Ben, a well-respected, senior plant manager at a silver mining operation in the Yukon, discovered a slow leaching of effluent from a tailing pond that he believed could endanger workers and damage the surrounding environment. He immediately began to wind down operations. Ben contacted the president to inform him of his decision to temporarily shut the plant.
After Ben explained the seriousness of the situation, the president tried to dissuade him from shutting down operations. “It’s a slow leak, so why do we have to shut everything down?” asked the president. “The contamination is within regulation limits and doesn’t exceed industry standards at this point, so a complete shut down is an over- reaction!”
Ben seemed swayed by the president’s insistence and began to rethink his decision. Maybe he had been a bit hasty. “Maybe we could contain the problem without a shut-down,” he mused. His boss looked relieved. But that relief was short-lived.
To his boss’ chagrin, Ben decided he had better act hastily if the costs to the company and employees from ill-health and an environmental mess were to be prevented. He stuck to his guns and closed the operation temporarily.
Ben’s company, like many others, including public sector organizations such as the Red Cross and its tainted blood scandal, or Walkerton’s water utility that failed to monitor contaminated water – sometimes face crucial decisions that can be devastating for the company, yet necessary for the good of the community.
When the wrong decision is made, the results can be financially costly but more importantly, they can be deadly – as with Walkerton.
The tendency to cover-up, deny, or ignore often serious problems that arise is instinctive. But it stems from a lack of personal accountability and confusion around corporate values and priorities.
A value on corporate citizenship helps employees make choices and even stand behind unpopular decisions that could benefit the company and its community in the long term.
Yet, corporate citizenship as an ideal seems to have become somewhat of a joke since the Enron, WorldCom, Tyko and Bristol Meyers scandals. At the same time, the anti-globalization movement, labour and human rights protests, anti-corruption initiatives, increased environmental awareness, health consciousness and concerns about the future in general, have made it imperative to take corporate and organizational transparency and accountability seriously.
In the past, corporate social responsibility required attention to profitability, compliance with legal and industry standards and business philanthropy. According to the authors of a recently released book Unfolding Stakeholder Thinking, combining these three ingredients seemed all that was needed to keep everyone happy.
The authors, Jorg Andriof of the Warwick Business School in the U.K., Sandra Waddock of Boston College in the U.S., Bryan Husted of Instituto De Empresa in Mexico and Sandra Sutherland Rahman of Framingham State College in the U.S., observe that this simple recipe no longer satisfies.
Corporate responsibility now means that companies must consider the neighbourhoods, cultures and societies in which they do business. Pleasing shareholders is no longer enough. An expanded stakeholder community must now be mollified.
Being a responsible corporation means widening corporate perspectives from satisfying one stakeholder – the investor – to considering the overall business and health impact of its products, services, manufacturing processes and supplier conduct on the broader stakeholder community.
The authors cite research that shows how satisfying stakeholders through a record of good corporate social performance is linked to financial success, especially since social performance is often associated with high quality management practices.
Company ethics like trustworthiness and cooperation can translate into a competitive edge for a company when these ideals are put into action through policies and company codes of conduct.
Luckily, there are no negatives to becoming a good corporate citizen. In the worst case scenario, companies that develop good relationships with stakeholders might not see a gain in the bottom- line, but research shows they don’t tend to lose money either due to their socially responsible choices. And an added advantage for the company is it has a decision-making apparatus in place to make tough decisions if need be.
In today’s environment, leaders not only have to show profitability, they must also be aware of the intricacies of social accountability, human rights law, workplace ethics and business-environment impacts. While assuming all these responsibilities may seem daunting, company leaders can take solace knowing the father of economic theory, Adam Smith, is on their side.
Smith, trained originally as a moral philosopher, believed societies functioned best when ethical and economic interests meshed. The same sentiment has been echoed by Charles Darwin and Chilean biologist, Umberto Maturana, who highlighted the need for both competition (e.g., survival of the fittest) and collaboration (e.g., teamwork where no single individual can know it all).
Successful companies go beyond complying with the law and maximizing shareholder returns. They actively engage a stakeholder community in dialogue, foster mutual respect and define a process of social and environmental accountability with an eye to creating value for the long term.
Talisman Energy serves as an illuminating example of how corporate responsibility can influence business decisions. The Alberta-based energy company, with valuable investments in war-torn Sudan, was the subject of much controversy among investors and the public for conducting business in a nation rife with civil unrest. Talisman sold its Sudanese operations due, in part, it appears, to its trouble dealing with the controversy over these stakeholder concerns.
Social accountability audits can help corporations measure their success with stakeholders. This kind of reporting isn’t just an adjunct to business success. It provides a means of anticipating problems that could impact a company’s financial bottom line now and in the future.
For example, VanCity Credit Union produces an externally audited accountability report that measures stakeholder concerns such as financial soundness, positive environmental and community impacts and making VanCity a great place to work. “The Accountability Report lets us zero in on a trend that might be inconsistent with our business plan and we can get to the difficulty before it affects earnings, said Dave Mowat, CEO of VanCity.
But stakeholders have responsibilities too.
Fostering mutual respect between organizations and stakeholders is a two-way street. Stakeholders must examine how some of the pressures they put on companies may have negative consequences on the company or other stakeholders (e.g., reducing or banning child labour has, in some cases, forced children into the sex trade).
For companies, including stakeholders in organization thinking, planning and dialogue means moving away from a single-minded focus on the financial bottom line as the only measure of achievement. Astute companies will start to include a second and a third line in their income statements – lines that report social and environmental successes.
Positive relationships with stakeholders have been associated with more accurate predictions about the marketplace, and fewer damaging incidents to business including strikes, boycotts, sabotage or negative media attention.
In the end, Ben kept the social and environmental bottom lines of the mining company in mind when he stood up to the president. He reminded his boss of the company’s mission, reviewed the company’s responsibility to stakeholders and temporarily closed the plant.
What Ben did was risky – bordering on whistle-blowing. But he kept his job and was later thanked by the CEO for averting what could have been an environmental and workplace disaster for the stakeholder community and a financial disaster for many investors.
Dr. Jennifer Newman and Dr. Darryl Grigg are registered psychologists and directors of Newman & Grigg Psychological and Consulting Services Ltd., a Vancouver-based corporate training and development partnership. They can be contacted at email@example.com
Identifying information in cases cited has been changed to protect confidentiality.