This is the transcript of the speech given by Anthony Smith-Meyer at the IMH 6th International Compliance Forum on 28 September 2020.
In pre-Covid-19 days, I met a young PhD student at an event at the OECD in Paris. The theme of the conference was around ethics and responsibility in the digital age. Amongst the series of speeches and presentations made by Presidents, Prime Ministers, business leaders and intellectuals, this young lady from Tunisia provided me with an insight that greatly helped me clarify my thinking about morality and behaviour in a world flooded by Big Data. Her story went along the following lines:
“When I was a young teenager, I experienced the Arab Spring. I was sure of my views. As I ventured out to join the demonstrators in the streets, everything was good or bad, right or wrong, black or white. When I became a student, I realised how naïve that was – the world was neither black nor white; there was only a lot of grey. But now I realise there is no white or black, or grey. There is simply the moment as I now experience it. There is only space within which I have to learn to navigate.”
Her statement reflected the changing world in which Millennials have grown up, and what has been an everyday reality for the following generation Z. It is a statement born of the emergence of big data and the surveillance economy – the continuous universal expansion of information sources and data points. Presented with facts, counter-facts, or alternative-truths, we can no longer distinguish between perceptions of truth, opinion or propaganda. We live in the post-truth world where we are provided with targeted and curated transparency; a world where we can no longer be sure of anything other than our senses. Even then, we have to live with the knowledge that our minds can be fooled or manipulated by those who control our news sources.
The Baby-Boomer generation was raised to have a high degree of respect and trust in the powers-that-be who provided us with, admittedly, equally curated information. On the whole, we believed that those in authority prioritised the needs of society before their own. We also had a reasonably high expectation that the “free” press would keep their worst excesses in check. There was a positivity bias in effect that when washing powders promised they washed whiter, they probably did; that when tobacco companies assured their consumers that “their” cigarettes were safe, that they were at least not harmful; that when oil companies claimed to protect the environment, they caused minimal damage. How times and generations change.
Fast forward to 2020. We have a Millennial generation (born circa 1985 – 1999) who grew up on a diet of individualism and shareholder capitalism, and a generation Z (born since 2000) raised against the backdrop of austerity and climate change. Our younger adults, with their teenage siblings following closely behind them, have become disillusioned with the uncomfortable truth of the world that awaits them following the unsustainable indulgence and short-term fixation of their parent’s society. These youngsters are rapidly taking their place in the workplace and are increasingly important as influencers, if not directly in control, of purchasing power. Most companies understand that their future success depends on the support of their customers. What many have not yet understood is that these seedlings of future success have learnt to view corporate actions with a sceptical eye, no longer content to turn a blind eye. Where before there was positivity bias, there is now negativity.
We can refer to academia and marketing specialists who have long spoken of the need to capture the loyalty of consumers by making their brands unique, not fashionable. Studies by major business consultants emphasise demographic trends to customers and business partners who place real intent and purpose before exclusivity and price considerations.[ii] We have testimonies of the corporate experience, such as that of Unilever whose investments in personal hygiene campaigns and initiatives in Kenya led to dramatic sales growth, and Knorr’s efforts to fight malnutrition in Nigeria that were rewarded by enhanced trust and customer loyalty.
It is neither by accident or ivory tower thinking that the world’s most successful companies are adopting Environment, Social and Governance (ESG) objectives. When 181 CEOs of major US companies of the US Business Roundtable signed its revised statement of corporate purpose in August 2019, it would not be surprising if many of them underestimated the implications of replacing shareholder with stakeholder primacy. Looking back on the powerfully strong movements of #ClimateStrikes in 2019 and the emotional engagement of #BlackLivesMatter in 2020, only the most arrogant would not be asking themselves questions of how such ideas and expectations around the environment and social justice might influence the future behaviour of consumers. The distress and hardship imposed on many sections of society, and in particular employees, as a result of the Corona Crisis has only served to emphasise these questions.
We know the ethics of any particular group or society are determined by the expectations placed upon its members, by its members. The ethics of the individual is strongly influenced by the general convention of their current environment in particular, but also their upbringing, religious inclination, and the ethics of the social groupings with whom they associate. Communities can be liberal or restrictive, individualistic or collectivist, confrontational or collaborative, to name but a few aspects. In turn, how these expected qualities are expressed is determined by custom and tradition. Any group within society may gather informally or in organisations, and moderate these social expectations to serve a specific purpose. Certain values will be highlighted and explained to the public, gaining followers of like-minded people.
As long as business and commerce could adhere to the principle of shareholder primacy, an organisational purpose intended solely to maximise profits to shareholders allowed issues such as ethical concerns to be easily replaced by a standard of compliance with the law. Ethical choices were delegated to society as expressed by the legislature. As long as corporate choices remained within the boundaries laid down by law, the executive and their boards of directors were free to dismiss any concerns about the widespread impact their actions had on the environment, employees or society. Customer satisfaction needed to be nurtured, but in a growing global market, even the loss of one consumer today was mitigated by the promise of finding two more tomorrow.
Indeed, it is going too far to tarnish all firms with the taint of rogues. However, for the past forty/fifty years, the oversimplification of purpose to one measured only in terms of financial success has down-played the role of corporate culture, values and ethical standards. The introduction of ESG as a standard of best practice is a reflection of the increasing need for profit-seeking organisations to measure their success in terms dictated by the growing pressure of social ethics that are influencing individual (consumer) behaviours. The appearance of B-Corp certification[iii] and triple-line reporting (expressing performance in terms of impact on people, planet and profit)[iv] have preceded EU directives on non-financial reporting standards.[v] Commercial and political initiatives are responding to the writing on the wall. The next generation of super-consumers expects producers and service providers to act ethically; to deliver a better future than the one currently in prospect. What then, other than face up to the challenge, do companies have to do?
The first realisation that needs digesting is that the achievement of an ethical culture, even one moulded to your bespoke corporate purpose, is not a quick fix. Time and again, executives have tried to alter employee behaviours through the issuance of new procedures, training programmes and compliance monitoring, without adopting and engaging in behavioural changes themselves. A new procedure to adjust an operational task can be communicated, taught and checked in a technical delegation exercise. Behaviours and attitudes can only be influenced by the observations and conviction of individual employees, themselves learning from the attitudes and behaviours of their superiors and the cause and effect of reward and sanction decisions. Members of organisations, from the board of directors to the groundsman, have to be confident that they understand the purpose of the organisation, the values and behaviours they are expected to exhibit and for which they will be promoted or sanctioned. They have to be clear on the desired impact of their decisions that will influence their performance reviews.
There are books that have been, and are still being, written on culture change. Yet, corporate purpose, values and ethics are not built on solid and unyielding bedrock; they are built on shifting sands and subject to the changing tides of public concerns. As mentioned, non-financial performance took a backseat to maximising profits to shareholders when, in 1970, the Chicago School of Economics professor Milton Friedman popularised the concept. When profit and shareholder value are the only games in town, any concern with the impact on stakeholders – other than in the near term – becomes a distant concern. Empathy and accountability for anything other than good quarterly statements are not valued. In a market managed by politicians seeking re-election on the back of (“read my lips”) economic growth, the path to expansion and profit growth was simpler, and consumers less concerned with the future.
Long-term profitability is a function of future consumer behaviours. If (a) the next generation of consumers expect more than value for money and (b) are aggravated and driven by concerns of climate change, increasing wealth disparity and social injustice, then “profit and share performance” no longer suffices as a corporate purpose statement or key performance indicator: indeed, it never did.
Profitability is the outcome of the satisfaction of consumer demand. As such, it can never be more than a key performance indicator. Purpose needs to be defined in terms of value creation; the quality or trait of the product or service, which clients find attractive and are prepared to pay for. A profit is the result of the difference between the customer’s valuation of the product and its costs of production. Suppose the client’s expectation is nothing other than a cheap product. In that case, profits may be increased by suppressing costs, including allowing pollution of the environment, or the use of bonded labour or outsourced production in jurisdictions where health and safety or carbon footprint are not a concern. If, however, the consumer is now concerned about the quality of outcome in terms of sustainability or social justice, such easy cost savings are no longer acceptable to the social ethic of consumers. If individual customers no longer are willing to be placated by smooth marketing and public relations spin, and instead are seeking evidence that the producers are authentically concerned about the same things that they are, then brand management is no longer a question of the corporate image; it is a matter of the corporate story.
Even the satellite company, SES, which is heavily B2B, has understood the value of authentic, unique stories in explaining the social and environmental importance of their activities.[vi] They sell bandwidth and satellite reach, yet they explain their value in terms of the impact of their technology on disaster recovery in a post-hurricane struck Caribbean, health and hygiene measures in Ethiopia, or information dissemination about Ebola or Covid-19 to the poorer and under-resourced population centres in Africa.
Identifying the company with a value-creating purpose that reflects the things that customers, employees and other stakeholders care about increases loyalty, engagement and support for the organisation’s activities; all elements that are essential to achieve high performance over time.
Perhaps it’s time to listen to the younger generation before the competition does?
[ii] « True Gen: Generation Z and its implications for companies » by Francis and Hoefel, 2018. McKinsey&Company
[iv] « 25 years ago I coined the Phrase ‘Triple Bottom Line’. Here’s why it’s Time to Rethink it. » by John Elkington, June 2018. Harvard Business Review.
[v] Non-Financial Reporting Directive 2014/95/EU of the European Union.
[vi] « Satellite Stories: The SES podcast series » available on ses.com and podcast platforms