The importance of ethical businesses
Businesses wield power – the power, amongst other things, to control and exploit resources, create employment, transfer wealth and influence human behaviour. In most respects, a company’s power is linked to its size, but there are exceptions. Small businesses, individually and collectively, can, for example, have a major effect on what people think and do. As proof of this one only has to study the green movement, which started at the grass-roots level and has always been closely linked with alternative, artisanal businesses.
With power, of course, comes responsibility. The responsibility, amongst other things and not necessarily in this order, to generate a profit for investors, care for staff, obey the law, be a good force in the community and protect the natural world. Ethical businesses understand this and consider what impact they have on their shareholders, employees, suppliers and customers as well as on society as a whole, the environment and future generations. More than this, they use the power of business (I simply can’t think of a better term to express what I mean) to solve social and/or environmental problems. The best way to explain this is, perhaps, with some examples:
- Blake Mycoskie, a young American entrepreneur, was distressed by the sight of children without shoes while on a trip to Argentina. At the same time, he noticed that the Argentinians produced an inexpensive canvas shoe called the alpargata. He came up with the idea of importing alpargatas into the USA and giving a pair away to someone who was shoeless for every pair sold. He called the concept ‘one for one’ (other businesses have since adopted it) and the company Tomorrow’s Shoes, or Toms.
- Warby & Parker makes fashionable prescription glasses. For every pair the company sells at full price it sells another pair for a nominal price (to avoid contributing to a culture of dependency) to someone in need. To date, it has (a) trained and employed hundreds of opticians in poorer countries and (b) distributed over 13 million pairs of glasses to people who would otherwise be unable to see properly.
- Bronner’s, a family-owned, billion-dollar, organic skincare and toiletries manufacturer, creates environmentally friendly products and ‘uses the profits to make a better world’. In 1929, its founder, a German soap-maker called Emanuel Bronner, wanted to spread a message of world peace, which he called his Moral ABC. To get people to come to his lectures, he started giving away free bars of soap and then he hit on the idea of printing his message on the soap wrapper. There is a company rule that the highest paid member of staff will never earn above five times more than the lowest paid member of staff (the average for US public companies is 204 times!).
- Rubies in the Rubble is fighting food waste with (their pun, not mine) relish! The company creates jams and chutneys from surplus fruit and vegetables taken for free from wholesale markets. Its main aim is to bring attention to the fact that in the UK a third of all food and drink is thrown away. As an aside, the company has a policy of trying to give jobs to the long-term unemployed.
- Divine Chocolate make divine chocolate. The company was started as a joint venture with Body Shop, Twin Trading (an NGO that believes in development through trade) and a cocoa farming co-operative in Ghana called Kuapa Kokoo (now the largest shareholder). The company pays its producers well above the market price and returns almost half its profits to community projects.
- Fairphone is a smartphone made using conflict-free materials (such as gold, tin, tantalum and tungsten) in a factory that pays its workers well. The mobile phone industry is one of the least ethical in the world and the company, which recognises that it still has development work to do, wishes to bring this important issue to the public’s attention.
- Belu, a bottled mineral water, gives all its profits to WaterAid, which creates clean water supplies for people in poorer countries.
- Patagonia, the outdoor clothing and equipment company, has as its mission statement: ‘To build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.’ Its founders, amateur mountain climbers, donate over 1% of sales to grassroots environmental groups and the company’s products are designed to reduce environmental impact.
There is, incidentally, a marked difference between an ethical business and a business that has a corporate and social responsibility (CSR) policy. Some CSR is carried out from the best of motives and has a truly beneficial impact. Sadly, though, a great deal of CSR is undertaken for purely commercial reasons. Society expects big businesses, in particular, to give back and donations have the added advantage of being tax deductible. Those engaged in less than ethical industries – industries such as defence, oil, gas, mining, tobacco, alcohol, gambling, insurance, automobiles and pharmaceuticals – may also use their CSR budget to create an entirely erroneous impression of their activities.
The World Land Trust, of which I was a trustee for many years, was frequently offered substantial donations by businesses that wanted their customers and the media to believe they were mindful of the environment. A retail supermarket chain, for example, tempted us with a million-pound-plus sponsorship deal if we would endorse one of its food lines. This would have meant overlooking any amount of dubious corporate behaviour, not least the sale of live turtles in China. We declined, but doubtless it found another not-for-profit organisation willing to take its money.
There is a trend, particularly amongst public companies, to produce an annual CSR report. These are, almost without exception, self-serving. When genuinely ethical companies are talking to their stakeholders they openly discuss the challenges they face, the difficulty of measuring success, why and where they are failing and how they intend to do better. Patagonia, for example, is open about the problems it faces: ‘We know that our business activity – from lighting stores to dyeing shirts – creates pollution as a by-product. So, we work steadily to reduce those harms.’
There’s another term that gets used a great deal, that of ‘social entrepreneur’. A social entrepreneur is someone who employs business techniques to develop, fund and implement solutions to social, cultural or environmental issues, but without a profit motive. Some social entrepreneurs have never really been involved in business. Others have had long and successful commercial careers. Indeed, many of the best-known social entrepreneurs, such as Bill Gates, Chuck Feeney and George Soros, became extremely wealthy before they turned to philanthropic work.
Confusingly, some ethical entrepreneurs are also social entrepreneurs. That is to say they are involved in one or more ethical business ventures and they also use their business skills and acumen for different, not-for-profit purposes. Even if I was wealthy enough not to have to work, I am not sure that I would want to switch from being an ethical to a purely social entrepreneur. It is true that there is a strong element of self-interest in ethical business (the sense of doing good and making money at the same time) but maybe this is what makes it both attractive and effective.
This brings me to a larger question. Instead of starting an ethical business, would it be more effective to make as much money as possible by whatever legal means you can, and then to use it for good? Bill Gates made his fortune by creating and exploiting a software monopoly. Chuck Feeney also created a monopoly and used it to sell alcohol and tobacco. A large portion of George Soros’s wealth was earned on a single day – Black Wednesday, 16th September 1992 – when he shorted sterling and scooped over $1 billion. Imagine how much greater their influence would have been – how much more good they would have done – if they had devoted their energy to running ethical businesses from day one.
We are each on our own personal journey and I am certainly in no position to adopt a superior moral tone. But I believe that ethical businesses are in and of themselves a force for good.