Bath Business and Society

Research, analysis and comment on the role of business in society from Bath's School of Management

Tagged: corporate responsibility

Corporate environmental impact - why self regulation isn't enough

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📥  Business and society, Environment, Research

 

Globalisation, the demise of the state and rising stakeholder expectations have resulted in the proliferation of  a self-regulatory approach to managing corporate environmental impacts. Self-regulation is now a major feature of environmental protection and is largely synonymous with the management of corporate environmental responsibility. In this piece, Kostas Iatridis questions the wide belief that environmental self-regulation represents an effective means of addressing environmental challenges, and suggests this can be achieved only through a collaboration between public and private bodies.

 

The rise of self-regulation

The prevalence of neo-liberal economic views in running the economy, along with the transformation of our world into a global village, have promoted environmental self-regulation as an effective means of dealing with increasing environmental challenges. State regulation has been criticised as ineffective, non-flexible and costly. Instead, voluntary action has been used to advocate a market-fundamentalism that puts the workings of the market first. Environmental laws and institutions are expected to conform to the laws of the market in order not to restrain trade and economic profitability.

This shift towards market autonomy has resulted in new, prosperous markets. This in turn has facilitated the proliferation of voluntary self-regulatory tools for environmental protection (e.g. ISO 14001 and EMAS). Such tools have been endorsed by armies of consultants, policy makers, and auditors as a panacea to harmful environmental practice. Governments too have supported self-regulatory approaches as a means of facilitating corporate responsibility and some have even declared their incapacity in dealing with environmental issues.

Following the wide endorsement of self-regulatory tools, one might expect to find a positive relationship between their adoption and improvements in corporate environmental performance. Yet, studies have questioned the effectiveness of environmental self-regulation by suggesting that its adopters might not necessarily perform better than non-adopters. Critics highlight the commercial relationships formed between self-regulating firms and external auditors, as well as a lack of knowledge amongst auditors, as particularly problematic. They take the view that due to these issues, auditing mechanisms might not always be as robust as they should be, enabling firms to behave opportunistically and in their own interests.

Furthermore, the tendency of earlier studies to focus on firms’ motives for adopting such self-regulatory approaches, along with a belief that environmental certification is synonymous with improvements in environmental performance, have offered limited views on the real potential of self-regulation to reduce environmental impact.

 

Does self-regulation mean better environmental performance? 

It is only recently that discussions have moved towards the effectiveness of self-regulation in safeguarding environmental performance. Interesting views have emerged suggesting that the latter might depend on the institutional environment. In particular, it is suggested that stringent external environmental regulation might discourage firms from adopting environmental self-regulation in the first place. This is because, in such institutional contexts, the marginal gains in efficiency and strategic differentiation associated with environmental self-regulation are very small. In contrast, when firms operate in the weak institutional environments often found in developing countries, and seek to export to countries characterised by strong institutional regimes, they tend to adopt and substantively implement environmental self-regulation because of strong motivations to improve their internal efficiency.

These are important insights, making us think differently about environmental regulation. Self-regulation alone might not always serve the common interest, thus state regulation has a role to play. The times in which we live are challenging for governments, as globalisation has transformed many states into little more than transit stations in the world-wide trade of goods administered by multinational corporations. In many instances, states have lost the power to define the conditions that affect economic activities within their own territories. As a result, we have seen states retreating and, in the name of efficiency and cost cuts, passing more responsibilities over to the private sector. However, phasing out state regulation, as has been advocated by supporters of market autonomy, cannot ensure effective environmental protection. No single governance actor, private or public, has the independence, expertise or operational capacity to pursue effective environmental regulation. What is needed is cooperation between the public and private sectors.

 

Public-private cooperation

The big question is whether public governance actors have an appetite for taking this on. Recent developments, such as Trump’s decision to withdraw from Paris’ climate agreement, contrasted with Senate’s recent approval to fund the United Nations’ climate change body, not to mention Brexit as well as several geopolitical tensions, send contradictory messages and, in some instances, question whether environmental issues should even have a place on the international agenda.

To sustain the momentum of action for environmental protection, business leaders, academics, policy makers and civil society organisations need to acknowledge the questionable outcomes of environmental self-regulation and engage in discussions that promote collaboration. The recent crossing of the northern sea route without ice breakers signals the undisputable significance of environmental challenges and the necessity for finding the right mix of state and self-regulation to address them.

 

Image by Kris Krug

 

Careers in sustainable business - the Two Loops theory

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📥  Business and society, Education, Employers

 

As September approaches, our current Masters students look ahead to starting their careers and a new cohort begin their studies in Sustainability and Management.  Many of them will be considering whether and how they can make an impact on society and industry. In this piece, current MSc students Sanum Jain and Elliot Johnston use the Two Loops theory to consider where their work and fresh ideas can have the most impact and instigate the most change.

 

What is the Two Loops theory? 

The Two Loops theory, developed by the Berkana Institute, is all about change within our social and economic systems. According to the theory, socio-economic activity can be split into two ‘loops’. The first loop is the ‘incumbent loop’ - which represents the status quo, the way things have ‘successfully’ operated for decades. The second is the ‘disruptive loop’ which represents progressive change and alternative ways of doing business or operating in society.

The theory states that as the incumbent loop reaches its peak in output, ‘disruptors’ start considering more efficient and socially progressive ways of operating. Breakaway individuals look to invest in these ideas, taking intellectual and financial capital out of the first loop and starting to build up the second ‘disruptive loop’. The best way to visualise this is as two waves. As the incumbent wave crests and reaches peak economic output, the disruptive wave starts to build in its shadow.

 

 

Change in the energy industry

The concept of waves of progressive change is particularly relevant to sustainable development. Let’s use the energy sector, specifically fossil fuels and inefficient energy grid systems, as our representation for the first loop. We would argue that we currently sit on the downward curve of the first wave. While non-renewable fossil fuels are still our main source of energy, the threat they pose to our planet is increasingly recognised. At the peak of the coal, oil, and gas industries, pioneers began to experiment with alternatives - nuclear, wind, solar - beginning the disruptive second loop.

The viability of these new technologies has increased and before long the renewable energy industry - or the disruptive loop - will usurp the fossil fuel industry in terms of output. This threat to incumbent firms is already being felt. Large oil companies are making huge investments in renewables in a bid to survive society’s shift away from fossil fuels, as exemplified by Total’s acquisition of SunPower. Such acquisitions are an example of corporate movements beyond traditional CSR, which tends to focus on mitigation of the negative impacts ‘business as usual’. These forays into the disruptive renewable energy industry are representative of what incumbent firms need to do to stay relevant.

 

What does this mean for sustainability

The Two Loops theory does not only work on an economic, practical level.  We believe it should be seen as a representation of a prevailing narrative within business and society.

Seen through the lens of the Two Loops theory, incumbent firms own the concept of sustainability, but they approach it from an institutionalised position. Most firms engage in philanthropic activities for the sake of reputation gains and slowly adhere to the pressures of stakeholders to implement responsible business measures.

We could identify the second loop, which intends to represent an alternative, disruptive vision of how the world could be, as a developing system of innovative, mission-driven organisations and social entrepreneurs whose goal is to solve problems, bring change and benefit society.

Unlike the energy sector, the social endeavours of businesses are at an earlier stage of development, but change is coming. We have seen organisations emerge who represent a shift in the status quo.

Divine Chocolate, for example, is proving that employee owned cooperatives can shift a company’s focus towards a more positive impact for its stakeholders. We have also seen the introduction of Community Interest Companies (CICs), businesses with primarily social objectives whose surpluses are reinvested in the business or in the community, rather than distributed to shareholders. CICs help to protect the mission of smaller disruptive organisations and prevent any dilution of the integrity of the second loop.

 

Creating change in the workplace

What might this theory mean for us, as young people preparing to enter the workplace? Understanding and appreciating the potential for industries to work differently is something that will be key in instigating further change. Thinking about what these changes might look like could provide us with a different path as we start to navigate our professional journeys.

In the context of the Two Loops theory, we may have only considered the option of working for firms that make up incumbent loops. It is very easy to assume these firms will continue to operate in the way they always have, and during the early steps of our careers, maintaining the first loop may seem like the sensible option.

But, as the next wave of business professionals, we believe that it is imperative to look ahead at the future of careers, our industries, and society. We will have the opportunity to contribute to strategy, operational, and CSR efforts within the companies we work for. We will have the chance to act as change agents within these firms. This might lead us or those around us to head out and act as pioneers in new firms that start the next disruptive loop, or we may stick around to help the incumbent loop move closer towards the disruptive loop before it fades into insignificance,

We don’t know if the journey towards a truly sustainable world lies in this next disruptive loop, or the one after that. What we believe though, is that if progress is going to be made we should be using our education and newfound skills to take a risk and invest our careers into nurturing an alternative, progressive, disruptive system.

Image by Daniel Parks

 

 

Tackling child labour in the fashion industry - why the best firms have the most to lose

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📥  Business and society, Consumers, Human rights, Modern slavery, Policy, Supply chains

 

New research suggests that firms with a good reputation for ethical sourcing in the fashion industry are judged more harshly than their peers when child labour is discovered in their supply chainMeggan Caddey, a final year PhD student, and Johanne Grosvold and Stephen Pavelin, all from the Centre for Business, Organisations and Society at the University of Bath, explain their findings.

Child labour remains a major societal challenge. The International Labour Organization (ILO) estimates that 168 million children are involved in child labour today, which the United Nations (UN) defines as “work for which the child is either too young – work done below the required minimum age – or work which, because of its detrimental nature or conditions, is altogether considered unacceptable for children and is prohibited”. Many of these children work in the garment and fashion apparel industry.

The drive for child labour

According to the organisation Stop Child Labour, fast fashion has resulted in high demand for children who are willing to work for very low pay and in dangerous conditions. Some have suggested that their employment is tantamount to modern day slavery. Some of our best known high street brands including Adidas, H&M and Nike have relied on manufacturers who have subsequently been exposed as using children to work in unsafe conditions.

Increasingly, global firms are recognising that failure to address the challenge of child labour can seriously impact on their corporate reputation. However fashion supply chains are complex, relying on numerous suppliers, sub suppliers and manufacturers. According to H&M’s Head of Sustainability Helena Helmersson, these supply chain networks are so complex that “it is impossible to be in full control”.

Corporate responsibility and corporate reputation

Prior research indicates that, by going above and beyond the basic requirements for fulfilling their corporate social responsibilities, proactive firms can engender goodwill that acts as an insurance against potential damage to their reputation.  The theory goes that if news of wrongdoing emerges from the supply chain of such a proactive firm, its reputation will suffer less because people will give it the benefit of the doubt - 'surely, this good firm must not be to blame'. Other firms that have no such record of exemplary behaviour would be more readily blamed and, as a result, their reputations would suffer more. According to this theory, H&M would suffer less of a reputational impact if child labour was uncovered in its supply chain, as it is now working strategically to become the most ethical fashion chain on the high street. We set out to test this theory in relation to supply chains in the apparel industry.

Research findings

Our study used an experimental vignette method. This involved presenting study participants with carefully constructed, lifelike scenarios, to evaluate their attitudes, opinions and views of a firm’s actions regarding child labour in the fashion supply chain. Over 800 participants took part in our study, and our initial results are surprising. We found that a firm that had taken steps to address child labour and unsafe working conditions in its supply chain enjoyed a better reputation than a firm that had not. However, when something went wrong, people judged these firms more harshly than they did the firms that had previously behaved less responsibly. So, while firms that are more socially responsible tend to benefit from an improved reputation, such goodwill is accompanied by greater reputational risks - specifically, such a firm experiences greater harm to its reputation if unsafe labour practices are subsequently discovered in its supply chain.

Our findings imply that it is in firms’ interests to address unsafe practices in their supply chains, as doing so results in a better corporate reputation. However, our results also suggest that steps taken to stamp out child labour and poor working conditions tend to strengthen the imperative for a firm to maintain a consistent commitment to responsible sourcing. If they don’t, they risk particularly stringent reputational punishment. In effect, this can create something of a virtuous cycle, which gives momentum to firm's steps towards stamping out child labour and unsafe working conditions. Careful reputation management implies that firms setting high standards must continue to live up to them.

The business case for doing good

There is an increased policy emphasis from both governments and NGOs to reduce the use of child labour and unsafe working conditions in the supply chain. There is also evidence that firms are increasingly taking the problem of child labour seriously, with some estimates suggesting that reliance on child labour was reduced by 30% from 2002-2012. As our research shows, tackling this issue can bring benefits for both children and firms.

We provide distinctive new evidence that guides us towards a more detailed understanding of the business case for being good and doing good. By illustrating the reputational benefits of sustainable supply chain practices, our research findings can help motivate firms not already on board, and inspire those who have already taken action to sustain and expand their efforts. This may in turn encourage them to sign up to independent initiatives such as  GoodWeave, which awards companies the right to carry the GoodWeave label if they can show that no child labour or bonded labour was used in the production of their goods. With 11% of the world’s children still sacrificing school in order to work, this is no time for business to be complacent.

Image by Zoriah

 

 

Going the extra mile at work - good for your career, bad for your mental health

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📥  Business and society, Employers

 

"Going the extra mile" at work - helping colleagues, going beyond the confines of a narrow job description, taking on extra responsibilities - can help people feel more engaged with their work, improve job satisfaction and increase promotion prospects. But as Bruce Rayton explains, this doesn't come without a cost.  

Mental health is becoming a hot topic. Boosted by a high profile awareness campaign fronted by the Duke and Duchess of Cambridge and Prince Harry,  recent months have seen public figures from the worlds of music and sport as well as Prince Harry himself speak out about the challenges they’ve faced.

Businesses too have joined the conversation, and it makes sense for them to do so. After all, paid work is the primary activity for many people during their waking hours, and the costs associated with employees’ mental health problems are significant.

The UK’s National Institute for Health and Clinical Excellence estimated the cost of impaired work efficiency associated with mental health problems at £15.1 billion a year. This figure is almost twice the estimated annual cost of absenteeism (£8.4 billion). These costs are associated with loss in productivity because of sickness absence, early retirement, low engagement, and increased staff turnover, recruitment and training.

 The mental health risks of being a good citizen at work

Our recent research helps us understand an important piece of this problem.  Our findings show that employees who work beyond the narrow boundaries of their job roles are at increased risk of mental health problems. We found that going the extra mile at work can lead to higher levels of emotional exhaustion and work-family conflict. We also found that these effects were most pronounced for employees who already performed well in the core elements of their jobs.

We defined ‘going the extra mile’ using well-known academic measures of organisational citizenship behaviour (OCB), with a particular focus on the dimensions of ‘altruism’ (helping colleagues) and ‘conscientiousness’ (going beyond the minimum). We were especially interested in the effects of conscientiousness and altruism because these time-consuming activities have the potential to exhaust employees emotionally and leave less time for family life.

OCB is widely regarded as being beneficial for both employers and employees. We know from earlier work that OCB improves group and organisational performance and influences managers’ decisions on an individual’s performance ratings, promotion and pay. The worker puts in extra time, or takes on extra responsibility, and as a result feels more engaged with their work and positive about their career prospects. The employer gets committed staff, with improved productivity or results. However, our work suggests that there is also a cost to be paid for these benefits. Somewhat surprisingly, these costs are disproportionately paid by those who are doing “the day job” well.

What can employers do?

Managers are prone to delegate more tasks and responsibilities to conscientious employees who are likely to try to maintain consistently high levels of output. We can see the sense in using today’s strengths to solve today’s problems. However, we think that companies should think twice before asking the same ‘good soldiers’ to take on yet more additional tasks and consider how the burden might be shared.  Even the highest performers will eventually run out of emotional energy and the consequences for their mental health will have further consequences for their employers.

We believe that much greater consideration needs to be given to the kinds of behaviours that HR practices are encouraging and how organisations might cope with the consequences. Reviews of practices in three key areas are necessary:

·         A narrow focus of reward and performance management systems on short term goals might encourage the kind of ‘sprinting’ which increases the longer term costs of OCB.

·         Education and training practices for both line managers and employees could aid recognition of situations where employees risk becoming emotionally exhausted.

·         Health and safety practices, especially those associated with mental health and emotional well-being, can help those who suffer from the problems we identified.

An opportunity to “go the extra mile” is something that many employees want employers to provide. The resulting benefits including learning opportunities, skill development and knowledge transfer, can all have a substantial impact on the bottom line for firms and on the career development of individual employees. That said, managers need to keep an eye on the bigger picture if the performance gains associated with providing these opportunities are to be sustained. The human capital developed through OCB can only create value for organisations if the employees are healthy enough to use it to good effect.

Employers should pay attention to more than the quarterly bottom line. They should make themselves aware of both the current state of and potential threats to the mental health of their employees, particularly their high performers. If nothing else, this awareness holds the prospect of helping firms avoid turning today’s solutions into the sources of tomorrow’s problems.

Image: Working late by Victoria Pickering

Trump’s first 100 days have triggered political activism among corporate America

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📥  Business and society, Environment, Human rights, Policy

 

President Trump has introduced a flurry of legislation in his first 100 days. Companies and their CEOs are responding by taking stands on political issues in ways rarely seen before. Andrew Crane asks whether this could end up transforming the way we think about corporate responsibility.

President Trump’s first 100 days have not been good for the planet. While the question of whether he will fulfil his campaign promise of rolling back the US’s commitment on the Paris climate deal is still to be settled, he has stuffed his cabinet with climate change sceptics. Most notably, the appointment of Scott Pruitt to head up the US Environmental Protection Agency met with a storm of criticism. This was hardly surprising given his ties with the energy industry, his denial of man-made climate change, and a long history of fighting the very agency he has been appointed to lead.

Trump and his cabinet have not been slow in rolling back environmental regulation introduced during the Obama presidency. As part of an effort to revive the coal industry, an executive order last month started unravelling Obama’s clean power plan (CPP). As the New York Times reported, the order effectively ceded the US’s leadership in addressing climate change and turned “denials of climate change into national policy”.

While such developments were hardly unexpected, what has been interesting has been the corporate response. Last November, nearly 400 US companies including Nike, Levis Strauss and Starbucks demanded that he leave in place low-emissions policies. In the wake of the CPP announcements in March many companies again took a public stand against the policy reversal. For example, Mars Inc. expressed disappointment at the policy change while tech companies including Apple, Amazon and Microsoft signed a joint statement supporting the CPP.

It is rare to hear companies, and US companies in particular, arguing to keep regulation. They are also usually unwilling to take explicit political stands in the public eye, preferring to use lobbying and more covert forms of political influence to sway governments to act in their interests. But the corporate response to the climate rollback seems to be part of a broader change of heart among senior executives to take public positions against what they see as undesirable policy shifts.

This change was first noticeable following Trump’s immigration ban back in January that saw wholesale restrictions on refugees and others from predominantly Muslim countries from entering the US. As Business Insider reports, “Before the day was over, Facebook's CEO had published a post denouncing the order. By the end of the weekend, Starbucks' CEO had outlined plans to hire 10,000 refugees. And, within a week, Uber's CEO had quit Trump's economic team as thousands deleted their accounts with the ride-hailing app.”

The response by corporate America to the immigration ban was significant and widespread. Rather than the usual caution about taking a political stand on a hot button issue, companies as diverse as Coca Cola, Google, and Ford came out against the policy. The tech industry’s response gained a lot of attention, not only because high profile companies and their leaders such as Sergey Brin at Google actively spoke out against the executive order, but also because regular tech industry employees staged walkouts and protests rarely seen before in the industry. For many in tech, the Atlantic reported, this was the first time they had taken part in political activism in their lives.

 

company-reaction-immigration-ban

 

So what does all this mean? There are a number of ways of looking at this, but the big change for me is that US companies are starting to acknowledge a meaningful role for themselves as explicit political actors. In the past, few company executives would ever admit that their actions were in any way political. “We don’t do politics” was the mantra, despite the billions of dollars spent on lobbying and trying to buy influence in Washington. However, as companies have more openly started addressing issues traditionally thought of as government responsibilities – protecting human rights, providing public goods, enforcing social and environmental standards, and the like – the cloak has gradually slipped.

Scholars of corporate responsibility such as myself have been analysing these developments over the past couple of decades, labelling these new corporate behaviours variously as “corporate citizenship”, “political CSR”, or “private governance”. So the response by corporate America to Trump’s first 100 days is not so much a sudden change in their core corporate responsibility behaviours, more a new found willingness to start acknowledging what has been increasingly apparent all along: corporations do indeed play an explicitly political role.

Acknowledging something is the first step to dealing with it. And the role of business in politics is something that we certainly do need to address as a matter of urgency. Most business leaders may not be completely comfortable yet with admitting their political role, but many do want to start thinking more seriously about their impact on the world, as Mark Zuckerberg’s recent 6,000 word manifesto exemplifies. Further radical announcements from the Trump administration are likely to incite yet more corporate political activism. So while we may not be able to thank President Trump for his impact on the planet, he may yet be responsible for a breakthrough moment in companies’ understandings of their changing role in society.

Header image by Ted Eytan