Featured Ethics [and Transparency] Scholar for May: Alison Taylor

Interview with Alison Taylor, Director of BSR’s sustainability management practice

What are your main areas of research/work?

I’ve spent most of my career working in consulting roles, helping large companies navigate integrity challenges. These are becoming ever more complex, are not confined to a single department, and require difficult judgment calls at the critical intersection of risk, responsibility, and reputation.

Currently, I work for BSR, which is a global nonprofit organization that works with its network of more than 250 member companies and other partners to build a just and sustainable world. There, I saw the sustainability field attempting to tackle some core business ethics and integrity challenges, though from a very different angle than the approach taken by risk and compliance teams. Both perspectives are essential, but too many discussions and purported solutions remain separate, in distinct silos.

I see huge potential in a more integrated approach to ethics that incorporates ideas from both compliance and sustainability. The concept of a “culture of compliance” is strangely empty. It may sound obvious to say that corporate values statements must amount to more than words on a website, but the task of giving these concepts substance can be neglected. We still hesitate to question the dominant idea that all decisions to maximize profit are ethically neutral. And we still argue that a private sector organization needs a ‘business case’ for integrity, while expecting that the individuals within that organization should behave ethically. I argue that ideas taken from corporate responsibility and sustainability can provide both the direction and the decision-making frameworks we need to use when tackling today’s challenges in business ethics.

How does strengthening transparency in companies help motivate sustainability and ethics?

Recent shifts in the transparency environment have been transformative for companies, whether they like it or not. Public trust in business has collapsed. Civil society organizations increasingly demand corporate transparency and environmental and social justice, and they are coordinating such calls globally. The growth in individual empowerment that results from economic development has led to much greater public concern over corruption and human rights abuses by companies. And because evidence of suspected wrongdoing can be shared in real time on the internet, a local conflict can quickly escalate into a worldwide reputational crisis.

We also see a new whistleblowing model: Large-scale data leaks are forcing companies to reconsider their entire approach to confidentiality and disclosure. Enterprises increasingly need to behave as if anything they say or do might become public.

It would seem easy then, to argue that corporate transparency has become indispensable to any company that wishes to maintain its reputation and survival prospects over the long term. Transparency efforts can support a healthy corporate culture in which employees feel confident in raising concerns and sharing ideas. And this can help tackle ethical challenges, driving trust and innovation.

Still, it’s important not to be simplistic about corporate transparency. Take issues such as child labor in the supply chain and repeated facilitation-payment demands combined with extortion; these are intractable and can be solved only through structured, transparent, collective action. But companies that publicly admit they are struggling with intractable integrity problems will immediately face legal liabilities—and potentially, reputational backlash. We work with many sustainability teams that would like to be more open about the challenges but run into understandable resistance from the legal team. Tax avoidance and lobbying are other areas in which the public would like to see greater transparency while companies worry a lot about the consequences of providing it. Legal and regulatory requirements press companies to behave ethically, which helps them to resist demands for short-term profit. So the current drive for weaker regulation, combined with the surge in shareholder activism, is making the transparency environment particularly hazardous.

What are some major impediments to improving stakeholder engagement?

Much evidence suggests that an obsession with quarterly profit targets and short-term shareholder gains can undermine ethical conduct. Companies that consider broader interests and agendas are better poised to innovate and compete—and to become more sustainable and responsible. This requires the engagement of stakeholders, which can include customers, employees, governments, suppliers, civil society organizations, and the communities in which a company operates.
However, considering the stakeholder interests as a driver of strategy will immediately add complexity. Companies first need to determine who their stakeholders are— across divisions and geographies. Then they must make decisions about how to engage them, how to prioritize among competing interests, and how to measure and act on their findings. We know that greater stakeholder trust correlates with higher business returns, but the core concepts and metrics are both in progress, so this is an area that needs further work. When stakeholder engagement efforts fail to influence strategy and decision making, they will rightly be treated as empty public relations efforts.

Can you talk about risk management as a critical component for ethics and organizational sustainability?

If companies don’t manage their negative impacts, this can have immediate, dramatic consequences for their reputations and finances. While this has always been the case, hyper-transparency radically tightens the feedback loop.

However, traditional enterprise risk-management frameworks continue to struggle with the more nebulous, qualitative concepts of responsibility and sustainability. The OECD noted in 2014 that companies still focus overwhelmingly on audit and compliance controls while failing to quantify and account for longer-term, less-direct risks such as climate change, labor practices, and human rights. This is manifest when you compare the financial risks disclosed in a company’s 10K report and the material issues highlighted in its sustainability report. A lot of effort is now going into measuring and valuing social and environmental sustainability approaches, so this might change.

To answer the question another way, it is easy to make the case that more ethical and sustainable behavior helps companies manage a range of long-term, existential risks. But I think risk-management arguments, however necessary, are insufficient. Companies have to perceive the opportunities provided by a more responsible approach to society in order for that approach to really take root.

If you could only highlight one paper or research finding that relates to business and culture, what would it be?

From my own work, I am looking for feedback and examples to develop my working paper on “Five Levels of an Ethical Culture,” available here. I will be working on this over the summer, and would really appreciate comments and criticism from your readers.

How can energy and extractive-focused companies make organizational change easier?

This is a huge challenge, partly because of the pressure these companies face as a result of the energy transition and partly because the nature of the industry necessitates long-term planning and 30-year time horizons. Oil and gas companies are facing existential dilemmas. All paths available to them are hazardous. I would advocate greater transparency and broader debate with the public about these challenges, but I don’t find it surprising that many companies remain defensive and reluctant to engage. I’d love to see a more constructive dialogue that moves beyond blaming and demonizing these companies for climate change; their technical skills and expertise ought to provide part of the answer to our current energy challenges. But it’s naïve to argue that this is easy for anyone—companies, activists, or consumers.

It’s also important to note that at the project level, many large oil and gas and mining companies already have advanced stakeholder engagement and human rights approaches, as well as rigorous programs to reduce the social and environmental harm their activities cause. Arguably, social and environmental programs, and consideration of human rights impacts, are more advanced in energy and extractives than in many other industries. But the stakes are extremely high, and problems continue to occur.

Tell us about one of your current or future projects.

I am working with a client in the investment banking industry to build next-generation environmental and social risk-management structures and processes. Impact investing is going mainstream, and shareholder activism around ethical and sustainability issues is mounting, so banks are under pressure to respond. The challenge for investors is how to evaluate environmental, social, and governance risk and opportunity—and when and how to engage with clients to drive positive change and increase long-term value.

I’m also teaching a new course at Fordham Law School next spring: ‘”Risk and Responsibility in Organizations.” I’m very excited about it.

Is sustainability a buzzword? Do companies still need to make the case for it as a driver of business?

Sustainability is a term that is used in varied ways. It’s often equated as environmental sustainability. We use it more broadly, as a group of concepts that can help companies survive and thrive into the longer term via consideration of society and the environment. Sustainability practitioners work in the realm of emerging concerns and ideas, which means framing new concepts and trying to give them traction. This can certainly result in a lot of jargon!
Sustainability is frequently characterized as fluffy and peripheral to core business drivers, but when we consider the current political, social, and environmental challenges, that is obviously nonsense. Put simply, companies that don’t see the need to formulate long-term responses to these challenges are unlikely to survive.

If you could give one piece of sustainability advice to companies, what would it be?

A constructive place for any company to start would be to look closely at opportunities for value creation and enhanced stakeholder trust, and then consider how embracing a longer time horizon might transform its priorities. Every company I have ever worked with has managed to find immediate opportunities to drive business initiatives that could make money—or save it—while benefiting society.

If you could give one piece of sustainability advice to individuals, what would it be?

Understand that the decisions you make as a consumer will have a profound effect on how companies conduct themselves. Choose a few issues you care about, and focus on making your voice heard.