More simple facts about economic impacts would lead to a better debate about business responsibility
A common theme links several of our comment pieces this month with the topical issues of business responsibility currently running in the media – such as zero hour contracts at firms like Sports Direct and the Archbishop of Canterbury’s criticism of payday loans offered by Wonga and others.
It’s a theme that’s guided me since I first started helping companies be more responsible in their behaviours and more sustainable in their business models. And it’s one summed up in a phrase borrowed from politics – as Deep Throat said to Bob Woodward while investigating the Watergate scandal: follow the money.
The question for Wonga isn’t whether it is charging apparently high rates for short-term unsecured borrowing. It does, and so does my respectable high street bank if I go overdrawn by even a pound on my current account or I am a day late paying my credit card bill. The real question for me is whether Wonga is making super-normal profits (as economists call it) by exploiting a market failure and lack of competition.
If they are, then the Archbishop of Canterbury’s plan for a credit union-based alternative stands an economically-viable chance of success. If they are not, then politicians’ distaste for Wonga-style lending is better directed at reinstating a generous Social Fund or other state-funded social security option.
Either way, transparency about the economic facts helps inform the debate. In our comment pieces this month, Pradeep Jethi from the Social Stock Exchange says the real benefit from the new ‘high impact’ stock exchange isn’t so much in raising new capital (although greater visibility will help); it’s about demonstrating who benefits and by how much. Peter McAllister from the Ethical Trading Initiative says companies should use the UN Guiding Principles on Business and Human Rights. I would only add that analysing your economic value chain will show where your greatest responsibility lies, even when out of immediate operational line of sight.
Many years ago, when I first started working with South African Breweries (SABMiller today), central to their CSR report was a value-added chart. Their then FD argued that the little known third statement in the annual report and accounts (after the profit & loss account and the balance sheet) was actually the most informative. Showing flows of cash, it illuminated who got and gave the money – in from customers and out to employees, suppliers, governments and investors.
We started using it with other clients, GRI adopted a variant in the G3 guidelines and (I’d like to say) the rest is history – except that even today too few companies publish this data, even fewer explain what it means and virtually none opens up a discussion on contentious issues like wage differentials and profit margins.
Without these economic fundamentals, even a halfway intelligent debate with external critics is impossible. Internally too, knowing where your economic impacts are provides a firm guide to action for companies trying to be responsible and make a difference. It turns out that Deep Throat was right, and not just about what a crook Nixon really was.