Hamish McRae: The global revolution in ethical business

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The Independent Online

"Ethical business" – no, I don't think it is fair to argue that Dame Anita Roddick was a revolutionary who transformed the ethics of the cosmetics industry. She built up a wonderful niche business that was eventually sold to a multinational. But her life and work illustrate surely something more interesting: the oft-occurring principle that businesses that build an ethical dimension into their activities can prosper, while those that don't leave themselves exposed.

So she was a contemporary example of the tradition set by the Rowntree and Cadbury families, by the Lever Brothers, or indeed by the Sainsburys. Rowntree and Cadbury believed that their workers had to be treated honourably – they were, in our modern jargon, stakeholders too. Lever built Port Sunlight, the model workers' town, while the early Sainsbury's grocery stores succeeded because they were cleaner and more wholesome than their competitors.

Of course, not all businesses do. There are plenty of examples of businesses that abuse their power: the ones that are good at cutting corners on their products, hounding competitors, beating their suppliers over the head – behaving in a thoroughly unethical manner. They too can succeed, at least for quite a while.

So this raises a fascinating line of inquiry: has there in the past been any relationship between good corporate behaviour and lasting success in business, and if so, is this being changed by the communications revolution and globalisation?

I think the honest answer to the initial proposition, the relationship between good behaviour and success, is that it has, up to now, been pretty tenuous. I say that notwithstanding those examples mentioned above, because we could all assemble our own list of companies that we considered unethical and which we try and avoid.

If you produce a bad product or service you are, unless you have a monopoly, pretty well done for: look at most of the British motor industry. But if the product is OK then many would-be buyers, maybe most, won't ask too many questions about the way it is made or delivered.

Now, however, two things are changing the relationship between the buyer and seller. The buyer has much more information; the seller has a much wider range of ways to create the product or service. If you want to know whether a hotel is a good place to stay or whether a new smartphone works, you go onto the internet and read the reviews. That puts huge pressure on suppliers of goods and services to lift their game.

On the other hand, nowadays most private sector products or services can source from anywhere. The supply chain for most goods and for many services is now global. Think about what you are wearing at this moment and where it came from. If I were to start with myself, at least six countries are represented, starting with shoes (India but bought in New York) through to glasses (Denmark but lenses in the UK).

So there is a tug-of-war. On the one hand, we have greater transparency of company information, which on balance should put pressure on them to improve their ethical performance. On the other, there is a more complex and competitive supply chain, which makes it more difficult for buyers to calibrate the ethical element of each bit of the production and delivery process.

That complexity, if companies so wished, could make it easier for them to slide over poor ethical (or indeed environmental) standards of suppliers. Who is going to win?

I would back the transparency of information and that is, in some measure, thanks to Anita Roddick. One of her biggest innovations was to emphasise the standards of suppliers from all over the globe. She did that in her characteristically hippie-ish way, plunging into the Amazon jungle to ask the advice of a Yanomami chief on the healing powers of some herb, but the big and admirable message was that you had to look at every detail of the supply line of a product and make sure each point was handled ethically. She did this before the present burst of globalisation really took off, and equally before we as consumers had the tools to check corporate claims of good behaviour.

The big point here is that the scale of the damage that a company can suffer if, for example, child labour is employed by one of its suppliers in Asia, is so great that all companies are under great pressure to make sure that every element of the chain of supply is up to acceptable standards.

That does not mean that labour conditions in the suburbs of Shanghai are going to be the same as those in Stockholm. But product safely ought to be comparable, and we have just, in the past few weeks, seen how failure on that front is leading to a huge loss of business in the US and corresponding heart-searching in China.

The most cheering point here is that work by consumers in one country to highlight some shortcoming in a product or service helps to lift the standards for consumers everywhere. If a toy manufacturer in China, for example, has to stop using a lead-based paint for all exports to the US, it might as well switch the paint for all its output, including domestic supplies. Actually, it will be compelled to do so by a combination of pressure from the Chinese authorities and from local consumers, neither of which might have acted (or even known about it) had there not been an external stimulus.

It would be naïve to pretend that greater market transparency will of itself be enough to push up ethical and environmental standards; regulation has to help too. It is just that consumers have found a new and powerful tool to organise themselves and are, I think, still in the early stages of learning how to use it. The pressure on companies to behave better can only increase.

There is a further reason for optimism. When enlightened Victorian employers sought to apply higher ethical standards to the treatment of their workers, they did so in the knowledge that they would probably get a better-trained and more effective workforce as a result. But competition for talent was less strong, and certainly more local, then than it is now.

Gifted young people do not want to work for companies with a poor environmental or ethical reputation. They don't have to. And if a company cannot get good people, its long-term decline is assured. So, quite aside from consumer pressure, there is also a talent pressure. Clever would-be employees will know how to use the internet.

The global market for talent is the third leg of globalisation: first goods, then services, now people. In time, that third leg will become a powerful force for lifting the ethical standards of the business community. It is revolution that Dame Anita would have seen coming.