Stop making the 'business case' for a responsible private sector
The private sector is hugely powerful. Many corporations have an annual turnover that dwarfs the budgets of national governments, as well as a network of workers, suppliers and consumers that reaches around the globe. If we are to tackle humanity’s biggest challenges – from inequality to modern slavery to global warming – the private sector must play a leading role. This is a moral and social imperative.
This basic argument is well-rehearsed across civil society, academia, politics and the private sector itself. But rarely is it communicated in such simple terms.
Instead, those seeking to change the behaviour of the private sector often avoid appealing to morals and instead use the language of the ‘business case’: an objective analysis of costs and benefits.
This is incredibly widespread. The Harvard Business Review has published ‘The Business Case for Corporate Purpose’, the Ethical Trading Initiative says that its members ‘are finding that taking ethical trade seriously is helping them realise commercial objectives’ and the Living Wage Foundation trumpets the business benefits of giving workers decent pay. And there’s more – a cursory internet search throws up ‘business cases’ for everything from tackling modern slavery to combating climate change to respecting human rights. Traidcraft Exchange have joined in, energetically making the ‘business case for responsible purchasing’.
This approach to talking to business has had successes in the past, especially when pushing incremental changes to business practices. And I am not trying to disregard the many examples in which a more ‘ethical’ business decision has indeed yielded financial benefits.
But ultimately adopting the language of business undermines the case for a radical change in the way the private sector operates.
Rather than challenging the notion that financial returns should trump all else, building a ‘business case’ concedes this point and instead attempts to place a financial value on things like human rights that have no place being preceded by a pound sign. Using the frames of risk and return reinforces the idea that the only things that we should value are those from which we can extract cash. Moral obligations are replaced by commercial judgements, with the result that social goals become indistinguishable from other business activity.
This means that committing to something like the payment of living wages is relegated to the status of any other decision, such as deciding whether to invest in new products or double advertising spending. Each are judged alike and can be prioritised or deprioritised depending on the business environment or the state of the annual accounts. This language also encourages business leaders to treat workers and their unions as risks to be managed, rather than recognising their value as partners.
So it’s an argument that doesn’t help the case for long-term change, but it also doesn’t work on its own terms. Most of the time there is no business case for responsible conduct. If we want to make arguments from the starting point of trying to maximise profits, a far more compelling case can be made for bribing governments and auditors, avoiding taxes and ducking environmental regulations.
Reputational risk is sometimes cited as a driver for businesses to clean up their act. The logic is that corporations should respect their suppliers, workers and environment because failure to do so could lead to exposure in the headlines, public outrage, consumer boycotts and, finally, a hit to profits. This has happened in some cases, but it only works properly when the company has a public profile and is held to account by well-resourced investigative journalism and consumers with the time, energy and money to care. Neither of these are in abundant supply.
Take Bangladesh’s garment sector, for example. In the last ten years there have been multiple high-profile tragedies and media exposés. Yet workers still receive paltry wages and are subjected to harassment and abuse, as the Guardian reported in March. The business case for supporting living wages and workers’ rights in Bangladesh clearly doesn’t exist; the truth is that being a good corporate citizen is often expensive and inconvenient.
In the end, there are two ways to get businesses to commit to systemic change for the better. The first is to convince those within the business of the moral case for change by reminding them of their social contract: that they are part of society, benefit from public goods, and should take responsibility for social progress and environmental sustainability. This may be at the expense of profits and competitiveness, which means it’s a bridge too far for most companies.
The second is, of course, to bring in laws and regulations that oblige company practice to support what we as a society deem to be important. Legislative change has been behind every major step forward in responsible business conduct, from the 1802 Factory Act to the 2015 Modern Slavery Act. As a general rule, the law leads and business follows. Furthermore, laws that establish a level playing field for good business practices mean that those executives who want to do the right thing aren’t placed at a competitive disadvantage.
Such a law could require businesses to assess and manage the human rights risks of their operations and hold those businesses legally liable for failure to adequately protect human rights. This is what Traidcraft Exchange and others have called on the UK government to introduce. Well-intentioned businesses should support this agenda, and distance themselves from those firms and business associations lobbying against stronger regulation.
Rather than pretending that the changes that we want to see are always going to benefit a business’ bottom line, we should instead champion their intrinsic value and ensure that progress is not entrusted to the discretion of a private sector obliged to maximise shareholder return.
Tom Wills is a Policy Adviser at Traidcraft Exchange. This blog is cross-posted on the Huffington Post UK.