Ignasi Prado Julià
MBA student, Regent’s University London
10 November 2014
A response to Lord Green’s speech on ‘Creating value and sharing values in a globalising world’ at Regent’s University London, 3 November 2014.
Values: a wide concept
Personal values are “the moral principles or accepted standards of a person” (Crane and Matten, 2010, p.156). This statement can be adapted to business by defining what the organizational values are. In order to do so, companies adopt a so-called ‘mission statement’, where they summarize their values. For instance, Webster University declares itself a “worldwide institution [that] ensures high quality, learning experiences that transform students for global citizenship and individual excellence”. Please click here for more information.
Each organization’s standard values can be interpreted differently by each individual depending on the context. Nowadays, a big issue for multinationals, and consequently for multiculturalism, is that firms should set up those values in a clear way in order to avoid putting their managers in ethical dilemmas. Many examples, such as gender unequal treatment worldwide, can illustrate this fact. In order to set up organizational values and define what type of conduct is desired in different situations from an ethical point of view, companies created codes of ethics.
Codes of ethics have the mission to set standards for an ethical behaviour according to each organization. Setting a code could be easy when an organization is small and operating within similar cultures, however, defining a code of ethics for a worldwide organization working with individuals from many different cultures can be much more complicated. Nevertheless, there are always common values among different cultures, which is “what philosopher John Rawls calls overlapping consensus […] seemly divergent values [that] converge at key points” (Donaldson,1996, in Harvard Business Review on Corporate Ethics, 2003, p.121).
Lord Green stated in his speech on Creating Value and Sharing Values in a Globalising World (Regent’s University London, 3 November 2014) that commerce was a very good example of a situation where those common basic values could be found: all cultures accept and respect similar values for a better business practice. The fact that many organizations set up codes of ethics, such as the Interfaith Declaration (A code of Ethics on International Business for Christians, Muslims and Jews), CAUX Roundtable (An international group of senior managers that launched its own set of principles), or UN Global Compact, a set of universal accepted principles (Crane and Matten, 2010) proves that common values can be reached among different cultures and backgrounds when a common interest is shared.
Common values are the foundation for any code of ethics. Even so, such a code cannot be based only on those worldwide commonly accepted values, because could cause the business to lose its peculiarities and distinct founding values. Codes must include the essence of the company’s own core values, which make it particular.
According to Donaldson (HBR, 2003), the solution lies between the two extremes, in what he calls the moral free space or the grey zone, where there are no clear prescriptions for the company behavior and where personal and professional values can be reconciled. Donaldson also states that any code of ethics should be guided by three principles: respect for human values, respect for local traditions, and the belief that context matters when deciding what is right and wrong.
In this grey zone between the universal values and the company ones is where managers have to reconcile personal and professional values. Managers in multicultural organizations will be always exposed to ethical dilemmas that could not be solved by codes of ethics. In order to solve ethical dilemmas managers have to interpret the context and judge which values (local, company’s, or personal ones), should be applied in each set of circumstances.
For example, a clear case of an ethical dilemma is when European managers work in South America and need to import goods. In some countries, imports are heavily regulated and public servants can easily facilitate (or speed up) the process. In order to do so, managers should hire some local companies to “help” with the import process. However, managers know that those companies use bribery as a means to do so. Managers, then, face the ethical dilemma to indirectly support bribery or to face major losses due to import delays.
Many other examples can illustrate ethical dilemmas among multinational enterprises. In all of them, the solution starts by having a strong leadership, which is able to discern and apply values depending on circumstances.
Values: a crucial issue in strategy
New values have emerged, as a result of the globalization process. This phenomenon brought cultures together, augmented communication across countries, and had negative externalities on natural resources. Because of these three facts, societies have more common values across the world.
Some of those values are not only shared among the society but also in businesses. For instance, not compromising future generations or generating a positive social, environmental and economic impact, are some such values.
Since the mid-20th century, when globalization was in its first steps, some companies have started to implement what would later-on be called Corporate Social Responsibility (CSR) policies and advertise them. These tried to compensate the negative externalities that companies generated previously on society, and that was totally separate from the company strategy (Bowen, 1953, cited in Blowfield and Murray, 2008).
However, later on companies realized that investments made in CSR should be integrated in the company’s core strategy at the same time, which would not only benefit society, but also company performance, especially in the long run.
Scholars also started to change the perception of values and value generation.
First, Professor Elkington (1994) introduced the so-called triple bottom line concept, which led to companies strategies to consider economic, social and environmental aspects, instead of just the financial one. Consequently, new business models arose, based on the convergence of those three elements.
Then, Hart and Milstein (2003) argued that creation of shareholder value required performance on multiple dimensions involving economic and social. Different strategies to create value were defined depending on the framework. Those strategies are: pollution prevention, integrating stakeholders into business process, applying clean strategies and sustainability vision.
Finally, Porter and Kramer (2011) argued in favour of similar notions, where values changed the role in strategy and became a key component to strategy. New concepts were introduced, such as Creating Sustainable Value and Creating Shared Value (CSV).
The change in the role of values is a key point to focus companies thinking for the long-term, instead of being focused on the short-term profit scheme. Of course, business should keep making profits and increase the economic value for shareholders, but at the same time, they should start creating value for all stakeholders. According to Hart and Milstein (2003, p. 64) “Firms that take the time to create a compelling sustainability vision have the potential to unlock future markets of immense scale and scope”.
These new concepts are based on the fact that CSR cannot be considered just as philanthropy anymore, or a way of giving back what was taken from society. Instead, it is a way to improve performance, reduce costs and gain competitive advantage over competitors in the future. “Business acting as business, not as charity donors, are the most powerful force for addressing the pressing issues we face” (Porter and Kramer, 2011, p. 64). Moreover, the fact of companies moving beyond trade-offs should not imply a reduction of business economic success.
Finally, as Hart and Milstein, and Porter and Kramer argue above, and Stephen Green, John Bogle, and George Soros among other authors support, the outcomes of capitalism have not always been positive. Besides, according to Porter and Kramer (2011, p. 64), “The legitimacy of business has fallen to levels not seen before in history” due to its lack of coherence when producing negative externalities on society and demanding consumption from them. Therefore, a new way of doing business, integrating CSR in the strategy, is a great opportunity for firms to re-legitimize business in society.
Values: business and community
The increasing power of multinationals, monopolies and oligopolies should be controlled by governments, given their potential to harm the environment and the economy, which is a hazard to society. So far, politics have tended to legislate in an imposing scheme that has forced corporations to redistribute. However, as Porter and Kramer (2011) state, this regulatory frame should be redirected in such a way that would encourage firms to collaborate with society by applying the CSV concept in their daily performance instead. The current, limiting regulatory framework leads to a loss of competitiveness and negatively affects economic growth.
Regulations enhancing shared value set goals and stimulate innovation. They have a number of characteristics: “First, they set clear and measurable goals […], second, they set performance standards but not prescribe the methods to achieve them […], third, they define phase-in periods for meeting standards […], forth, they put in place universal measurement and performance-reporting systems […], finally, they require efficient and timely of results which can be audited by the government as necessary” (Porter and Kramer, 2011, p. 74).
Such regulations are the only way to convey people’s values to corporations through governmental power in a mutually beneficial symbiosis. As Porter and Kramer (2011, p. 64) state, “A business needs a successful community, not only to create demand for its products but also to provide critical assets and supportive environment”. Thus, this win-win situation stimulates sustainable growth and values transfer along the chain, from each potential consumer to the raw material supplier.
However, it is crucial to note that some values are a moral mandate for some businesses, while they represent just a legal requirement or an extra cost for others (Hart and Milstein, 2003). This leads us to think that each organization requires a different corporate responsibility approach to demonstrate that either by principles or through a utilitarian point of view, values can bring economic value to a business.
Social Values: an absent figure under some circumstances
Businesses based on the concept of CSV from the beginning have no need to re-define their values. This is due to the fact that values have already been integrated since the firm foundation and will set the company orientation in the future. However, public opinion should keep watching the company’s activity with a critical eye. This will encourage leaders to keep business strategy focused on creating value according to its initial values.
Unfortunately, not every corporation has defined and respected values. Especially in non-democratic regimes, public opinion cannot force powerful corporations to respect universal and/or societal values. In such a scenario, the transmission of values does not work properly, either because values are not communicated from society to governments, or because government do not set up appropriate legislation to make sure that businesses respect those values. For instance, the Greenpeace team trying to protest in a Gazprom oil platform against its activity and the piracy charges against the activists prove that a non-democratic regime can censure to defend society values.
Therefore, democracy and free market are key elements to promote and enhance the transmission of values across firms and society.
Companies are led by people, and people are driven by values, values that will vary from one individual to another and also will be influenced by many factors depending on the context. Setting directives on values is a moral duty of society, governments and corporations, however, is any individual responsibility to solve ethical dilemmas according to each individual’s values.
Nowadays, social, economic and environmental values are acquiring an increasing importance in business strategy and performance. Those new trends, such as the CSV, convert values into economic value for firms instead of limiting it to only a moral duty. This phenomenon provokes a win-win situation on which the community, business and the environment are better off.
Blowfield, M. and Murray, A. 2008. Corporate Responsibility. 2nd edition. New York: Oxford University Press.
Business in the Community. 2008. The Value of Corporate Governance: The positive return of responsible business. [Online]. [7 November 2014]. Available from: http://www.bitc.org.uk/our-resources/report/value-corporate-governance-responsible-business
Crane, A. and Matten, D. 2010. Business Ethics. 3rd edition. Oxford University Press.
Donaldson, T. 1996. “Values in Tension: Ethics Away from Home” in Harvard Business Review on Corporate Ethics. 2003. Harvard Business School Publishing Corporation. pp. 113-138.
Elkington J. 1994. The Triple Bottom Line: Does It All Add Up. Adrian Henriques and Julie Richardson.
Hart, S. and Milstein, M. 2003. Creating sustainable value. Academy of Management Executive, 2003, Vol. 17, No. 2, pp. 56-69.
Porter, M. and Kramer, M. 2011. Creating Shared Value. Harvard Business Review, January-February 2011, pp. 62-77.
Webster University. 2014. Mission Statement. [Online]. [7 November 2014]. Available from: http://www.webster.edu/faculty/faculty_resource_guide/welcome/mission.html