Can business ethics outlast pandemic?
A year of extraordinary collective struggle is drawing to a close. The hope and comfort that the holiday season brings to so many is being accompanied by encouraging medical breakthroughs and an imminent change in American leadership. Together, they’ve instilled much-needed optimism that the world, and the global economy, will not have to struggle indefinitely with the coronavirus pandemic.
To be sure, grim hurdles remain. But the potential of widespread vaccination to restore normal economic activity has brought relief to worried households and businesses large and small.
The question now is how a return to healthy profits in a post-pandemic business world might affect a corporate drive toward ethical action that gathered speed with the virus’s arrival and spread.
Will a return to “business as usual” entail a retrenchment from business as purposeful and humane?
I’m confident that it won’t.
For starters, the corporate move away from a profits first mentality predates the pandemic by several years and, in some pioneering cases, decades.
Consider the outdoor clothing company Patagonia, which since the 1970s has aligned itself with environmental activism and made a point of providing health care, child care and work flexibility to its employees. Or Unilever, which over the past decade has put sustainable growth and social good mission statements at the centerpiece of its business strategy, at times to the chagrin of shareholders.
The confluence of increasingly untenable inequality and the rise of social media hastened the adoption of ethical business practices, while the failure of governments to confront these challenges — including, in so many countries, the pandemic — further greased the wheel.
Consumers across the world, given a shared platform like never before, could call to account exploitative or immoral business practices and the leaders who allowed them. And unlike calling out government inaction or immorality, neither of which have been in short supply lately, advocating online for better business can produce immediate change in organizations sensitive to public perception and dependent on public wallets.
This new form of activism was largely responsible for the #MeToo and #BlackLivesMatter movements that forced a tumultuous reckoning across industries and, most visibly entertainment and media.
Hollywood studios, and the movie industry’s august Academy, instituted a series of practical benchmarks to increase racial diversity within the business. Condé Nast continues, successfully or not, to correct payment practices criticized for favoring white employees. Even Fox News, hardly an avatar of good and moral business practices, cleaned house amid a series of sexual harassment scandals.
The pandemic simultaneously underscored the need for humane business as so many people died or suffered and threatened it. After all, it’s easier for businesses to act morally in good times than in lean.
Had COVID-19 made corporate purpose a luxury? On the contrary, the pandemic has made ethical business more important, and rewarding, than ever.
A large body of research shows that customers since the 2008 financial crisis have shown a consistent track record in rewarding companies that do business humanely, especially when times are tough. This might seem counterintuitive given the overriding shareholder concern with long-term financial viability. Wouldn’t companies buffeted by crisis zero in on financial fundamentals in order to survive?
Fabrizio Ferraro, a professor at IESE Business School whose research focuses on responsible investing, sees a clear link between doing good and doing well.
“An interest in financial results is precisely why customers reward firms that remain loyal to their environmental, social and governance commitments to all stakeholders,” Ferraro said. “That includes employees, customers and future generations. The trust between companies, investors and stakeholders pays off, especially when corporations suffer a negative impact.”
Those future generations are a big reason why responsible business will endure after the coronavirus crisis subsides. It’s young people who have been most adept at harnessing the power of social media to advocate for progressive social change and business practices in tune with it.
A majority of Generation Z consumers, for example, say they would pay more for ethically produced products. And while young people can be fickle, with nearly two-thirds of consumers overall saying they would reward companies that took a stand on social issues, no business leader should dismiss this as a fad.
Business people shouldn’t take this as an opportunity to exploit, either. Cheap corporate talk and hollow social media gestures abound. The companies that refrain from such verbiage typically define their ethics while tuning out social media or cultural trends.
“For purpose to be compelling and meaningful, it needs to build on what the company does on a daily basis and it needs to be freely chosen and driven from within rather than externally imposed,” said John Almandoz, a professor at IESE and co-chair of its Center for Corporate Governance.
Patagonia, that early force for responsible business, has certainly stuck to its principles during the pandemic. It was among the first large retailers to close its American stores and e-commerce business, on March 13. And even as the crisis persisted longer than anyone expected, it paid furloughed employees, who kept their health benefits. CEO Rose Marcario has acknowledged the blow to sales while saying the retailer would likely be among the last to reopen.
There is no road map for businesses to maintain their commitments to social responsibility while recovering from the devastation of the pandemic. But with the wounds from this crisis cutting so deep and so wide, fidelity to doing good will gain the admiration and loyalty of a public in desperate need of something to trust.