ethical standards is important and could be a part of the solution to the banking crisis. But the real answer we are seeking is strong, independent regulation and quickly please!

GoodCorporation urges OFT to go even further to enforce anti-comptetitive activity

2010-06-30T15:11:00.001+01:00

The OFT has published revised guidance on director disqualification orders, indicating that directors will face tougher disqualification penalties if their businesses are involved in anti-competitive behaviour.

Directors found to have been involved in anti-competitive activities or who ought to have known what was going on, will face the prospect of a 15-year ban from acting as a director.

While any action to enforce legislation that prevents anti-competitive behaviour should be welcomed, it should also be acknowledged that the more important goal is to change corporate culture to ensure that anti-competitive activities, such as price-fixing cartels, are not even contemplated.

Consequently, the penalties for breaching competition laws should have ramifications for the company as a whole. If the consequences of anti-competitive activities affect only certain individuals, then where is the incentive for collective board responsibility to ensure transparency and compliance in this area?

The OFT should seek to impose sanctions such as tendering bars to drive a real cultural change. These should be for a limited period, to minimize the negative impact on the workforce, while still having the teeth to restrict the progress and performance of the business.

GoodCorporation leads debate on ISO 26000 at the House of Lords

2010-06-09T11:33:00.001+01:00

With the new ISO 26000 social responsibility standard due to be launched later this year, GoodCorporation invited CR specialists from some of the UK’s leading companies and organisations to debate its likely impact.

The debate began with an overview from the guest speaker of what the Standard might achieve. He began with a note of scepticism; there are so many standards of corporate responsibility in existence, creating considerable confusion that we have to ask if it really is worth producing another one?

The process has been extraordinarily lengthy, tortuous and labyrinthine, involving a huge number of working groups and committees. No one needed reminding of the potential pitfalls of design by committee.

He was also concerned that the decision to develop it as a set of guidelines, rather than a Standard with the possibility of certification, could reduce its impact and effectiveness. Having feared that ISO 26000 may fail to produce anything of any value he went on to analyse what it did have to offer and concluded that it had the potential to be really quite good.

It is impressively comprehensive, jargon-free and clear. It looks at labour standards as well as management practices and how to embed corporate responsibility. It is written in such a way that it will not alarm the corporate world nor will it disappoint wider society. It is a usable, workable standard that will provide businesses with a thorough guide to corporate responsibility. It will be particularly useful to organisations new to Corporate Responsibility, but will also provide a useful checklist for those further along the CR path.

Ensuring usage of ISO 26000 will be crucial. Here the ISO name will help, it has a lot of clout and many organisations will gravitate towards it once it is out. It has the potential to be the definitive set of guidelines on Corporate Responsibility, possibly because of the vast number of groups and organisations that have been consulted as part of the process. However, for it to have real teeth and impact, it must have certification. Businesses will clamour for measurement against it, however, this must be a carefully balanced process, for it was also felt that if achieving certification took precedence over implementing sound CR policies, that would be a huge mistake.

Here the debate began in earnest. Many in the room felt that there would be little point in following the ISO Standard unless businesses could measure CR implementation against it. For it to achieve maximum uptake it was suggested that it needed to be the CR equivalent of Investors in People – a standard of achievement that can be measured and awarded. Big businesses will be more likely to embrace the Standard and view it as a ‘must have’ if it offers certification, as the benefit of third-party assurance is great.

Yet for some, the idea of measuring Corporate Responsibility was of questionable use. Some felt that it would be good to certify against the Standard, but thought that this would be hard to achieve. Corporate Responsibility only works if it is properly embedded throughout an organisation; it is not really about measurement. It is about reproducing responsible behaviour in a reliable way across the organisation as a whole.

The danger of measurement is that it creates a compliance and tick-box culture that often misses the real point of responsible business behaviour. If implementing a standard is all about measurement, it was suggested, companies could tick all the boxes without necessarily being responsible.

Others felt that if implementing ISO 26000 would enable an organisation to show that it was a force for good, then that would be beneficial. If it would not enable an employee to see how good was being achieved, it would be of questionable use.

It was generally agreed that as a reference document, ISO 26000 would be useful and many would check alignment against it. It would be of particular benefit in emerging markets or if embarking on a Corporate Responsibility programme.

Some also felt that they would not seek certification even if it was offered. There is a certain amount of assessment fatigue with so many obligatory standards and regulations to comply with; consequently for some it was debatable whether they would be inclined to ask those they worked with to be assessed against yet another set of criteria.

Indeed, for organisations that believed good CR systems were already in place, it was questionable that the Standard would have any impact.

Yet others argued that anything that stimulates the debate on CR, beyond the FTSE 100 companies, was a good thing. If ISO 26000 can show how to embed responsible behaviour into the culture of an organisation it will be effective. However, ISO 26000 will have little or no impact if it does not show businesses how to make CR work. A number of those present at the debate felt that the language in the guidance would be very off-putting for most SMEs and that, despite efforts to make the Standard work for all types of organisations, ISO 26000, as currently drafted, is likely to hold little appeal outside a relatively small group of large companies and organisations and this was regrettable.

The credibility of the ISO was acknowledged. Good companies will use it wisely as a force for good. Those that see it merely as a box ticking exercise will be missing the point. CR evolves as businesses develop and as businesses have their own DNA they will need to learn how to apply ISO 26000 across their own organisation. ISO 26000 on its own will not make a business a good business; companies will still need to differentiate themselves and innovate in the way in which they embed CR.

Broadly ISO 26000 was welcomed. It will be reviewed and assessed by businesses and many felt that some form of certification would be essential in the longer term. As a gold standard for CR it is expected to be broadly along the right lines with the ISO name giving it credibility; however, a certain amount of scepticism remained as to whether or not it will have a real impact on responsible business behaviour.

The organisations represented in the room were divided on whether or not they would use ISO 26000 in any way once it is launched. Most of the larger organisations said that they would look at it and its requirements. There was a feeling that many of these companies might at least use it as a checklist for analysing their own performance.

Getting Corporate Governance Right

2010-06-01T14:20:00.002+01:00

The debate about the shape of corporate governance after the banking crisis is beginning to take shape. The Financial Reporting Council published its UK Corporate Governance Code last week. According to the Code, Board Directors should face annual re-election in a move to create greater accountability in the wake of the recent financial crisis.

In addition, the Code also calls for greater clarification of the Board’s responsibilities with regard to determining and managing risk; ensuring that the composition of the Board has the appropriate balance of skills, experience, independence and knowledge to enable it to discharge its duties effectively; that there is a greater alignment between performance related pay and the long-term interests of the company and that the Board is appropriately trained, informed and evaluated.

While much of this sounds like sound business management, it has one fatal flaw. It fails to take full account of the changing nature of ownership of listed companies. In the period from 1998 to 2008, for which comparable figures are available, the UK long-term shareholding in listed companies (individuals, charities, churches, pension funds, investment funds, unit trusts) has fallen from 95% to 69% and short-term shareholding (banks, other financial institutions, other non-financial institutions) has increased from 5% to 31%.

This shift is dramatic and important. It means that longer term shareholders who might care about the stewardship of the underlying assets are being increasingly drowned out by shareholders with very little interest in the underlying assets or how they are managed long term. Their interest is for the share price to move in the very short term and this creates turbulence and pressure for senior management that negates the advice of the Walker Report that calls for longer-term governance and stability.

Listed businesses still have three year (long-term plans) and also an annual budget cycle, but their behaviour is mirroring the changes in stock ownership. We have seen a significant shift from annual and longer term planning to a focus on beating the market over three months and, in the last few years, a rise in daily and even hourly event planning. This short-term management focus has had a negative impact on all of us at work in listed businesses.

The future responsibility of listed businesses is therefore at stake. We need to see those shareholders with a longer term view (especially employee shareholders) moving to control sufficient shares in their businesses to provide stability and long-term planning.

Not the Corporate Responsibility Election

2010-04-30T11:51:00.004+01:00

As the UK general election comes to its conclusion, it is interesting to see how little comment has been made about business behaviour. Only the Liberal Democrats (and their campaign on breaking up the banks) have really given it much airtime. David Cameron's Big Society philosophy has Steve Hilton behind it. Steve was one of the founders of Good Business, a CSR consultancy, so you might have expected the Conservative manifesto to have more to say about CSR. But for the Conservatives, the aim is not to legislate and enforce good behaviour, but rather to encourage businesses to take responsibility without coercion. The Labour Party managed to get the UK Bribery Act passed as its very last moment in government and would probably claim the Company Law Reform, minimum wage and bank nationalisation are all examples of willingness to drive up standards of responsibility in business.

The real reason, however, that corporate responsibility is not discussed in the election is because the term is too wide to be useful. Whether it is banking reform, paternity leave or fighting corruption, each aspect of corporate responsibility needs to be considered in its own right and not hidden under a CR label. None of our politicians are putting enough focus on business behaviour. However as our economy comes out of recession, the critical question should surely be how to promote private sector growth without re-encountering the ethical lapses of the past?

BRITISH BUSINESSES FACE EXPOSURE UNDER NEW BRIBERY BILL

2010-04-14T15:25:00.001+01:00

British businesses will need to tighten up their anti-corruption policies now that new bribery laws have been passed, warn corporate responsibility experts GoodCorporation. The Bribery Bill will require companies facing prosecution to show that they had adequate procedures in place to prevent corruption from taking place within their organisation. Failure to do so will make companies liable to prosecution and result in possible jail sentences for Board Directors. As businesses debate the definition of ‘adequate procedures’, GoodCorporation has identified the key areas of weakness in current anti-corruption policies.

1. Management of Agents and Intermediaries

Top of the list is the management of agents and intermediaries used to finalise deals and negotiate on behalf of organisations. Where agents are used to create a smokescreen for the payment of cash or other forms of ‘incentive’, businesses have been able to avoid prosecution and distance themselves from the transactions often claiming that agents were ‘exceeding their remit’. Under the new rules, however, prosecutors will gain the upper hand. Businesses that are unable to show that rigorous steps have been taken to prevent agents from paying bribes of any form will now face prosecution. A clear and detailed agency remit with transparent contracts will be essential. Very few companies have these.

2. Facilitation Payments

Under the new legislation, so-called facilitation payments will be properly regarded as bribes and prosecutions will be brought about for regular and routine payments to public officials to speed up or facilitate a process. Corporations need to protect their staff by creating a reporting system for solicitations and intervening either through the local embassy or in conjunction with other businesses operating in the area. Where multinationals pool their anti-corruption efforts they can succeed in persuading local authorities to minimise the likelihood of bribe solicitation.

3. Whistleblowing

For major corporations operating across multiple territories, it is genuinely hard to ensure that someone somewhere is not involved in corruption. An effective whistleblowing process, that employees are not afraid to use, is a crucial management tool. Employees should know that it is their duty not just to decline external temptations, but to report any concern to senior management. Companies must ensure that employees are not scared of reporting wrongdoing. Very few organisations have effective whistleblowing procedures, and yet they are crucial to identifying and stopping corruption.

4. Systems and Processes

Most large businesses have a detailed code of conduct. However, audits show that these are not always properly understood or implemented. Simply asking employees to sign that they have read and understood it is not enough. Businesses need to ensure that their principles are properly embedded in all procedures and working practices, that they are more than aspirational ideas floating around the Boardroom. To ensure that this is so, companies should audit their systems and carry out due diligence to test that their processes really are effective. Failing to do so may result in a failure to demonstrate that adequate procedures were in place.

5. Transparent Tendering

Tendering is an area that is open to widespread abuse. Problems range from inside information as to the size of budget and project scope being exchanged unequally between organisations on either side of the tendering process; through to payments made via agents or intermediaries in order to secure a contract. This conduct is unacceptable and will make a company liable to prosecution under the new Bribery Bill.

Companies that do not adhere to strict rules or keep detailed, full and clear accounts of each stage of the tendering process will be unable to demonstrate that adequate procedures were firmly in place should allegations of corrupt practices arise.

6. Gifts and Hospitality

For many, gifts and hospitality are part of building client relationships. However, the line between building relationships and influencing business decisions is often blurred. Businesses rarely spell out to employees what it is acceptable to give or to receive, nor do they review who receives what and what the ongoing business relationship entails. This may seem like the thin end of the corruption wedge, but it is one that is open to abuse. Clarification here is easy to achieve and should be undertaken in order to protect staff and suppliers equally.

The introduction of ‘adequate procedures’ into the Bill has caused alarm. The good news for business is that if a rogue individual is caught engaging in corruption a company will be protected if adequate procedures were in place to prevent it. The worry comes for businesses that face prosecution but have failed to put adequate procedures in place. The new legislation will make clarity, traceability and strength of process essential if companies are to protect both their reputation and their directors from prosecution under this more robust legal regime.

FIGHTING BRIBERY

2010-03-17T16:17:00.002Z

The Financial Times’ call to expedite the final stages of the Bribery Bill (Fighting Bribery, March 16) was very welcome. The FT states that ‘Coming close to effective reform and then stepping back would () inflict severe reputational damage on the UK internationally. The Organisation for Economic Co-operation and Development (OECD) has already censured Britian for lax anti-bribery laws.’

In addition to the compelling public policy case for a consolidated law, as pressed by the OECD and Transparency International, there is also broad consensus among businesses that better clarity in this area is long overdue. Debates on the Bill hosted by GoodCorporation have heard businesses repeatedly welcome this legislation. A situation that is not generally the case where enhanced business regulation is concerned.

In many ways, the proposed Bill has already had a strong impact, with many businesses strengthening their anti-corruption processes in readiness for a law. The less proactive will inevitably be dragged along once the Bill is passed. The big danger, if the Bill falls at the last hurdle, is not just that progress will stagnate but that things will start sliding backwards. We cannot allow the unscrupulous to continue to enjoy a competitive advantage over the decent and the fair.

A STEP IN THE RIGHT DIRECTION

2010-03-02T14:05:00.001Z

David Cameron has made a pledge to publish not just the details of spending over £25,000, but details of all government contracts worth over £25,000 for goods and services in full, including all performance indicators, break clauses and penalty measures.

According to Cameron, this will provide a greater level of transparency that the public demands, enabling voters and taxpayers to “google their government”. The result, he hopes, will be the eradication of wasteful spending, poorly negotiated contracts and the creation of an open and transparent procurement system.

If Cameron can deliver what he pledges, this will be a step in the right direction should the Tories form the next Government. Transparency is a crucial part of regaining public trust. Unless Government can demonstrate that this has been achieved, they will fail to regain public confidence. MPs expenses are really just the tip of the iceberg. All government spending should be open to scrutiny if government is to regain credibility. Any steps that help to achieve this should be welcomed.

Interestingly, Transparency International is now looking at ways to promote a more transparent and less corrupt environment here in the UK. Given the UK is often accused of preaching to developing countries on what constitutes ‘good governance’, it surely makes sense to make sure that our own house is in order first.

“YOUR CALL IS CONFIDENTIAL TO US”

2010-02-24T18:04:00.001Z

Confidentiality is defined by the International Organisation for Standardisation (ISO) as "ensuring that information is accessible only to those authorised to have access". A dictionary definition tells you that something ‘confidential’ is written, spoken or acted on ‘in strict privacy’.

At GoodCorporation we conduct some 3,000 interviews a year with staff, shareholders, customers, suppliers and community members. While the information these interviews provide produces invaluable stakeholder feedback for our clients, they are conducted in the strictest confidentiality. Our auditing process relies entirely on our ability to guarantee anonymity. Keeping schtum is, or at least should be, the easy part as far as tackling bullying is concerned. The bigger challenge is often to help the victim to address the issue in his or her workplace.

GoodCorporation regularly come across examples of corporate bullying. We know just how stressful and damaging that experience can be. It is absolutely crucial that anyone wanting to provide support to victims sets up a process where confidentiality is hardwired into its systems and processes.

The Decade of Due Diligence

2010-02-03T12:25:00.003Z

As we leave the ‘noughties’, when CSR really came of age, what do the ‘Teens’ hold for the future of Responsible Business Practice? A recent survey by IPSOS Mori revealed that 57 per cent of UK captains of industry say that companies will continue to invest in corporate responsibility.

So which areas of corporate responsibility are likely to become more prominent in the coming decade?

Climate Change

With the failure of Copenhagen to secure an international commitment to emissions reduction, the jury is out as to how and if the climate change battle will be won. According to global online research by IPSOS Mori, 89 percent of the public agreed that companies should pay more attention to the environment. Many businesses are already taking steps to reduce the amount of energy they use. Look on the website of almost any UK based company and you will see a section on their steps towards energy reduction.

For businesses the benefit can be twofold. In many instances energy savings deliver cost savings – a no-brainer in the current economic climate. It is also true that green credentials enhance reputations, which can, though not always, drive sales. With the Carbon Reduction Commitment operating the UK’s first mandatory carbon trading scheme, it is unlikely that UK businesses will move backwards on this. The CRC takes effect from April 2010 and we expect to see continued initiatives from business in this area over the coming decade.

Supply Chains

Supply chain scandals hit the headlines many times during the last decade. To date this has been concentrated in the retail and grocery sector, with some scandals associated with extractive industries in third world countries. We expect this problem to emerge in other sectors such as IT, manufacturing, construction and other secondary industries.

To date, an effective and economic solution to verifying responsible supply chain management has not been found. Unless this emerges, we will continue to see more cases as the decade progresses.

Codes of Conduct

As emerging markets gather strength, the rigorous implementation of internationally acceptable codes of conduct will grow in importance. Codes of Conduct will not just be a Western luxury. We expect to see an increasing emphasis placed on vigorous back up to ensure that these codes are in place.

Bribery & Corruption

The good money is on the Bribery Bill becoming law before the General Election, providing it is not called early. While this new legislation will undoubtedly facilitate prosecutions, it will also require companies to demonstrate that adequate procedures have been put in place in order to prevent corrupt practices from occurring within their organisation. To do this, companies will need to show real corporate accountability, implementing bribe tracking, asset recovery and fraud-watch programmes to ensure that anti-corruption policies are genuinely effective.

There will also be an international need for greater governmental transparency. Programmes such as the EITI’s Transparency Initiative, that encourages greater accountability between extractive industries and the countries in which they operate, have a responsibility to succeed.

Scandal

Linked to this more rigorous approach to CSR will be a rise in the number of corruption scandals to hit the headlines, at least initially. Under the new legislation, prosecutors will have greater powers, leading to a growth in exposure of corrupt practices. Companies will react by tightening up their processes. But many of the corruption scandals currently in the news are to do with malpractice that happened several years ago. This is likely to continue until anticorruption practices become firmly embedded.

For the legislation to make a difference, it will be imperative that swingeing penalties are imposed to demonstrate that the new legislation bites and bites hard.

It is without doubt that corporate trust is one of the biggest casualties of the current economic crisis. Whether the recovery comes quickly or more slowly, it will be imperative to rebuild that trust. Businesses that have built corporate responsibility into their overall management strategy and stood by the principles of responsible management will be best placed to capitalise on the recovery.

GoodCorporation becomes accredited validator for EITI

2009-12-17T13:09:00.002Z

One of the greatest injustices of the modern world must be the on-going poverty that exists in developing countries rich in oil, gas and minerals. Not only are they poor, despite these highly valued, natural resources, they have a higher incidence of conflict and many also suffer from poor governance.

Among the causes of this disparity is the lack of transparency concerning the payments made by extractive industries to these developing countries. In 2002, the Extractive Industries Transparency Initiative (EITI) was founded, aiming to encourage greater transparency, stronger accountability and improved governance in order to promote greater economic and political stability in resource-rich parts of the world.

The EITI is currently working with 28 countries that are seeking to achieve Compliant Country Status. To do this, they must register to become an EITI Candidate Country and meet the four sign-up indicators stipulated by the EITI. A workplan towards transparency is then agreed and a two-year framework imposed. Within two years a Candidate Country must undergo validation by one of the EITI accredited validators. Once a country is compliant it must undergo validation every five years. Validation is an essential element of the EITI as an international standard. It provides an independent assessment of countries implementing the programme and the measures they have taken to achieve compliant status.

GoodCorporation has just become an accredited validator for the EITI a move that endorses our expertise in non-financial auditing and our in depth knowledge of the extractive industry. GoodCorporation achieved one of the highest scores for our application and has become one of only 14 companies worldwide to be accredited as an EITI validator.

We fully endorse and support the EITI. Transparency is essential for businesses wishing to trade with developing countries and sadly, in many parts of the world this has been hard to achieve. Aid, such as the £50bn paid each year by the OECD into developing countries is a great sticking plaster, but it will not lift these countries out of poverty. We firmly believe that the EITI is the next major step towards the eradication of world poverty as it is a tangible means of ensuring that developing countries, rich in resources, can become economically self-sufficient. We look forward to working with countries around the world to help them achieve this.

Translating is not enough: explaining corporate Codes of Conduct to employees

2009-12-02T13:02:00.004Z

It’s not just marketing campaigns and brand names that need careful translation. Corporate Codes of Conduct and ethical principles have a universal vocation, so making sure they are correctly understood in each international market is essential. A quick read of any CEO’s foreword leaves no doubt as to the fact that every single employee must abide strictly by the organisation’s principles.

Most Codes are also based on - or refer to - widely accepted international norms, such as the 1948 Universal Declaration of Human Rights, or the Universal Copyright Convention of 1952.

But in order to ensure that a Code applies to all employees across the world, careful explanation is needed. However clearly stated, rules and guidelines don’t mean the same thing to everyone, or in every country.

While assessing a company’s middle-eastern operations last year, GoodCorporation came across a startling example. Our client had a clear policy of tendering out most contracts, selecting suppliers and contractors on the merit of their technical, safety and financial records. Yet, a conversation with local procurement officers went something like this:

- Employee: “We were given the Code of Conduct, translated into Arabic. The booklet is lovely, but I don’t understand what it means.”

- GC assessor: “What is it you think the Code is not clear about?”

- Employee: “Well, surely I shouldn’t refrain from buying equipment from my cousin, a local supplier? We’re supposed to look out for family, here.”

No manager had ever taken time to explain why being one’s cousin wasn’t the quality most valued in a supplier. And given the strength of local kinship ties, the clarification was necessary.

For Companies’ Codes of Conduct to be respected, they must be explained. Employees need to understand how principles apply to their particular position or tasks, and managers must show that they own and value these guidelines.

Cultural differences are not the only obstacle to factor in. GoodCorporation assessors frequently hear head office employees brush away basic questions about their company’s Code of Ethics, most often because “it’s simply common sense".

But ask them how respecting competition law affects their job, or what they think would constitute a discriminatory recruitment practice, and they will regularly look blank. Without concrete examples and scenarios, the Code will not produce the results it sets out to achieve.

Stop Re-writing the Rules

2009-11-10T13:02:00.002Z

The announcement by the Financial Services Authority (FSA) that from the start of this month it has taken over the regulation of the way banks treat their customers is not new.

Since 2006, the FSA has been urging banks and building societies to ‘Treat Customers Fairly’ (TCF), developing a principles-based regulatory agenda designed to help consumers achieve a fair deal*. By 31 December 2008, banks, building societies and financial service providers were expected to demonstrate to the FSA that they were consistently treating their customers fairly. Yet although this system of regulation was supposedly in place, complaints about the way banks, building societies and specialist lenders treat their mortgage customers have soared by 40 per cent in the last six months. http://www.independent.co.uk/news/business/news/complaints-about-mortgage-lenders-rise-40-in-six-months-1811630.html

The government has even gone over the FSA’s head by proposing that unfair credit card terms be outlawed stating that it is not acceptable for credit card companies to impose complex and confusing terms and conditions that leave consumers baffled. http://news.bbc.co.uk/1/hi/business/8326485.stm

What the FSA needs is not a new rule but a commitment to regulate and audit financial service providers to ensure that customers really are treated fairly. Regulation can only be effective if rigorous tests of fairness are carried out. Independent audits must be central to this process of testing. This should include mystery shoppers and customer surveys as well as an audit of marketing materials, consumer information and a thorough review of policies and practices. Without intelligent and independent scrutiny, banks will carry on trying to wriggle out of their duty to treat the customer fairly.

How banks treat customers is under the spotlight as never before, but unless the regulators insist on independent checks, consumers will continue to be treated unfairly.

Do unto others

2009-09-22T13:53:00.003+01:00

While staying in a hotel during an assessment recently, one of our assessors read an article in the Wall Street Journal about various ways some hotels were gouging their customers through hidden fees and surcharges. Readers subsequently added other examples to the list. Some of these unethical tactics included:

· Mandatory parking and/or valet fees, even for those guests who didn't arrive by car (or parked themselves).

· Mandatory "gratuities" for housekeeping and bell staff, not all of which are actually being distributed to the workers.

· Mandatory "resort fees" for the pool and gym, even if not used.

· Fees to use the in-room safe or refrigerator.

· Exorbitant but unmarked fees for bottled water placed in the room.

With respect to the last, our assessor noted the bottled water in his room came with a "complimentary" tag. At another hotel, there was no such tag, and he assumed that if he enjoyed the water, there would be a consequent hefty charge added to his bill. (He also noted the bottled water came from Norway, a continent away, making a mockery of the hotel's claims of "green" products and of sourcing locally.)

Many WSJ readers noted that hotels would often reverse these fees if customers noticed them and complained, reinforcing that the charges were inappropriate in the first place.

During our assessments, we interview client staff from sales and customer service to understand how the organization deals with its customers. We review advertising, contracts and other records, and interview a sample of actual customers to understand their own experiences. Some of the things we're looking to verify include:

· Are pricing and terms of sale clear and complete?

· Are product labeling, marketing, and advertising completely truthful?

· Are product claims (capabilities, environmental, etc) objectively substantiated before being made?

· Are warranties and other after-sales promises honored by the vendor?

· Is there a process to receive and meaningfully respond to customer complaints in a time manner?

Devious pricing practices, false advertising, "greenwashing", and other ways of deceiving customers are all examples of unethical business behavior. This is very much an area where the golden rule applies: treat others as you would wish yourself to be treated. Treating customers fairly is a cornerstone of a good corporation.

Social Media Monitoring

2009-09-04T13:12:00.001+01:00

An American town recently generated controversy when it asked municipal job applicants to hand over account information (including passwords) for any social media sites they subscribe to. As part of their pre-employment background checks, the employer apparently wanted to see if the applicant had engaged in any personal activities that might be deemed inappropriate. A blizzard of negative publicity and threatened lawsuits quickly ended that practice.

Other employers have found themselves in the newspaper after disciplining staff for Facebook-documented personal activities that management deemed inappropriate, or over published comments an employee made about the employer or workplace on blogs.

Managers do have legitimate rights to protect the reputation of their organisation, while employees have a duty of care towards their employer, which includes not acting in ways that would bring disrepute to the organisation or that may poison the workplace, and to maintain confidentiality of private matters.

As all employees have a right to privacy, especially for activities unrelated to their workplace, employers must restrict pre-employment checks or monitoring of employees’ online activities to those strictly related to any legitimate requirements of the organisation. It’s not for the employer to agree or disagree with whatever staff do on their own time, with a few narrow exceptions.

Thinking through appropriate and inappropriate uses of online media ahead of time will allow the organisation to provide appropriate guidance to their managers and employees on how to handle potential situations.

· With a few notable exceptions, (police officers, clergy, teachers) the personal time, activities and friends of a typical employee should be off limits to the boss. Any legitimate exceptions should be well documented and known by all parties.

· Conversely, employees need to know that it is not acceptable to criticise or otherwise bring disrepute to their employer, managers, or colleagues in a public forum (whether online or elsewhere).

· The employer should have a communications policy that encourages appropriate online engagement by relevant employees in the course of business, backed by appropriate guidelines (e.g. full disclosure of identity and connection with the organisation).

· Employees need to keep their professional and personal lives separate. A social media site intended for one’s friends should not include work-related matters, especially without the consent of the employer or colleagues impacted (e.g. photographs of one’s colleagues in swimsuits from the company picnic shouldn’t be posted in a personal forum without their knowledge or permission).

· Employers concerned about what people may be saying about their organisation can generically monitor online media such as Twitter, and respond to any concerns as appropriate. In other words, there is no need to specifically monitor employee’s personal accounts.

Issues such as these regularly come up in our assessments. The use and abuse of social media sites is a relatively new phenomenon for employers to deal with. Consequently it is important for organisations to have well-defined and clearly communicated rules firmly in place.

Should the office romance be off-limits?

2009-08-05T16:57:00.001+01:00

Should the 'office romance' be off-limits?

Managing a workplace romance can be a hassle and not just for the parties involved! While stolen moments behind the photocopier or deciding whether or not to go public are usually of prime concern for those having the affair, work colleagues often have issues that are rather more fundamental.

An office romance can lead to variety of allegations from favouritism and collusion to skiving and skulduggery. While few companies actually prohibit relationships in the workplace, many have policies in place to minimise any possible fallout.

Relationships should be out in the open without fear of reprisals. It should be company policy to ensure that a couple in a relationship do not report to one another, nor should they be jointly responsible for any decision-making be they business decisions or ones relating to performance and remuneration. Ensure that there are well-known consequences if the romance creates a negative impact on the workplace or the business as a whole; in many organisations the enforced resignation of one or both parties is considered entirely acceptable.

It should be made clear that the relationship must not affect the work environment and that professional conduct is expected, with clear boundaries between personal and business interactions.

In larger organisations, managers should be trained to identify any potential warning signs, be familiar with the office policy and ensure that it is consistently applied. It is also wise to discourage supervisor-subordinate relationships which can have extreme consequences be it resentment among colleagues or allegations of sexual harassment.

While office affairs may be an inevitable product of the modern workplace, the majority end in tears, making clear and consistent policies a life-line for those left to pick up the pieces.

Is corporate drug testing legitimate

2009-07-21T15:48:00.002+01:00

Testing for substance abuse is becoming a concern in many organisations and has been raised a number of times in our recent assessments. Employers have legitimate interest, indeed often a legal requirement, in maintaining a safe workplace. Alcohol and drugs are readily available in many communities, and their use and abuse may be endemic. Dangerous equipment and hazardous substances often have the potential to inflict harm far beyond the operator, as the Exxon Valdez incident tragically showed.

In responding to these legitimate concerns, however, an employer must balance its own interests and responsibilities with the legitimate privacy rights of employees. Not everything an employee may do in their spare time is within the legitimate domain of the employer. Some test regimes appear to be rather one-sided in this respect.

Here are some of the considerations that should be factored into any policy:

• What are the legal requirements of each jurisdiction in which the employer operates? Testing is often mandated in the event of certain types of accidents or near misses. Some jurisdictions allow widespread testing while others restrict it to narrow circumstances.

• What are the locations or job functions where there is a legitimate requirement to test current or prospective employees? The truck driver hauling dangerous cargo is in a very different position than the receptionist in the front lobby.

• Is the company sending out mixed messages about safety-sensitive positions? The courts in at least one country have ruled that an employer can’t claim a position is safety-sensitive (and thus has a legitimate need for drug screening) if people are allowed to start work before being tested.

• Is there appropriate provision for employees to self-disclose a substance abuse problem and receive appropriate help (for example, through an Employee Assistance Plan (EAP)) without fear of disciplinary action?

• Does the organisation have appropriate policies regarding consumption of alcohol within the workplace or while on company business? Some jurisdictions (even in the western world) prohibit alcohol altogether while on the job. Are company social events and business entertainment being conducted appropriately?

Vacancies

2009-06-02T14:21:00.007+01:00

GoodCorporation is a business assessment and certification organisation working exclusively in the field of corporate responsibility. As part of our continued growth we are seeking to fill the following positions with qualified, motivated individuals.

Assessors

GoodCorporation is a unique business which undertakes independent assessments of the ethical and corporate responsibility practices of clients using the GoodCorporation Standard. Since its launch in 2001 GoodCorporation has conducted nearly 300 assessments in 45 countries, working for 11 FTSE100 companies.

As part of our continuing growth and development we are looking to recruit two new assessors to be based in our head office in London. For both positions complete command of French as a working language is needed.

For the senior position the assessor will be responsible for:

Design and scoping of assessments
Management of client relationships on-site
Management of sub-contractors
Analysis of client’s operations against the GoodCorporation Standard
Stakeholder interviewing
Client presentations
Report writing
Business development
New lead and business generation
The senior assessor should have the following experience:

Minimum five years’ of experience in a variety of management functions such as HR, purchasing, sales or environmental management
Alternatively, similar management consulting experience
Client management
Proven business development capability
Fluent French
Ideally other European language capability
The second position involves similar tasks but as a team member rather than manager and hence less experience is expected. This position will involve more office-based support to the business.

The assessors will be expected to travel regularly. Typically the senior assessor will expect to spend about 50% of time on client sites, with up to two weeks at a time at client sites. The remainder of time will be spent on client reports and working on business development.

For the right candidates, GoodCorporation offers a competitive salary, a friendly and fun working environment and considerable responsibility to help grow and develop this exciting business.

For more information see our website

GoodCorporation debate at the House of Lords

2009-05-22T13:01:00.004+01:00

At a debate organised by GoodCorporation at the House of Lords on 20 May 2009 Will Hutton, Vice-Chair of the Work Foundation spoke on corporate governance and corporate responsibility. Will said that companies need to have a much clearer statement of their purpose which should be challenged and agreed by more active non-executive directors. He criticised current notions of CSR which he said could distract companies from focusing on their core purpose. He lamented the last minute changes that were made to the operating and financial review which he felt had missed an opportunity to embed better long-term thinking into business.

Cash for Moats

2009-05-20T09:37:00.001+01:00

There are a lot of red faces around the corridors of Westminster and despite the manure, paid for by the public purse, few have come up smelling of roses. From plasma screens to pot plants, swimming pools to student flats, chandeliers to custard creams, MPs from all parties have been caught with their hands deep in the till. Were they from the ranks of the unemployed they would be facing criminal charges for benefit fraud. As it is, Members’ cheque books will be depleted as excessive expense claims are repaid and party leaders compete to demonstrate their desire to preside over a more responsible system.

So once the hair shirts have been dispensed with and the apologetic proclamations heard, what happens next? Clearly the advice contained in the Green Book that states: “the MP’s signature [on the claim] verifies that the expenditure was wholly, exclusively and necessarily incurred in the performance of their duties” is not properly understood or applied. And therein lies the problem with principles-based regulation such as The Green Book: principles-based regulation without powerful, independent monitoring is like a football game without a referee.

The Committee on Standards in Public Life is undertaking a review of MPs expenses. While none would wish to return to a system where only those of independent means can afford to be a member of Parliament, a system of effective monitoring, a culture of responsibility and total transparency are essential if public trust is to be restored.

Misleading and cheating customers...

2009-05-14T14:13:00.003+01:00

Today's story in the Financial Times 'Brussels airline fees crackdown bears fruit' contains the astonishing finding that the Commission's evaluation of airlines around Europe found that 'hundreds of their websites are flouting consumer law...137 out of 388...were misleading or cheating consumers.' Many of the same airlines identified have CSR reports discussing how they are cutting CO2 emissions, noise pollution and helping regional economic development in Europe.

This highlights why some CSR reports are hog-wash: focusing on a few convenient bits of good practice while missing out on fundamentally dishonest and unfair business practices, which in this case even break local laws. If the corporate responsibility movement is about anything, then surely it is just this type of illegal and unfair activity that it should be eliminating. We should also be highlighting those airlines whose practices are honest so that we consumers can reward them with our business.

Is the pay gap really that big?

2009-04-30T10:41:00.001+01:00

While few would dispute that a fair and equal society is a good one, the proposal to implement an annual gender pay audit to facilitate equal pay may well be missing the point.

Statistics released this week by Harriet Harman, reveal that the pay gap between men and women is as high as 23 per cent. Yet a closer analysis of the data shows that this figure, though alarming, is also misleading. Included in the figures is the pay of part time workers, largely women in low paid jobs. Official figures for full time workers put the gap at a considerably lower 12.8 per cent. And even this figure may not be wholly accurate.

In order to get a true and fair picture of a pay gap between men and women, we need a thorough and intelligent analysis of pay structures which takes into account not just the hours spent to do a job, but the work experience, the number of years in the job and the skills that the employee has to offer. Until we have a complete breakdown of gender pay on a like for like basis, we cannot really know if there is a pay gap at all. Discrimination is not the only reason for different pay levels. Choice of career, progression into senior roles, career breaks to raise a family, all have a clear impact on pay. Until a thorough job for job audit has been conducted, we cannot charge employers with discrimination.

While we welcome any effort to remove discrimination from the workplace, it should not burden businesses with unnecessary bureaucracy.

Combating Corruption debated at the House of Lords

2009-04-01T16:01:00.003+01:00

It is surely a sign of the times and confirmation of just how tarnished the reputation of UK plc is in danger of becoming, that businesses have welcomed the draft Bribery Bill with such enthusiasm. At GoodCorporation’s debate at the House of Lords on Tuesday (March 31), representatives from some of the UK’s leading companies urged Parliament to fast track the draft bill and get it on the statute books as quickly as possible.

To achieve this and to strengthen Britain’s drive to combat corruption, greater co-operation between business, politicians and the police was called for. Sharing information, facilitating whistleblowing and encouraging collective action were all identified as key components that make up the road map to combat corruption.

Yet despite this united front on the need to tackle corruption, the debate was evenly split on the question of whether or not corruption was likely to get better or worse in the near future. The pessimists felt that there was a real risk of corruption getting worse, as businesses struggle to beat the recession. Compliance and monitoring can be costly. And with increased competition from countries such as India and China businesses are likely to be forced to cut costs in order to survive.

For the optimists, it was felt that the legislation would drive improvements and that the spectre of reputational damage would urge companies to do all that they could to combat corruption. For them, compliance should be on a par with the external financial audit.

Ultimately, it comes down to good leadership. Business needs to create a culture of incorruptibility. Tata’s ability to do this in India shows it can be done. But to be really effective, this needs to be done collectively rather than on a business by business or even a sector by sector front. The draft legislation is a step in the right direction. Ensuring that businesses work together with the police and the public sector is the next big challenge.

For more information about GoodCorporation's work in combating corruption, please click here.

Will the UK's draft Bribery Bill stand up to the challenge?

2009-03-25T15:11:00.009Z

The long-overdue draft UK bribery bill is very welcome as it makes the legal position regarding bribery and corruption considerably clearer and in particular, will make offences easier to prosecute. This will enable the UK to catch up with other major economies through this purpose-built law. And unlike the FCPA the draft Bribery Bill covers bribery of private as well as public foreign officials, which is a much-needed requirement.

However, there are a number of areas where the bill could be tighter:

The Rio Ferdinand Lesson

There is now a clear corporate offence whereby companies that have been negligent in preventing bribery by individuals can be prosecuted. However, the sanction is merely a fine, albeit unlimited, rather than the much tougher punishment of a ban or suspension from being able to bid or supply. When Manchester United player Rio Ferdinand failed repeatedly to appear for drugs tests, he was fined £50,000 (pocket money) but banned for 8 months, its not hard to see which hurt the most.

Farming out the Dirty Work

Most companies bribe through an intermediary. This will be punishable under the proposed law, but it is not clear how courts will establish the culpability of the company as opposed to the intermediary. This needs to be clearer to secure prosecution.

It’s easier to receive than to give

The draft Bill makes it clear that companies will be prosecuted for failing to prevent the payment of bribes. But it appears not to apply when companies have failed to prevent a bribe being received. There are practical steps that a company can do to prevent this so it is a pity that the law has not tightened up this point.

The James Bond Clause

A person cannot be prosecuted if the bribe has been authorised by the Secretary of State. This falls under ‘authorisation for Intelligence Service’!

Click on the following link to see the GoodCorporation Standard on Bribery & Corruption.

What’s the housing market got to do with ethics?

2009-03-19T16:09:00.002Z

Leo Martin's letter in today’s Financial Times about the housing market might not seem an obvious fit with GoodCorporation’s day-to-day work on business ethics. However the need for long term loans in the UK housing market to provide greater stability to the market is clear. It would be a fairer system for home owners, with transparency and long-term certainty about prices of mortgages. It would disadvantage banks and building societies as well as financial advisers that make good money from people having to regularly switch their loans.

The question is why does the market fail (even during the long boom years) to offer longer term loans. There is a clear demand for long-term savings products (to try to make our pensions worth more than we put into them). So why are financial institutions not able to develop products meeting both long run savers and borrowers needs. Leo concludes it must be because it is much more profitable to have a constant two year churn with the associated fees and commissions that the industry has no real interest in changing its structure. Therefore he thinks there is a clear case for the state-owned banks to change the structure of the market by introducing long-term loans (and savings products).

Making bank regulation work

2009-03-19T15:54:00.006Z

Lord Turner scored high marks for his review of financial regulation which has been described as intelligent, comprehensive, rigorous and measured. It has been designed to make British banks safer and restore trust in the system. And if, as is hoped, it is adopted internationally, it will enable the City to claw back at least some of its reputation and help it return to its desired central position on the global financial stage.

But the Review itself is only part of the process. The real question is how successfully will the UK Financial Services Authority (FSA) implement its review. Will it score as highly in the practical as it did in the theory?

Regulation is only as good as the regulator that conducts the investigation and our regulators will need to be as skilled as our bankers to ensure that the Turner Review is really effective. The recent experience from the ‘treating customers fairly’ regulations is not encouraging. The FSA set out some very simple and sensible principles to make banks, insurance firms and other financial institutions treat customers fairly. However in implementing these principles it has got itself into a mess. Its attempt to implement has led the firms into a mass of complex document collection and form filling with absolutely no evidence that behaviour towards customers has changed one bit. In sum, a waste of management time for the firms, a waste of money for shareholders and little to show in terms of benefits for customers.

The heart of failure of this type of regulation is that it tries to boil complex issues of fairness down into something that can be dealt with by a regulator using a clipboard. The reality is far more complex and requires an experienced person to use skill and apply professional judgement as to whether the firm is working in the way that the regulations expect in spirit as well as in letter. The auditor is asked to sign off accounts as being ‘true and fair view’ of the company’s financial affairs. This is not a tick-box exercise and requires careful judgement. In the same way the FSA must apply intelligent judgement in its attempts to measure fair behaviour of its regulated firms.

Treating customers fairly

2009-03-18T16:09:00.008Z

There were none of the usual CSR crowd at today's the UK Office of Fair Trading (OFT) conference in London on 'business leadership in consumer protection'. This is a shame because the OFT is looking at the heart of a number of issues crucial to responsible business behaviour, in particular can industries regulate themselves to treat their customers fairly.

A number of models of self-regulation were discussed and representatives from the Advertising Standards Authority, ABTA, the Carpet Foundation showed how their approaches to promoting standards of good behaviour were improving outcomes for consumers.

One of the most interesting points made by the OFT is about the 'market for lemons' theory in economics. It shows that in lots of markets (like for second-hand cars) good products are removed by the sellers from the market because consumers do not have the ability to really identify which product is a high quality product. Companies can only rely on reputation to some extent to sell their goods and services, so any certification system that is established which helps consumers to identify companies that offer quality products is attractive, if it works. The key features of certifications that work are that the certification actually differentiates good companies from bad ones and the certification is recognised and understood by consumers. This is certainly a challenge for the GoodCorporation Standard. With our 23% fail rate to date we are confident that we have a credible assessment. But have we got the message out to the world - not nearly enough yet!

If you are interested in reading the OFT's paper on self-regulation and improving how companies treat their customers you can access it here. The OFT is looking for feedback on how far self-regulation can be made to work to benefit consumers (and businesses). It would be great to see many in the CR world joining in this debate.

Defining CSR

2009-03-17T15:13:00.007Z

An FT journalist told us recently that when a CSR story is discussed on the news desk, the suffix ‘bollocks’ is generally added. So it was good to see the leader in yesterday’s FT (March 16) calling for shareholder value maximisation to be re-evaluated which stated “that if companies strive to make good products and generate trust with customers, suppliers and creditors, profits will follow for the well-run business.”

This welcome leader contrasts strongly with the line taken by a number of FT writers, not least Stefan Stern who recently wrote about "The Hot Air of CSR (Feb 3)". In this article he seems to suggest that businesses that try to generate trust are do-gooding wimps.

The problem is really about definitions. I don’t think that Stern would really have any problems about fair treatment of employees, fair and honest advertising to customers, paying suppliers on time and all the other issues we assess in the GoodCorporation Standard. He might even concede that they are part of a successful business strategy. What really seems to irritate him is companies that miss out these basic elements of good practice and then try to greenwash everyone with some ‘babies, dolphins and forests’ type initiative. Whereas some would define this as CSR, it has more to do with PR than Corporate Responsibility. Until CSR gets to the heart of responsible business management it will always run the risk of attracting the suffix ‘bollocks’.

The Age of Responsibility

2009-02-13T19:20:00.003Z

President Obama has just launched the ‘age of responsibility’ and Gordon Brown has renounced the ‘age of irresponsibility’. You could be forgiven for thinking that they have both been taken onto the payroll of GoodCorporation!

However, although there has been much call for greater responsibility, no one in business or government seems sure how this should be achieved. There are at least two major issues to address: the first is obviously to get banks lending again in a more sustainable way. The second is to establish how businesses should behave on a long-term basis and how we generate wealth in a sustainable fashion.

One of the key issues is actually how we protect managers in listed businesses so that they can focus on long-term sustainable growth of their businesses. The trading in shares of publicly listed companies can clearly generate income. However, we need to remind ourselves that not only does this provide a livelihood for smart graduates with an eye for potentially profitable market movement. It is both fundamental to, and has a responsibility to, the country’s long-term savings industry that delivers pensions to ordinary people.

It is perhaps significant that in the last 10 years there has been a radical shift in share ownership, with short-term share ownership, mainly by banks and hedge funds and other non-financial institutions, rising from 5 per cent as recently as 1998 to almost 40 per cent. As a result, there has been a real move away from annual and long-term planning towards a short-term management focus that concentrates on beating the market over months rather than years.

While risk taking can be both productive and profitable, it needs to be managed to ensure long-term success. In his speech at the New World, New Capitalism conference in January, Tony Blair said; “If businesses want to succeed, they must embrace their shareholders with respect.” But his speech had no next sentence and it is not clear if even Corporate Responsibility practitioners know how to make this happen.

Much of the CR activity that we have seen to date is reflective of the short-term pressures on listed businesses which has put CR into a communications box, an opportunity for some soft marketing, a few initiatives to try and look good, to help successfully manage the massive pressures of beating the market every quarter.

Cost pressures resulting from the downturn we now face are threatening this soft marketing approach to CR. For both the long-term development of sustainable businesses, not to mention the establishment of a real understanding of running corporations responsibility, this must be a good thing.

The immediate focus for both banks and businesses must be on survival. But in the longer term Corporate Responsibility must move away from glossy reports and box-ticking and into the heart of the company. Long-term shareholders must actively participate in the debate about sustainable performance. Customer loyalty above short-term customer performance, responsible management of the supply chain, fair HR practices, the avoidance of bribery and a radical reduction of businesses’ impact on the environment are the fundamentals of Corporate Responsibility. They also happen to be fundamental to all long-term business success.