Leading Article: Ethics that are good for business

AS SHE looks through her press clippings this weekend, Anita Roddick, founder of The Body Shop International, may suffer a rare bout of self-doubt. By responding so violently to the critical article about her company in an American business journal, she has ensured that The Body Shop's business practices are now being scrutinised by millions of customers, instead of merely by a few dozen managers of ethical investment funds. But the affair raises a more interesting question: how valuable are unconventional businesses like The Body Shop as an example to business in general?

It is easy to forget that self-styled 'ethical capitalists' are not an Eighties phenomenon. They have been around since at least the mid-19th century, when a minority of factory owners came to the conclusion that they would elicit better work from their employees if they treated them humanely. As each generation of owners gives way to the next, law and accepted business practice change. Companies in the industrial world that are today considered less than progressive might have been seen as paragons of virtue a generation ago.

If there is a difference between the unconventional businesses of today and those of the past, it is in the breadth of their concerns. A company with a Nineties conscience undoubtedly devotes great effort to keeping its employees happy; but it also pays attention to its 'stakeholders' - a group that includes not merely the shareholders who will benefit or suffer according to its financial fortunes, but also its suppliers, its customers and the local community. Sometimes, as with Ms Roddick's Trade Not Aid programme, the net is spread to include the world's poor, or the environment itself.

Cynics will point out that political activism by business executives is often a way of gaining publicity. Richard Branson's promotion of condoms, and his bid for the National Lottery earlier this year, brought useful publicity to his Virgin businesses. Ms Roddick's attempts to save the whale also helped The Body Shop to fight off competition from high street retailers.

But the challenge unconventional companies present to the rest of industry is that good ethical practice may turn out not to lose money, but to make it. Recycling paper not only looks good; it reduces stationery bills. Flying staff off on free weekend trips, as Virgin does, not only raises morale; it keeps people happy on lower salaries. Abandoning the traditional suit in favour of jeans and T-shirt, as Apple Computer does, not only makes employees feel more at home; it encourages them to think more creatively, too. At its most effective, a company's internal culture, external image and commercial ambition become profitably intertwined. Levi Strauss, the jeans company, is one example; Microsoft, the computer software giant, another.

That the most innovative business practices are more often to be found in the US or Japan than in Britain is a commonplace, albeit one whose explanation defies easy analysis. The resurgence of the American economy since President Clinton was elected owes much to the underlying dynamic in key industries like communications and pharmaceuticals, both strongly influenced by the performance of small, entrepreneurial companies. It is also the case that American companies are encouraged to channel a significant portion of their income towards socially useful projects by a most un-British approach to tax breaks.

In one sense, Body Shop is a company more at home in an American business culture than in Britain. Certainly, not every British business will wish to declare its values so publicly as The Body Shop, and few will find their practices can stand up to investigation by a determined reporter. But Ms Roddick and her ilk, for all their flaws, ought to be valued rather than reviled. They remind other businesses that innovation in the social aspects of business can be rewarding, both for shareholders and for a wider community.