In ancient days, when I graduated law school, no one thought about businesses as good citizens. Most didn’t even have ethics codes, hotlines, or non-retaliation policies. They didn’t often train on integrity issues, and they didn’t care much about how they treated staff.
The blatant sexism and racism in the TV series Mad Men was not too exaggerated, if memory serves. Locking office doors sans windows allowed the boss to do whatever he wanted, and he did. If someone complained, a company might just fire the complainer; some companies, like in the movie Silkwood, even ran complainers off the road, literally—all with impunity, since society averted its eyes.
Lawyers and accountants were enablers who dug up discrediting dirt on whistleblowers or helped companies get tricky with books and taxes, which sometimes meant blowing them by naïve regulators (followed by a good chuckle). For more on this, watch classic lawyer movies like The Verdict, Philadelphia, and The Firm, or just Google the many real-life examples.
Bad Old Days No More
Then, something happened. In the unfortunate state of the human condition, real change never occurs until something terrible happens and the underlying problem can no longer be ignored. Eventually, the egregious corporate behaviors bubbling beneath the surface blew open. Corporate scandals that shocked the conscience made society realize that, without meaningful controls, even big-time companies would knowingly pollute, cook their books, sell deadly products, and abuse their people, to name a few bad behaviors. Board members were the CEO’s harrumphing friends rather than true shareholders’ representatives, compliance officers focused on skirting regulations, and company lawyers acted like criminal defense attorneys zealously representing their clients regardless of facts.
Pressed into action, governments increasingly passed legislation on pollution, employment practices, bribery, and governance. The pace may have been slow and the effort begrudging, but the arc was there. And regulators began more aggressively bringing FCPA and insider trading cases. Non-governmental entities joined the parade as organizations like the United Nations promoted the Global Compact and the World Economic Forum (WEF) established its Partnering Against Corruption Initiative.
The combination of governmental intervention, NGO activity, and growing pressure from increasingly aware employees, consumers, and shareholders has pushed companies past the point of no return. While still far from perfect, businesses now present themselves much differently than in the ancient days. Today, they talk assertively about business ethics and promoting human rights, and strive to be good corporate citizens that improve diversity, the environment, and their communities. They devote significant resources to get on the most ethical and admired lists. They maintain teams of sustainability and ethics officers. And they issue citizenship reports, though not legally required to, since customers demand them.
Technology and globalization have forced the hands of all companies, especially those with global brands. Now, one unhappy customer in Mumbai can complain through social media and by Monday the CEO is apologizing on Good Morning America. And woe to the CEO who lawyers up without apologizing, since that always makes it worse.
Corporations Left to Fill the Gap
For many years, governments and corporations appeared aligned in these trends as they both promoted globalization, trade, anti-corruption, and human rights. Again, slow going, but the arc was there as India and China opened up, the EU issued a common currency, the U.S. promoted trade agreements, and so forth. Books extolled the flat globe and visions of world peace since financially entangled countries would literally be bombing their own interests in any war.
More recently, the dispossessed have reacted with nationalism and protectionism, fighting free trade and easy immigration. Regularly cited reasons include wealth inequality resulting from gains in technology at the expense of traditional jobs, with the weakened middle classes showing their displeasure at the polls.
Whatever the cause, the polarization of the electorate and the people they are electing has made it hard to know what the free world’s governments stand for anymore, what principles they espouse, and what they want to accomplish. Even if you think you know, it can change overnight, all of which has been disorienting for everyone, no matter their political leaning. Since governments no longer drive unifying cultures or values, the major global corporations are, in reality, the best ones left to fill the moral vacuum. It is true, as skeptics would note, that corporations may be doing this more out of financial self-interest than altruism, because they realize they must espouse moral values in order to attract the best people and retain customers. But so what? If the commitment is real, as are the dollars and effort, then attaching capitalism does not invalidate it.
Implications for Companies
So what’s the point? First, knowing that corporations have supplanted governments when it comes to contributing to the societies in which they operate, influencers within business organizations must remain mindful about the public trust they now hold in their hands. And it is because the public has come to realize this as well, albeit intuitively, that consumers and clients are themselves holding companies to their own higher standards, especially by using social media tools to quickly express their displeasure with bad corporate behavior. We have seen this time and again, with tone-deaf CEOs no longer getting slack from their Boards when they respond poorly. Silicon Valley and the airline industry have taken it on the chin most recently, but no one is immune. This shift actually presents an opportunity, since companies that get it right can engender significant loyalty from their customers. It also allows for building a stockpile of goodwill to draw upon when the inevitable ethics slip occurs, more easily persuading everyone that the lapse was a rogue actor rather than a systemic way of doing things, the latter of which can be an existential threat.
Second, understanding their quasi-governmental role when it comes to integrity may lead corporations to self-regulate in order to flush out the bad guys and raise the level of minimum compliance that would not otherwise have been mandated by feckless governments. For example, if the biggest companies doing work in a less-developed country together agreed to make sure that their supply chain does not permit human trafficking, what’s not to like? Recall Y2K, when, regardless of what the government required, it proved powerful for companies to work together to make sure their critical suppliers were prepared. More recently, we are seeing this with my own company, Jones Lang LaSalle, and many other U.S. companies who are making their own climate change commitments even though their government has abdicated its role. Even in moral areas not directly related to doing business, companies can take a stand—see the many CEOs distancing themselves from the President after his controversial remarks on Charlottesville.
Third, companies can similarly band together in ways that governments, which may still want to do what they can to stimulate employment, will find influential in terms of actions that bring integrity to the markets. For example, the WEF’s Partnering Against Corruption Initiative has worked with JLL, other peer group real estate companies, and the Mexican government to reduce corruption in public works projects. And in Germany, JLL and other real estate leaders created a common know-your-client questionnaire to preclude clients from forum-shopping in order to avoid difficult questions.
Next, the idea that in the absence of government action companies can have a societal impact beyond their own profit-making goals—and indeed that socially-oriented activities will help generate profits—should in the future become ever more powerful in terms of attracting and retaining talent as well as the increasing numbers of impact-oriented equity investors. Indeed, it is not much of a stretch to promote high-minded companies as homes for idealistic types who want to improve society and used to think that government was the best avenue. Now they can be honestly persuaded that they will have more resources and a better attitude from a corporation than they will get from being a civil servant. Sad to hear for those of us who recall the lofty rhetoric from John F. Kennedy, but once you recognize the extent to which the lofty has been replaced by whining and shouting, then it is a reality that should be used to advantage rather than mourned.
We can’t know how governments will evolve, but if they remain paralyzed by societal divisions, there is an increasing opportunity for businesses to step into the growing void. All the data about the beneficial effects of good governance and ethics on corporate results gives us reason for optimism that they will do this in a way we can continue to exploit and be proud of, regardless of the world around them.
About the Author:
Mark J. Ohringeris the General Counsel and Chief Ethics Officer of Jones Lang LaSalle Incorporated, a global financial and professional services firm specializing in real estate services and investment management. The views he expresses here are his own and not representative of his employer.