Corporations can no longer hide from responsibility

Dr. Thomas Borer

Corporations can no longer hide from responsibility

2 December, 2020

The vote on the corporate responsibility initiative is history. In the end, it was defeated by the majority of the cantons (“Ständemehr”) despite the 50.7% of the people who voted in favor of the initiative. In my opinion, this outcome of the vote shows one thing above all: The times when companies in foreign countries could do whatever they wanted are over.

Every audience expects CEOs to do more

Research suggests that all groups, including investors are expecting companies to go beyond simply improving their profits. According to the Edelman Trust Barometer, 86% of investors are even willing to invest with lower rates of return if the business puts emphasis on sustainability and impact.

We see how business theory responded to this with concepts such as the Triple Bottom Line, Corporate Social Responsibility and the recently emerging term ESG. Almost every annual report now has a CSR section and large corporations like to adorn themselves with “green” and social initiatives. Already 20 years ago I gave speeches in favour of sustainable funds for a Swiss private Bank.

For a long time, this seemed to be largely enough for shareholders and the public. But in recent years we face a new sort of demands. Moral and ethical action is becoming more important in all areas. As we look overseas, we see how companies have announced far-reaching diversity and inclusion programs in response to and under pressure from the Black Lives Matter movement.

The Responsible Business Initiative

The Responsible Business Initiative is another example of how the wind has changed. Originally launched in 2015 by the usual suspects, NGOs and left-wing politicians, it however received a lot of support from representatives of the middle parties. Dick Marty, former Council of States for the Liberals, is co-president of the initiative committee. But why this initiative is so popular in the usually business-friendly Swiss society?

First of all, the professionalism of the Responsible Business Initiative is remarkable. By today, 130 NGOs are involved, as well as a bourgeoise committee with over 400 members of middle and right-wing parties. Even the Federation of Protestant Churches has spoken out in favour of the initiative. The pro-committee was acting very smart in putting raw material and commodity companies in the spotlight. Swiss people do not feel much connection with this industry and if you hear anything about them, it is usually feeding into the narrative of the evil big corporation.

Secondly, recent events like the new climate movement draw attention to issues where companies could do better. Despite not everyone agreeing with the actions of the climate kids, the “Green Wave” at the last parliamentary elections showed awareness about the subject. When now pictures of open-cast mining, destroyed landscapes and poisoned water are shown, it triggers something in people.

Lastly, the process of assuming corporate responsibility has been an ongoing development for decades. By now, the Swiss have reached a level of prosperity with which they can now focus their attention on “how” business is done. Additionally, the internet, creating a new information age, and smartphones that capture every misstep on camera has made it increasingly difficult for companies to sweep their misdeeds under the carpet or take rational action against surprising shit storms. Another consequence of the increased sensitivity is that NGOs have become huge entities with thousands of staff and are more powerful than ever.

Even the counter-arguments of the initiative showed that a change of heart had taken place. Most of them did not negate the responsibility of big corporations per se but tried to reject the initiative on the grounds of procedural difficulties that companies would face.

Building Trust should be a Key Activity

Regardless of the fact that the corporate responsibility initiative was finally rejected, companies will no longer be able to ignore their responsibility towards people and the environment. The public, especially younger generations, expect business to consciously assume their roles as an active member of society. This pays off: Trustworthy companies got much better through the corona crisis than their industry peers.

Trust is a function of competence and ethics. The global communications firm Edelman found in its Trust Barometer, that 76% of drivers for trust are ethical factors, while only 24% base on competence. At the moment, this gives NGOs a clear advantage and explains their power over the public opinion. Three quarters of the interviewed people also want CEOs to initiate change without the need of government intervention. But when business fails to deliver change, then initiatives like the Responsible Business Initiative emerge.

What should business leaders do now? Taking over responsibility can now to be used as a differentiating factor against the competition. The mindset that ESG and making profits are two conflicting goals, needs to be abandoned regardless of the outcome of the vote.

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