Why are business ethics a necessity?
Recently, I wrote about the difference between corporate philanthropy and corporate social responsibility (CSR). I specifically mentioned that all corporate philanthropy actions are beautiful social activities that are welcome, but certainly are not core CSR actions.
A concrete example of the difference between the two, we can draw from the latest court case against executive members of the former Cyprus Popular Bank. Without disputing the criterion of innocence of these executives and their right to a fair trial, there is no doubt that certain bank executives and the organisation overall, violated in a number of cases the business ethics and the principles of responsible entrepreneurship. This case and its tragic impact of violated business ethics, highlight the extended responsibilities of executives working in large organisations, or in organisations important to society (such as banks).
Why do I suggest that the example of the former Popular Bank serves to better understand the differences between corporate philanthropy and CSR? I use this example because the bank had been perhaps the pioneer of corporate philanthropy in the years of its boom. They engaged in a series of actions, offered contributions to various social groups, embraced and expanded the radio-marathon, the largest charity action in Cyprus and made their name largely synonymous with organised charity. I am sure if we go back to the media communications of the bank at the time, we will find series of reports that these actions were in the framework of the bank’s CSR. This demonstrates that the executives of the bank had a completely wrong understanding of their obligations to the community. They considered these as an obligation to return something to society in the form of charity, but did not appreciate that their foremost obligation was to protect the community from poor and irresponsible business practices.
The CSR concept has been in the last few years an issue of standardisation by various organisations around the world. In 2004, after discussions for two years, the International Standards Organisation, the well-known ISO, decided to proceed with the publication of an international standard for CSR.
The consultation was the longest and the most populous from any previous standard and lasted until November 2010, when the ISO 26000 standard was issued. The standard was labeled “Guide on Social Responsibility” and has a substantial difference from previous standards issued by the ISO.
The ISO 26000 is an advisory and not mandatory standard. It is a guiding framework and not a management system that can be certified. This standard, attempts to clarify what constitutes CSR and how it can become part (integration) of everyday business practice, what defines the stakeholders of the organisation and what is the relationship of CSR to sustainable development. It results in the resolution of seven core principles for the effective assumption of social responsibility by organisations. These principles are: 1. Accountability 2. Transparency 3. Ethical behaviour 4. Respect for stakeholder interests 5. Respect for the rule of law 6. Respect for international norms behaviour 7. Respect for human rights. As part of defining the limits of its social responsibility, each undertaking is required to conjure on the following key issues: a. Organisational governance b. Human rights c. Labour practices d. The environment e. Fair operating practices f. Consumer issues, and g. Community involvement development
It is clear that the standard is broad and touches in a coherent manner upon the need to respect both the financial results of firms, the interests of people (employees, partners, customers, consumers, local communities and society at large) and those of the planet (environment impact from the operation of the business, etc.).
If businesses do not manage to incorporate the basic principles of CSR in their daily operation, we will continue to have examples similar to that of the former Popular Bank, where the showcase will be stunning, but the content will be insufficient, socially analgesic and depending on the extent of the social impact of a business failure, potentially dangerous.
The use of the guidance standard ISO 26000, as the basis for identifying the responsibilities of a business, but especially for the design of a coherent strategy to undertake such responsibilities, is a good starting point on the way to i mprove business ethics and develop more sustainable entrepreneurship.