We, in fact, do make a financial case around everything sustainable. We think the numbers are always compelling. Yet, here we go in a different direction. Perhaps a better place to be. We shall see.
I’ve been a consultant for almost 20 years, advising companies on complex challenges in ethics, risk, and responsibility. Each year several clients raise the same issue: the need to get buy-in from a skeptical senior executive in order to demonstrate a concrete benefit that will follow a proposed investment in an ethical business initiative or function. The executive needs a business case. And so I get asked questions like “What evidence can I provide that doing the right thing will make or save a company money?” and “How can I persuade the organization that embracing integrity is a win-win?”
It’s a relief to have finally moved on from the era in which corporate responsibility meant feel-good philanthropic efforts divorced from an enterprise’s main activities. Happily fading from memory is the cliché that ethics and compliance teams effectively constitute a “business prevention department.” Many managers can easily recite the business case for ethics: Who doesn’t want better risk management, deeper employee engagement, reduced regulatory costs, public trust, and a lure to purpose-driven Millennials? The dominance of the win-win orthodoxy is a sign of progress.
The problem is that our obsession with making the business case for ethics makes us sound apologetic and hollow. After all, there is also a business case for tax avoidance, deregulation, and even higher death rates. We do ourselves — and the world — no favors by locking ourselves into this instrumentalist argument. There are (at least) three major flaws with it.
Metrics Are Not Your Friends
Let’s be clear. While there is a business case for integrity, an organization that embraces it must make a conscious decision to prioritize the long term, the intangible, and the existential over the specific and measurable. A growing body of evidence shows that ethical companies outperform financially over time, but trying to translate such a broad finding into the short-term planning metrics used by most businesses is perilous. For every “shared value” example of an energy-saving initiative that reduces operational costs, or of a social investment that enhances customer loyalty, one can find a less comfortable result. It can cost more to ensure better labor standards in a supply chain, or to meet environmental standards. The benefit to a company should ultimately manifest in an improved reputation and long-term strategic position, but advocates for reform must hold their nerve in the short term, especially as investor sentiment vacillates.
Moreover, the business benefits of integrity have many variables. How do you demonstrate that a company’s best-in-class compliance program — not a tightened labor market — enhanced employee engagement? How do you know that recent growth resulted from greater public trust in a product, not a competitor’s screw-up? Such difficulties in attributing causation have led to a focus on recording effort rather than impact, and they have driven initiatives that are incremental rather than transformational.
You’ll Never Convince a Skeptic
Frankly, I’ve never attended a meeting at which a doubtful executive was won over solely by a business case for integrity, no matter how persuasively it was delivered. This partly reflects the measurement-and-causation challenges highlighted above; they invite challenge by anyone with a hard-nosed focus on profit and loss. There is evidence that simply introducing the concept of the financial benefits of ethics might muddy your case, since focusing on money undermines peoples’ ethical intentions.
Relatedly, arguments for ethical business tend to focus heavily on the upside of risk prevention: avoiding the possibility of regulatory investigation or reputational scandal. While the argument for risk prevention can be compelling, it ignores the culture of most private sector organizations. Human beings are goal-oriented, competitive, and highly social, with limited memories and attention spans. People are generally overconfident when they assess risk, more comfortable focusing on its probabilities than on potential impacts. Given that senior decision makers in organizations often attained leadership precisely because they are keenly competitive, audacious people, they are particularly unlikely to be swayed by calls for caution. Tell an executive that they need to spend a lot to avert a low-likelihood, worst-case scenario, and their eyes will glaze over.
It’s Not Your Best Argument
On the other hand, senior executives often respond enthusiastically to the potential of business integrity to provide an inspirational narrative. Amid the world’s faltering political will to tackle long-term social and environmental challenges, business is well-placed to assume a leadership role. Most corporate leaders know this. They understand the power of reputation and relationships. They think often and hard about their personal legacy at the company and their opportunity to change the world for the better. They are less subject to short-term operational pressures, and accordingly less risk-averse.
The recent statements from Microsoft and Apple in support of DACA are just one example of this. A tiny proportion of these companies’ employees is directly affected by the cancellation of the program, making this an incremental issue that there is no obvious business case to address. But as a means to signal corporate values to the American public, it can easily command senior attention and energy.
Arguing that companies should prioritize integrity simply because it is the right thing to do could not be more unfashionable. It is not surprising that we avoid it. But our fear of sounding naïve means we’ve ended up in the unenviable position of trying to make a simplistic commercial case for corporate “purpose” — contradicting and exposing ourselves in the process. A recent survey from EY saw broad agreement that purpose is more important than shareholder value, but no clear definition of what purpose is. In fact, a company has purpose when it deliberately prioritizes its ethical principles over profit-making opportunities, at least some of the time. We tie ourselves in knots trying to skate over this reality. The result is that employees and customers today see corporations as hypocrites, spouting meaningless value statements in glossy brochures.
To drive change in organizations, of course we need to measure and understand the financial benefits and costs of ethical initiatives. But if we try to make a case for integrity solely using these short-term operational planning tools, we miss a bigger opportunity.
Corporations today have a critical role in building a sustainable future for our children and our planet. Doing so offers a path to restoring public trust and ensuring long-term survival. In this context, isn’t the business case a bit reductive?
Alison Taylor is Director, Advisory Services at BSR and an Adjunct Professor at Fordham Law School. She focuses on approaches to sustainability through risk management, strategy, stakeholder engagement, transparency, ethics, and organizational change.
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