John Elkington on business sustainability and ethics
John Elkington is a world authority on corporate responsibility and sustainable development. Elkington sat down with The Ethics Centre’s Simon Longstaff to chat about the future of business sustainability.
“I first got involved in the business world in the mid-70s, at a time when business really didn’t want to talk to people who were self-described environmentalists or anything like that. And yet I was an environmentalist.”
John Elkington believes his admiration for the natural world began when he was six or seven. He found himself alone in the middle of a field in Northern Ireland at night, in complete darkness, and to his surprise he looked down and his feet were surrounded by tens of thousands of baby eels. “I put my hands down in the dark and had these things wriggling through my fingers. And I had one of these sort of absolute panic attacks followed by something really quite profound, which has never left me somehow,” he says. “It was a sense of connection.”
Audio: Listen to John Elkington talk about his childhood experiences.
John Elkington has dedicated his professional career to corporate responsibility and sustainable development. In the early 80s, he set up a company called Environmental Data Services, and within 18 months was helping major companies write their first environmental policy statements. His idea was: you can make or save money by doing the right thing on resources and environmental protection. “Even if you’re a small or medium size enterprise you can have a catalytic effect,” he says. “But by the time you get to the size of an Exxon Mobil or a BP or a Shell then you really are having major economic impacts.”
John Elkington on the corporate responsibility movement.
“I think for the last 40 years, business has been encouraged to be more responsible. More transparent and more accountable. The responsibility agenda continues to evolve and expand. And now we’ve got wealth divide on the agenda. We’ve got public access to health care issues. We’ve got tax evasion – more and more issues are coming in which companies are going to have to deal with.
“But the problem is that the whole corporate responsibility movement, of which I’ve been part for so long, has failed in the sense that the systems that we depend on are all wobbling. Our economies are coming apart at the seams – our governments, the political systems, are doing the same. Our societies are under challenge and the biosphere is wobbling in a way that we haven’t seen for a very long time. So corporate social responsibility, as much as I love it, isn’t working.
“Our generational task now is economic, social, environmental, political and cultural regeneration. And the problem is that our current political classes weren’t trained for it. They talk about recovery, but they mean how can we get back on the previous set of rails? And I think the debate now has to be very different.”
Audio: John Elkington talks about the path ahead for corporate responsibility.
Is John Elkington optimistic about the future?
“I think people are increasingly aware that the old order can’t hold, things are coming apart and that’s not going to stop just because we have a new American president. We put on a conference in London in 2020, called the Tomorrow’s Capitalism Forum, and the tagline was “step up or get out of the way”. Now, if you’re in coal that’s not an idea you’d like to embrace if that’s your business. But I think we have misread the urgency of the sort of cataclysmic system changes that are coming towards us. It’s like a tsunami. And it’s very difficult to ride a tsunami. I think we’re now faced with the consequences of what we and previous generations have been doing since the industrial revolution, at least. And we have a very, very short period of time in which to get our act together.”
“I think at the moment, business leaders and some finance leaders are proving more interesting than many political leaders. But this is a political challenge and the politicians have to wake up and get involved.”
Audio: hear John Elkington talk more about tackling climate change.
What keeps John Elkington awake at night?
“We need system change and cultural shifts, which the older generations are going to find profoundly dislocating. One of the things that worries me more than almost anything else is the intergenerational dynamics in all of this. In so many parts of the world you have very rapidly aging populations, and an aging population takes people increasingly to conservatism because they’re only investing for a shorter period of time. So I think there’s a real potential for anger to build up in younger populations. I’m surprised we haven’t seen more of it.”
“I’m 71 but oddly, I feel the next 15 years are going to be the most exciting of my life and the most challenging and the most dangerous politically.”
“We’re in a time of immense turbulence and people will suffer. There will be conflicts, tensions and stresses, which at times will be off the scale. But at the same time I think this is the most exciting period in our collective history, probably for hundreds of years. I’m very excited about the potential because I think it is when old systems come apart that the potential to drive systemic change goes off the scale. So the challenge for leadership I think is immense. And I think in many ways universities and business schools are not yet properly preparing people for that new world.”
John’s advice for future business leaders:
- Get out of your comfort zones and be exposed to different realities.
- Challenge your sense of who you are and what you should be doing.
- Question whether the systems you work in are still fit for purpose.
Audio: Listen to the podcast of John Elkington’s full discussion.
John Elkington is a world authority on corporate responsibility and sustainable development. He is currently Founding Partner and Executive Chairman of Volans, a future-focused business working at the intersection of the sustainability, entrepreneurship and innovation movements.
This episode was made possible with the support of the Australian Graduate School of Management, in the School of Business, at the University of New South Wales. Find out more about other conversations in the Leading with Purpose podcast.
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Holly Kramer on diversity in hiring
Holly Kramer, Non-Executive Director on the Boards of Woolworths and Fonterra Group, and Pro Chancellor at Western Sydney University, sat down with the Ethics Centre’s Simon Longstaff to chat about the future of business sustainability.
Holly Kramer believes that responsible management has grown in significance exponentially over the last five to ten years. She suggests the old Milton Friedman view of shareholder primacy is a thing of the past, and shareholders are now holding businesses to account and demanding they do the right thing for society.
“There’s a spectrum of different approaches to business stewardship,” she says. “There are those people who don’t understand the way the world has shifted in its attitudes toward corporate responsibility at all. There are those who do understand and “do the right thing” because they know that’s what’s expected of them, and then there are those who do the right thing because it’s simply the right thing to do.”
In the past, business decisions were generally made through the lens of profitability, and the time frame was – at most – a three year view; whereas today, management and boards must take into account the impact of their decisions on multiple stakeholders over longer time horizons, which can sometimes make those decisions seem more challenging.
“Companies are trying to change their metrics of performance. In many companies I’m involved with, you’re measured on financial and non-financial measures; and there is consideration of not just what you’ve achieved but how you’ve gone about it. They’re sometimes called “softer” skills or metrics, but I don’t agree with that characterisation. Acting sustainably requires a broader skill set and tough decisions. A new generation of business leaders are coming through, and they believe it’s important for businesses to be sustainable on every dimension – including diverse and inclusive workplaces, climate friendly practices, meaningful community engagement and leading with purpose.”
“At the end of the day, it’s critical that you hire the right people, people who understand that the decisions they make have a broader impact than just the bottom line. That’s what’s going to make the biggest difference for your business in the long run.”
Audio: Listen to Holly Kramer chat about reconciling doing the right thing with remaining profitable.
Holly Kramer on her career challenges.
“When I was in the telecommunications industry, there was a lot of money to be made from complexity. There were multitudes of calling plans; customers usually struggled to figure out what was the right solution for them. Customers told us that they wanted simplicity. Yet every time we looked at how to make them more simple, we couldn’t make the business case stack up. And so there were often internal struggles within the organisation. We were told: ‘look, if you do this, it will be an NPV negative business case, so we just can’t do it’.
“And while we battled with one another internally, ultimately what happened was that the competitors got there first, gave customers what they wanted and we lost market share as a result. I’ve always believed that when, on first glance, the numbers may not stack up, ultimately either competitors or customers will have the final say.”
Holly Kramer on responding to consumers.
Holly Kramer got her start in marketing, and she leveraged that skill when she started running an affordable fashion brand, so she was well aware that for a business to be successful it must reflect changing consumer needs. “Our starting point was to try and understand our customers as well as we could. Lots of research, lots of personal interaction. We learned early on, for example, that the industry’s idealised version of clothing models – young, skinny, and not diverse – didn’t resonate at all with our customers. They wanted to see the clothes look good on people that looked like them. And to feel good about themselves without the industry defining beauty for them.”
The problem with fashion supply chains.
Simon: “The fashion industry is now having to deal with the question of supply chains. There’s the modern slavery legislation, there’s a consciousness about environmental, social, a range of different issues, but I’m particularly thinking at the moment in the fashion industry where people were selling things like a $1 t-shirt – I really don’t know how anyone can think it’s possible to produce something for so low a price without it having adverse effects for the labour standards in the countries where they’re produced. And I think you encountered some of this during the time you were in the industry?”
Holly: “I was in the fashion industry … when the Rana Plaza tragedy happened in Bangladesh, which focused a lot of the world’s attention on human rights and ethics in the supply chain. However, I was working for a business in Australia that was owned by a parent company in another country. They were from a disadvantaged part of the world that had different standards for what was acceptable practice. And I remember getting challenged about our sourcing decisions because they (the parent company) simply had different standards and priorities than we did. But we had to do what we thought was right and also be consistent with community standards in Australia, where it was important to ensure fair employment practices were maintained in the companies who supplied us.
“The other issue was that a lot of the companies, to mitigate their reputational risk, just pulled their business out of Bangladesh. The problem with that is that you put jobs at risk in countries where the employees are most vulnerable. We had to ensure that our business was commercially viable, but also that we were doing the right thing by the countries we were sourcing from. It’s important to remember that there are no simple solutions. Companies need to consider the outcomes from a number of different angles.”
Audio: Listen to Holly chat about grappling with the ethics of fashion supply chains.
On accounting for diversity.
Over her decades working in the business sector, Kramer has seen boardrooms grapple with the idea of diversity and representation. “Gender is just one proxy for diversity,” she says. “It’s a starting point and it’s easy to measure.”
Kramer believes true diversity lies in having an array of people contributing ideas and solutions and having an environment where different ideas are welcomed. “It’s definitely important, but I don’t necessarily see gender as the most important starting point for diversity. I find it is usually cognitive diversity. Introverts and extroverts. People who like data and people who use intuition. Risk takers and those who are more risk averse. She says she’s always looking for new people who think differently to her because it makes good business sense. Gender is important, and thankfully business has made a lot of progress in that space, but Kramer feels there needs to be ethnic diversity, socioeconomic diversity, as well as generational diversity, which is just as important to achieve.
Holly’s advice for emerging leaders:
- Doing the right thing is good business
- Approach challenges with a long-term lens
- Put yourself in the position of your customers
AUDIO: Listen to the full podcast with Holly Kramer here>>
Holly Kramer is a Non-Executive Director on the Boards of Woolworths and Fonterra Group, and she is Pro Chancellor of Western Sydney University. Formerly, she was Deputy Chair of Australia Post and Chief Executive Officer of Best & Less. She has more than 25 years’ experience in general management, marketing and sales including roles at the Telstra, Pacific Brands and Ford Motor Company.
This episode was made possible with the support of the Australian Graduate School of Management, in the School of Business, at the University of New South Wales. Find out more about other conversations in the Leading with Purpose podcast.
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Dame Julia Cleverdon on social responsibility
Dame Julia Cleverdon DCVO CBE is a passionate and practical campaigner who has gained an international reputation for ‘connecting the unconnected’. Cleverdon sat down with The Ethics Centre’s Simon Longstaff to chat about the future of business sustainability and social responsibility.
Dame Julia Cleverdon remembers working in the business world in the UK in the early 1980s. Margaret Thatcher had been in power for a few years and had made clear her position to not intervene to save shipyards or coal mines. To Cleverdon, it felt like “the whole country was in flames”. In 1981, there was a series of flash riots across Britain largely triggered by high levels of youth unemployment, particularly in some of the poorest areas in Britain: Nottingham, Liverpool and parts of London.
At the time, Dame Julia was working for a leadership organisation called the Industrial Society, and was tasked with answering the question: what can businesses do to make a difference in communities? “We discovered that you were five times more likely to be unemployed if you were a black teenager than if you were a white,” she says.
“Although the riots weren’t race riots, they were young people in mass affected by what was going on in society. And the business world with whom I had been working quite closely at the Industrial Society were absolutely amazed and said ‘where’s this come from? The Molotov cocktails bouncing our boardroom tables is very bad for business. Where’s this come from? And what should we do about it?’”
Answering these questions became Dame Julia’s defining agenda for the 1980s.
“Being responsible was going to be a better long-term business than being irresponsible.”
Dame Julia Cleverdon has been in business for over four decades and says a lot has changed. “Some businesses that I’ve known for 40 years have not wavered from believing that there is only a commercial case,” she says, “while other businesses have had something in their DNA which means that they are more likely to care about the impact they have on society.”
She jokes that she read The Times death column every morning in order to see, “which maddening old culture has popped their clogs and was no longer running their business,” so she could try to persuade their successor to do business differently.
When asked whether business leaders have learnt from the mistakes of 1981, Dame Julia isn’t sure. “I think the UK is very interesting and specific. It has a great challenge because in a way so much of our success in the last 20 years has been built on the financial services and the enormous growth and power of London.
“London’s a global centre for private equity, for technology, but not enough people have come out of that overblown size to understand what was actually going on in the North. And if you look at some surprising decisions that Britain has taken in the last 10 years or so you say ‘what caused you to believe that coming away from Europe and the European relationships that you had since the Second World War, why did you think that was a good idea?’
“And you look at where the voting patterns were – the voting patterns were almost entirely the part of the North. Where Boris Johnson and this government are at the moment is that they won this enormous landslide last year, the 80 seats that had previously been owned by the Labor Party, because their approach on Brexit was what accorded with those in the poorer places of the North.
“They don’t know what life is like up here where fishing boats aren’t working, businesses have shut, our schools are very poor. Nobody seems to care about the quality of education.”
“In the lead up to 1980 business failed to notice this bubbling discontent, which then erupted into riots and cities burning. In the 2000s, they failed to notice the discontent in the North, which then gave rise to Brexit, which was clearly something that the business community did not welcome for the most part. And so on two occasions within the memory of people alive today, there’s been a failure.”
Julia Cleverdon on her ‘teach first’ initiative.
“One of the things that causes me to reflect is that between 2001 and now, 20 years later, I’ve seen the most enormous growth of graduates in Britain who want to come into the front line of public service as teachers, police officers, social workers. I was there at the start of something called Teach First, which was persuading the cleverest university graduates in Britain that they should come and teach in the poorest schools. The mating call of the posh ‘come and work in this unbelievably swanky very well-paid private sector, commercial job’, and I would say to them, ‘no, no, you can go on and do that later but first come and understand what the issues are of educational inequity in Britain’.”
What are the major challenges for the role of business in society?
“The issue is about whether businesses listen to what’s going on in society. When you listen to the people of Blackpool gathered together for two hours on a Zoom call during a global pandemic you think this is absolutely indescribable.
“Take the inequity of access to broadband, digital and tech kit. What COVID lockdown in the UK has shown us is that actually probably 70% of kids in the poorest communities have no access to digital kit at home. You may have one phone between the family and you’re not going to get everybody’s lessons downloaded on that one phone. The cost of being on Pay As You Go to get the lesson downloaded means that you can be spending £160 a week on data getting a family of six kids their lessons.”
AUDIO: Julia Cleverdon on her work within the Blackpool community.
Is Dame Julia Cleverdon optimistic?
“The thing that keeps me optimistic is, I’ve always worked with young people, but I never worked so extensively with young people as I have in the last seven years on a great campaign called the #iwill Campaign. And what has really fired me up is the passion, energy, belief and purpose of under 25-year-olds. I do believe that the business world par excellence has to innovate all the time to be ahead of the game. And the cleverest businesses understand that innovation is best done through diversity and diverse experiences. Therefore how you recruit, how you manage, has got to ensure that you’ve got a diversity of views.”
“The other thing is the passion of the young for the causes that I’ve cared about all my life. So I don’t worry anymore about climate change. You watch Greta [Thunberg], you watch the primary school strikes that we had in Britain and you see corporates realising they’re not gonna be able to survive and thrive if they don’t take that into account. So no, I remain an optimist even though I’m 70.”
AUDIO: What keeps Julia Cleverdon optimistic.
Julia’s advice for emerging business leaders:
- Spend time embedded in different communities to enhance your perspective
- Don’t just learn from books – get out into community
AUDIO: Listen to the full podcast with Dame Julia Cleverdon.
Listed by The Times as one of the 50 most influential women in Britain, Dame Julia Cleverdon DCVO CBE is a passionate and practical campaigner who has gained an international reputation for ‘connecting the unconnected’. She co-founded Step Up To Serve. The #iwill campaign, of which Julia is now a trustee, aims to get 60 percent of young people involved in practical action in the service of others by 2020.
This episode was made possible with the support of the Australian Graduate School of Management, in the School of Business, at the University of New South Wales. Find out more about other conversations in the Leading with Purpose podcast.
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Georg Kell on climate and misinformation
Founder and former Executive Director of the United Nations Global Compact, Georg Kell, sat down with The Ethics Centre’s Simon Longstaff to chat about the future of business sustainability for our ‘Leading with purpose’ series.
Georg Kell reflects on his first interactions with the United Nations Global Impact initiative fondly. “It was the late 90s when globalisation was very much on everyone’s lips and the world was embracing openness and the liberal order,” he says.
The idea behind the UN Global Compact originated in a speech by then Secretary-General Kofi Annan to the World Economic Forum in the late 1990s. At the time, the UN was already a well-known force in human rights, labour rights, environmental protection and ethics, good governance and anti-corruption, but these core pillars were seldom applied to large corporations.
The speech was called ‘The Global Compact’ and called on business leaders, in an era of globalisation, to take on more responsibility not just to look for profit but also to build environmental, social, and governance pillars. Popular reaction to the speech led to the official creation of the United Nations Global Compact in 2000, and Georg Kell was named the founding Executive Director.
In his capacity as the Executive Director, Georg Kell was involved in the creation of the Sustainable Development Goals, a blueprint to achieve a better and more sustainable future for all. Kell convened 60 international meetings with the corporate community to flesh out their desired goals and settled on a list of 12, which has now been increased to 17. The goals address the global challenges humanity faces including: climate change, poverty, inequality, environmental degradation, peace and justice.
The 17 sustainable development goals:
- End poverty in all its forms everywhere
- End hunger, achieve food security and improved nutrition
- Ensure healthy lives and promote wellbeing for all ages
- Ensure inclusive and equitable quality education for all
- Achieve gender equality and empower all women and girls
- Ensure availability and sustainable management of water and sanitation for all
- Ensure access to affordable, reliable, sustainable and modern energy for all
- Promote sustained, inclusive and sustainable economic growth
- Build resilient infrastructure
- Reduce inequality within and among countries
- Make cities and human settlements inclusive, safe and resilient
- Ensure sustainable consumption and production patterns
- Take urgent action to combat climate change and its impacts
- Conserve and sustainably use the oceans
- Protect, restore and promote sustainable use of terrestrial ecosystems
- Promote peaceful and inclusive societies for sustainable development
- Strengthen the means of implementation and revitalise the Global Partnership for Sustainable Development.
Kell admits it was a difficult task to convince business leaders representing different countries and backgrounds to sign onto the same goals, but says, regardless of culture and history, most people have similar interests. “No mother wants her daughter to go into forced prostitution. No father wants his son to be shot on a useless battlefield. Humanity has common aspirations. I think it is very important that we uphold those ideas that we stand by and do not give in.”
“For me the Global Compact principles are normative in nature. They are behavioural. They are a minimum floor, on which one should build, one should never go beneath it. It should never violate principles. You should not be corrupt. You should not employ child labour. You should not discriminate. We should not be complicit in human rights abuses.”
AUDIO: Listen to Georg Kell chat about the conception of the Sustainable Development Goals.
Georg Kell is optimistic about the climate.
“The world is moving very fast. And I do believe you’re standing now at the crossroad of a new tone. I take heed for example from the fact that both China and the new US administration and the European Union and Japan, and a number of other countries, now have a long term vision about climate change. Through the common threat posed we now have an opportunity to find a solution. I do believe we can and will discover a lot of commonality and common interest. So, there’s a new chance for a new beginning. I see many positive ripple effects including rediscovering the power of collaboration.“
Georg Kell is less optimistic about the dissemination of information.
“Nothing is assured in terms of rediscovering trust through truthful and honest information. That remains a big ongoing challenge and we all were a bit disappointed with the internet freedom. It didn’t necessarily advance, just the right courses, as we would perceive it, but it also enabled all sorts of conspiracies and niche thinking. But I do believe that events then rectify such mistakes, so to speak, when they come off the path. So it’s an opportunity for a renewal of basic belief systems. We have a chance to reload again. And unfortunately, we have to rediscover and relearn all the time. Unfortunately, that’s probably the destiny of our life. I do believe we have a constant duty to rediscover and relearn. And that will never go away.”
“Every citizen. Every organisation has a fundamental role to play in social development in society, and business with its significant influence and power has an appropriate important responsibility to play.”
Georg Kell hopes businesses take the opportunity to learn before crises occur.
Georg Kell says that in all his experience working in many different corporations he has actually come to appreciate a crisis situation, because he appreciates when a corporation is willing to rethink their position. However, he wishes that willingness also existed in the absence of a crisis. “Often when corporations learn from a crisis they emerge even stronger,” Kell says. “It’s easy to measure the costs of doing things wrong – reputational damage, stock prices go down – but it’s far more difficult to convince people of the benefits of getting a choice.”
According to Kell, businesses should take the time to reflect and question the purpose of what they’re doing and where they’re headed on a regular basis, without waiting for a crisis to occur.
AUDIO: Listen to Georg Kell talk about crisis management.
Georg’s advice for future business leaders:
- Pause, step back, reflect.
- Find a long-term view that you feel inwardly comfortable with.
- Make sure you have all the competencies and then go for it with full dedication.
AUDIO: Listen to the full podcast here.
Georg Kell is the founder and former Executive Director of the United Nations Global Compact. He is also the Chairman of Arabesque Partners, a technology company that uses AI and big data to assess sustainability performance relevant for investment analysis and decision making.
This episode was made possible with the support of the Australian Graduate School of Management, in the School of Business, at the University of New South Wales. Find out more about other conversations in the Leading with Purpose podcast.
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360° reviews days are numbered
360 reviews, ‘culture pulses’ and staff surveys are the go-to tools for leadership evaluation and understanding company culture, but ‘shadow values and principles’ stop them from revealing the full picture. Here are three steps to identify and address shadow values to better understand you company’s culture.
Strong culture is integral to the smooth functioning of companies, but most organisations are only getting half the picture, says John Neil, Director of Innovation and member of the Consulting and Leadership team at The Ethics Centre.
360-degree reviews and staff engagement surveys provide a glimpse of company culture, but what they don’t reveal are the deeper, endemic aspects of culture that are ingrained and influential – the ‘shadow values and principles’.
Shadow values and principles are often invisible when culture is seen only through the lens of traditional staff surveys and reviews. However, all companies have their version of them and they need to be brought to light, acknowledged and addressed to truly gauge what’s in play in the culture. In doing so, Neil says “we can significantly improve outcomes both for individuals and for organisations.”
Below are three steps to identifying and addressing shadow values and principles.
1. Identify what shadow values are
“There are really two fundamental aspects to an organisation’s culture,” Neil says. “There are ‘above the line’ elements: the visible, the identifiable, the self-evident. And then there are ‘below the line’ elements, which are less visible, more implicit, and not so easy to identify. The latter are shadow values and principles.”
In other words, they are the unspoken rules, attitudes and behaviours of a company’s culture that aren’t immediately apparent but influence every aspect of the business.
While they can be positive, neutral or negative, “being aware of them is a really key part of better understanding what drives individual employees and the organisation’s culture as a whole,” Neil says.
2. Understand how they operate
Shadow values and principles can operate in numerous ways. One organisation, which commissioned The Ethics Centre to review its culture, had the positive shadow principle of “putting members first”.
“If staff had no clear information or instructions about how to respond to a situation, they would apply this principle and act in the member’s best interest,” Neil says.
“‘Putting members first’ was not codified as one of the organisation’s corporate principles, but it was widely held throughout the organisation. It’s an incredibly powerful and positive shadow principle.”
Another organisation was challenged with becoming more agile but was hampered by the shadow value of ‘harmony.’ Again, while not being formally one of the organisation’s official values, it had a central place in driving behaviours, some of which were positive, but others were detrimental.
“Being harmonious and keeping the peace was something that everyone held to, and while it could be positive, it had negative dimensions as well,” Neil says. “People tended to over-consult, often to keep the peace as there tended to be a culture of avoiding conflict.”
“The decision-making model was a consensus based one and tended to include everyone. As a result, people would defer accountability for making decisions, and therefore decision making was unwieldy and bureaucratic. The shadow value was a major impediment to building a culture in which people expressed their actual views.”
Critically, the organisation’s strategy involved increasing its agility, responsiveness and a focus on innovation – cultural traits that needed to be consciously developed. However, the shadow value of harmony and its negative effect of conflict avoidance meant innovation and agility was more difficult to achieve.
3. Learn how to name and address shadow values
So how can organisations bring their shadow values into the light and begin to remedy the negatives?
“We need to recognise the limitations of the existing approaches to understanding culture, such as staff engagement surveys,” Neil says. “Those methodologies are only as good as the psychological safety in an organisation and the employees’ belief that their contributions to those surveys are going to make a difference.”
This is where a review that focuses on shadow values and principles can identify the unstated operating culture and make recommendations to realign purpose and reaffirm strategic ambitions.
“There also remains a need to recognise the strategic significance of culture,” Neil says. “Culture is integral to the success of a company. It’s the backbone of delivering on an organisation’s strategy.
“There is still, I think, a general lack of recognition of how important culture is in achieving and delivering on strategy. Culture goes much deeper than ‘engagement’.”
Want to find out more about shadow values and principles? Head here.
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Pavan Sukhdev on markets of the future
Pavan Sukhdev is an environmental economist whose field of studies includes green economy and international finance. Pavan sat down with The Ethics Centre’s Dr Simon Longstaff to chat about the future of business sustainability.
Pavan Sukhdev is considered a true pioneer of sustainability. His business background champions the fusion of finance and economics with sustainability and responsible management. So how did a person interested in banking, finance and economics come to have a particular passion for the sustainability agenda?
Pavan says he owes it all to his upbringing. “I think the cultural upbringing of a child in India, in family, in networks which are community-heavy and community-oriented, never too far from nature – because India is a pretty wild place if you just care to step a few kilometres out from wherever you are – I think these things create a sense of understanding of a world that is not just an urban world, and not just a markets world.”
Pavan’s perspective on markets and value shifted drastically after taking up a job in Singapore with Deutsche Bank, when a conversation with a friend prompted him to realise that what people value – relationships, family, nature – doesn’t trade in markets. And yet our society is so mesmerised by the magic of markets that, if something doesn’t have a price, it doesn’t have value to us. He started doing research on environment economics and wrote a piece for the Economic Times in India, which helped him find a few kindred spirits at Deutsche Bank.
“I came to a point where I thought, someone needs to do something about this economic invisibility of nature.”
It was in this marriage of markets and the invaluable asset of the natural world that Pavan felt he had found his calling. He recounts a story about one evening when he was driving home from work, daydreaming about an idea for a green accounting project for Indian states. He drove past a roadside sign with a quote from Gandhi, which read: Find purpose; the means shall follow.
The message hit him “like an accident”, and Pavan called up some influential friends who, to his delight, were all very willing to help him set up his project. Four friends started working on the side-project and within a few years they had cracked it, he says. “We actually created the world’s first set of complete green accounts for the entire Indian Union of 28 states.”
While there were a number of his colleagues at Deutsche Bank at the time who quietly wondered what he was doing, Pavan is optimistic that in the years since perceptions and attitudes towards valuing the environment have changed, so much so that it has become the mainstream.
AUDIO: Listen to Pavan’s story about realising his environmental vision.
“I believe companies are not merely machines to make money for shareholders, they should have purpose. In fact, they should begin with purpose and then define their path to profitability. And these ideas would have been crazy 10, 15, 20 years ago, but they’re not anymore.”
Pavan on the corporations of the future.
“I see the corporation and its ability as similar to that of a species. A species evolves in response to its environment as the environment changes. The strong who are able to cope with that environment survive and the others die away and that creates evolution. And I see that corporations will move in that kind of direction. So the question is, what are we changing in the environment of the corporation in terms of policies, prices, and institutions that are going to create the new corporation?
AUDIO: Listen to Pavan’s ideas about how corporations need to evolve to survive.
Organisations to watch in the sustainability space:
- Capitals Coalition – a global collaboration redefining value to transform decision making.
- The Social and Human Capital Coalition – a global collaboration that brings together leading organisations to harmonise decision-making processes around social and human capital.
- The Impact Management Project – a forum for building global consensus on measuring, managing and reporting impacts on sustainability.
- The Value Balancing Alliance – enabling decision makers to act consciously.
Pavan on the markets of the future.
“Through focusing on the economic invisibility of nature and the fact that our decision-making as policy makers or business people – and these are the two largest, most powerful decision-making groups around the planet – tends to ignore what is economically invisible, has led me to understand that there’s a lot more that we ignore. We ignore human capital. So we will, for instance, account in the GDP for the cost of building and running universities, teacher salaries, and such like, but we will not account for what’s put in as a result of those teachers and those universities and the creation of human capital. And the ability to leverage [human capital] and generate future income and so on is massive.”
AUDIO: Listen to Pavan’s ideas on how to value human capital.
Pavan’s advice for leaders:
- Find purpose; the means shall follow.
- Our values become our destiny.
- Put effort into trying to discover what you’re on this earth for.
- Try to understand, appreciate and express your values, and try to accept them.
AUDIO: Listen to the full podcast discussion with Pavan.
Pavan Sukhdev is an environmental economist whose field of studies includes green economy and international finance. He was the Special Adviser and Head of UNEP’s Green Economy Initiative, a major UN project tasked with demonstrating that the greening of economies is not a burden on growth but rather a new engine for growing wealth, increasing decent employment, and reducing persistent poverty.
This episode was made possible with the support of the Australian Graduate School of Management, in the School of Business, at the University of New South Wales. Find out more about other conversations in the Leading with Purpose podcast.
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David Gonski on corporate responsibility
David Gonski sat down with The Ethics Centre’s Dr Simon Longstaff to chat about the future of business sustainability.
David Gonski is so well known in Australia, his surname has become part of Australian vernacular. He’s been a lawyer, he’s headed up corporations and banks, he’s been the chairman of major companies, and he also serves as chancellor of the University of New South Wales.
After completing a law degree, Gonski got his start in the business world 43 years ago, long before climate, sustainability and corporate responsibility were on the agenda. “Profit was key”, he says, “We lauded people who made money and those who were not tough and didn’t exploit every loophole were regarded as not very good business people.” While his peers in the law profession were driven by ethics and justice, Gonski was disappointed to find that those in the business sector were characterised by their arrogance and capacity to exploit customers and resources for profit.
“I think we are humans and as managers we must never forget that we’re humans. And we have obligations to our society as humans which we bring to every part of the world in which we work.”
Nowadays, sustainable development goals are central to boardroom discussions. Business as a whole; from the very large to the very small, is being recognised as having a major impact in the world both in society and the natural environment, which in part is why people look to businesses increasingly to address concerns where governments have failed to do so.
“Today people don’t want to work for a company that’s not socially responsible. Today people often choose the container that is more biodegradable or whatever than the one that isn’t.”
Gonski on ethics.
In law there are very defined legal ethics, but when it comes to business it’s complicated. As an individual there are certain ethical things that you must do to lead a proper life, and for Gonski, the notion of asking the hard ethical questions has changed his life, and approach to boardroom decisions. Business ethics is about asking the questions: what should I do? What is good for the planet? What is good for the future – the long term versus the short term? He believes those who are successful in business are those who really think about things, rather than just learning things by rote or just accepting the status quo. Of course, sometimes you make the wrong decision but you must always be willing to ask the questions.
Gonski on responsibility.
Above all, business leaders have a responsibility to their community. Business should never be about just about making profits, or just employing good people, but rather consider what business is achieving for the long-term future of the country and our society. Responsibility should be a compulsion, because if we ignore it, it will in the end reduce the value of our business and deter us from being able to do what we want to do.
Gonski on sustainability.
Sustainability should be our longer term compulsion to look at what your short-term thinking is and how that can affect long-term growth. “I have lived through 40 plus years of people making short-term decisions. And let me tell you, they may not have themselves regretted because often they’ve made good bonuses from it, but in the long-term the business has.”
AUDIO: Listen to David Gonski chat about the three key pillars of management.
What keeps Gonski up at night?
“I do believe we should all be working together. And I am worried that our working together between corporations, government, and the community generally is not as perfect a circle as it needs to be. We need to hold hands rather than keep arguing with each other. It’s still a little too easy to make short-term decisions. And I’m often very comfortable that a decision in the short-term is right, but I wonder a lot in the wee hours of the morning ‘is it a long-term sustainable idea?’”
Is David Gonski optimistic about the future?
“I am extremely optimistic and I have a number of reasons to be. As chancellor of a university my optimism is always reinjected and reignited by meeting the students that we’ve got. We’ve got fabulous people, who are excited by concepts, who are thinking, who want to change things in their own way and do good things. That’s exciting. That’s wonderful.”
“ I think an absolutely guided and principled optimism is the way one should look at business.”
Gonski’s advice for future business leaders.
Despite having over four decades of business experience, David Gonski is still learning. Throughout the pandemic, one of his most important lessons was that canvassing broadly for advice is a strength not a weakness; that it’s vital to broaden your circle of advisors and take more advice from more people. One of the hardest things for CEOs is to admit they don’t know the answer to a question, but terrible things happen when they pretend to know the answers. Throughout his career, Gonski has watched many CEOs laud strength, which is manifested in people who can make fast decisions, in people who don’t prevaricate, but now he believes the real strength lies in an ability to put one’s thinking to one side and seek advice.
AUDIO: Listen to David Gonski chat about what he looks for in a CEO.
Five tips from David Gonski.
- Make sure you understand the history of the company.
- Learn about ethics.
- Be willing to admit you don’t know all the answers, and seek advice.
- Be open to ideas.
- Seek inspiration from your communities.
AUDIO: Listen to the full podcast discussion >>
David Gonski is former Chairman of ANZ and Coca-Cola Amatil, he is also Chancellor of the University of New South Wales, President of the Art Gallery of NSW Trust, and Chairman of the UNSW Foundation. He is a member of the ASIC External Advisory Panel and the board of the Lowy Institute for International Policy, a Patron of the Australian Indigenous Education Foundation and Raise Foundation and a Founding Panel Member of Adara Partners. In 2008, The Sydney Morning Herald described Gonski as “one of the country’s best-connected businessmen”.
This episode was made possible with the support of the Australian Graduate School of Management, in the School of Business, at the University of New South Wales. Find out more about other conversations in the Leading with Purpose podcast.
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Ethics of making money from JobKeeper
Making money from JobKeeper is not just profit maximisation. It’s free-riding.
When the Federal Treasurer announced JobKeeper in March 2020, the COVID-19 pandemic was expected to wreak economic havoc across Australia. Thousands of businesses would go bust. Millions of people would be unemployed. Billions in economic output would be lost. The Australian Government declared the (then) $130bn scheme would maintain “the connection between the employer and the employee” by making cash payments to eligible companies (those anticipating, through self-assessment, at least a 30% fall in revenue) for each employee kept on the books. Australia was bracing for economic ‘Armageddon’ and JobKeeper seemed rational and just.
Economic ‘Armageddon’ never arrived, yet billions in Jobkeeper were paid. And instead of payments going only to businesses in need, JobKeeper was paid to businesses for which coronavirus has been a boon. Shareholders and managers have profited from a scheme which the Business Council of Australia described as “fair and common-sense”, and which now appears to be neither of the two.
But in profiting from JobKeeper, have businesses done anything wrong?
Some people continue to argue that companies are obliged to maximise shareholder profit because they have a principal-agent duty to shareholders to do so (the shareholder primacy theory). But even so, there are constraints on what is allowed to be done by a company seeking to maximise profit. Nearly everyone agrees that companies should not break the law. It is not acceptable when a restaurant replaces mincemeat with sawdust in order to reduce costs. It is not permissible when a technology company increases revenue by spying on users. Beyond the law, however, most people also agree that companies have moral obligations to society.
Beyond the law, however, most people also agree that companies have moral obligations to society.
Even the individual most closely associated with ‘shareholder primacy’, Milton Friedman, argued profit-maximising companies should not only obey the law, but also must act in line with society’s ethical norms:
“There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits as long as it stays within the rules of the game, which is to say, engages in free and open competition without deception or fraud…conforming to the basic rules of society, both embodied in law and those embodied in ethical custom.”
As Friedman argues, these obligations should act as constraints on a company’s profit maximising motive. A company that orders an employee to drive past an accident on a remote freeway because rendering assistance doesn’t maximise profit, certainly fails our basic moral intuitions of what is acceptable.
To determine whether profitable companies ought to return their JobKeeper payments, we must determine whether companies have a moral obligation to do so. As the Federal Treasurer has made clear, companies have no legal obligation to return the funds. JobKeeper was intentionally designed by the Federal Government to impose minimal obligations on companies when receiving public funds – a position in stark contrast to the policy applying to individual citizens. It has been argued these minimal reciprocal obligations were essential to ensure the impediments to JobKeeper take-up were minimised.
If tax avoidance is “morally wrong”, as claimed by Gerry Harvey, so too is profiting from JobKeeper.
So, what of the moral obligation? Perhaps the best place to begin is by recognising that subsidies are simply a negative tax. So, if tax avoidance is “morally wrong”, as claimed by Gerry Harvey, so too is profiting from JobKeeper.
One way to argue the wrongness of tax avoidance (and by extension profiting from JobKeeper) is to consider Herbert Hart’s “principle of fairness”. The principle, in short, posits that those who benefit from the efforts of others have a moral obligation to reciprocate. The argument behind this principle is that when companies or individuals avoid tax, yet enjoy the public benefits provided by the State (the protections granted by the military; the law and order provided by the police and the judiciary; the well-educated citizenry; the functioning health-care system) they free-ride on the contributions of other taxpayers.
There are specific examples that illustrate this principle well. When James Hardie relocated its head office to Ireland, where the corporate tax rate is 12.5%, it is hard to see how this was making a fair contribution to Australia, where the majority of its shareholders reside. As Nick Kyrgios uses the Bahamas as his tax residence, where the personal tax rate is 0%, it is hard to see how this justly contributes to the nation which has not merely supported his career, but created the foundation for it. While donating to bushfire victims $200 per ace that he hit is meritorious, it does not offset tax avoidance because taxation is not charity. And in any case, making hundred-dollar donations is not equivalent to millions in avoided tax that did not fund the bushfire recovery.
Profiting from JobKeeper should be considered no different to tax avoidance. If companies who set up off-shore trusts to minimise their tax bill are considered free-riders on Australian society, so too should companies who unfairly profit from JobKeeper. These companies place the further profits of their shareholders ahead of alternate uses of taxpayer dollars. Ahead of more ventilators, more ICU beds and more nurses. And ahead of lower Government debt which will one day need to be repaid by the next generation of Australian taxpayers – the youth who are amongst the hardest hit by COVID lockdowns.
Personally, I find Hart’s principle of fairness has substantial force, as it seems most Australians do. But judging from the fact that many companies have refused to repay the profits they have generated from JobKeeper, it is clear that not everyone agrees. These companies and their shareholders are claiming they have a right to be held to a standard different to that which applies to everyone else in Australia. They claim they have a right to free-ride.
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BY Joshua Pearl
Joshua Pearl is the head of Energy Transition at Iberdrola Australia. Josh has previously worked in government and political and corporate advisory. Josh studied economics and finance at the University of New South Wales and philosophy and economics at the London School of Economics.
BY The Ethics Centre
The Ethics Centre is a not-for-profit organisation developing innovative programs, services and experiences, designed to bring ethics to the centre of professional and personal life.
Why we need land tax, explained by Monopoly
Most people know the game Monopoly. But few are aware Monopoly was inspired by political economist Henry George’s warning against a dystopic society where land, water and minerals are owned by the dominant few.
To win in Monopoly, first you buy natural resources. Then you monopolise the land. Add some houses and hotels. And finally, force your adversaries into bankruptcy. In the game, it helps to be strategic, but mainly it helps to be lucky. Lucky to arrive first. Lucky to be able to hoover up the best land. In the end, lucky to crowd out the others, making them indigent losers.
Henry George was a brilliant self-taught 19th century American political economist. An advocate for free-trade and an opponent of protectionism, George is however best known for his criticism of the monopolisation of natural resources, arguing this both inhibits economic efficiency and is manifestly unfair. To achieve natural resource equality, George argued natural resources should be taxed at the level it would cost to rent the “unimproved” land. These taxes could be used to abolish other taxes (George’s position was to abolish all taxes except land tax), help fund government expenditure, such as the military, or redistribute in equal proportion to citizens.
Georgism is not an argument for material equality in any meaningful sense. Equal natural resource ownership is consistent with large levels of inequality when it comes to income and the ownership of non-natural assets. A Georgist might argue individuals own 100% of their labour income; that the industrious builder deserves his multiple houses (but not land), cars and boats, and that these are his alone; that the tech entrepreneur deserves her billions but has no right to buy up huge swathes of land. A Georgist position is consistent with minimal state intervention across welfare, education funding and paid parental leave.
The ideas of Henry George have garnered support from various quarters. Economist Joseph Stiglitz has argued Henry George’s proposal could fund the optimal supply of local public goods. Leader of the Chicago School of Economics Milton Friedman said, “in my opinion, the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago”.
One reason why equal natural resource ownership is preferable is because the alternatives are so underwhelming.
The alternatives of the ideological left, crudely speaking, have disastrous economic consequences. Under collective ownership, government ineptly decides what is produced from natural resources, undermining individual choice and failing to respect citizens. While under common ownership, people use natural resources whenever and however they choose, destroying the environment and economy, as predicted by the tragedy of the commons.
The alternative approaches of the ideological right, again crudely speaking, have their own problems. Primacy is given to first arrivals (though curiously, this line of argument is seldom extended to First Nations people), treating citizens unequally. Like Monopoly, first arrivals win, and second arrivals lose. These arguments typically rest on the ambiguous liberal Lockean proviso that “enough, and as good, left in common for others” or the harsher libertarian Nozickian argument that non-landowners need only pass a subsistence baseline living standard (essentially, non-landowners can eat and have water). But these claims ignore that natural resources are not made by anyone. And if no one has done anything to deserve the unimproved natural resources, and citizens of a country are equal, why are they granted such unequal rights over natural resources, the literal foundation of a country?
To Henry George, every citizen has an equal moral claim to the earth and without this, there is no equality among citizens.
In Australia, we are something of a Hasbro Monopoly ‘Special Edition’. Tech billionaires and their ilk hold some hundreds of millions worth of natural resources, while the mob from Broken Hill have somewhere closer to, and more likely very near, zero. Foreign investors such as Canadian pension funds and the Chinese Government own 14% of Australian agricultural land and 11% of Australian water assets.
Overall, Australian natural resources are worth more than seven trillion dollars (about 85% of which is land, driven by city land values), equating to around $300,000 per person. However, the bottom 20% of Australian households (typically younger folk, most likely regional or outer suburban people) have an average natural resource wealth of under $20,000 (and an average net wealth of around $25,000).
Yet there are reasons to be optimistic. The ACT is 10 years into their 20-year plan to abolish stamp duty and replace this with a land tax, providing instructive “dos” and “do nots” for other jurisdictions. And the NSW Government, with a coalition of support from real estate bodies, accountants, economists and community representative bodies, has proposed a land tax which sensibly considers a gradual introduction of land tax, ensuring fairness for those who have already paid stamp duty, although the proposal insensibly considers making land tax optional.
Overtime, a NSW land tax could be used to reduce other taxes, such as payroll tax, levied by the state government, or income tax, levied by the federal government. Reducing income taxes would reverse the peculiarity of the Australian tax system that we socialise the largely privately created wealth of labour, and privatise the naturally created wealth of natural resources.
Economists boast that a land tax boosts economic productivity, stimulates investment and increases efficiency, all neat reasons for a land tax. But the overwhelming case for an Australian land tax is fairness: that Australian dirt, water, ore and air, are owned by each Australian equally. The overwhelming case for a land tax in Australia is to ensure we don’t become a game of Monopoly.
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BY Joshua Pearl
Joshua Pearl is the head of Energy Transition at Iberdrola Australia. Josh has previously worked in government and political and corporate advisory. Josh studied economics and finance at the University of New South Wales and philosophy and economics at the London School of Economics.
It’s time to consider who loses when money comes cheap
Monetary policy has yielded substantial social and economic benefits to modern economies.
Not least the achievement of low and predictable price stability. But to whose benefit?
It’s no secret that monetary policy increases the wealth inequality gap. That’s because it benefits those with assets, and by doing so it widens the chasm between the very rich and everyone else, making many Australians – in particular, the least financially secure – worse off.
While governments and central banks are openly aware of the inequalities these policies create, they have not taken measures to appropriately address the issue – the first step of which would be to update the RBA’s mandate.
Let me explain why. The Reserve Bank of Australia (RBA) has again announced that it’s kept the official cash rate on hold at 0.1 per cent, with the possibility it will remain thus until 2024. An RBA document released under a Freedom of Information request estimated that a permanent 1% cash rate reduction increases house prices by 30% over a three-year period.
For a middle-class family who own a $800k (median Australian) home, a 1% interest rate reduction increases their wealth by $240k. For the very rich who own a $100m portfolio of properties, their wealth increases by $30m, a windfall gain $29.76m greater than that of the middle-class.
For the one-third of Australians who do not own a home, not only does their net wealth remain unchanged, but the cost of entry becomes substantially higher. They are forced to work, save and pay more for essential assets such as housing, perpetuating the cycle and widening the gap.
The fiscal equivalent is government awarding a grant of $30m to people with $100m in assets; $240k to people with $800k in assets; and nothing to people without assets.
You don’t need to be an arch-communist to consider these outcomes unfair. However, the nature of the unfairness will depend upon the theory of justice invoked. For example, equality of outcome theory finds the unequal impacts of monetary policy unjust because Australians end up with different outcomes.
Alternatively, a Rawlsian theory of justice contends that social inequality is permissible only where the inequality benefits the least well-off to the greatest extent possible – a principle known as the difference principle. For a Rawlsian, existing monetary policies are unjust because there are alternate policies (including tax and transfer and direct cash transfer policies), that would be of greater benefit to the least well-off members of society.
The theory of justice I find most compelling is equality of opportunity. Like most theories of justice, equality of opportunity can be interpreted in different ways. What I have in mind is substantive equality of opportunity theory, which holds a fair society as one where individuals with the same level of talent and motivation, have the same prospects for success, regardless of their place in the social system.
Most Australians believe equality of opportunity is an important feature of our national ethos. Indeed, many Australian politicians cite equal opportunity as a key element of a just society (even if this rhetoric is not always followed with policy). Yet what we are seeing here is falling short of that ideal.
Monetary policy that penalises the least well-off and rewards people based on their starting level of wealth does not provide Australians with equal opportunity.
Indeed, justifying why the very rich deserve windfall gains is challenging unless one ascribes to the slightly perverse virtue theory that to have wealth is to deserve more wealth.
One solution is for government to tax and transfer windfall monetary policy gains. This policy might allocate an equal benefit to each Australian, or otherwise ensure each Australian has an equal opportunity to benefit.
While simple in theory, there are several practical shortcomings with this approach. One issue is measurement: for any asset value increase, determining the increase due to monetary policy versus other factors, such as asset improvements, is not straightforward. Another issue is timing: there is typically a substantial lag between monetary policy actions and asset value increases.
However, it seems to me, the most substantial issue is political pressure from vested interest groups. Taxing assets – regardless of whether people have earned those assets or the assets were merely granted to them through government policy – is eminently harder than simply not transferring windfall wealth in the first place.
Finding prevention, rather than jumping straight to the cure, has the added benefit of avoiding the unnecessary social antagonism that occurs when creating groups of “us” (the “lifters” who are taxed) and “them” (the “leaners” who receive).
A preventative solution can be found in updating the RBA’s mandate, a change that might take on various degrees. The more substantiative update would be to require all future monetary policy to produce no negative impact on wealth inequality. This would make some existing policies unviable or mean that if pursued they must be coupled with additional mechanisms that even up the ledger for the middle and lower classes.
A middle ground alternative might merely begin by requiring the RBA to consider unfair wealth impacts as tiebreakers. For example, when all other features of opposing policy are equal, that which provides all Australians equal opportunity to benefit would be considered preferential. This mandate should require the RBA to consider various options and justify those adopted on the principle of fairness, relative to the alternatives that were overlooked.
Reserve Bank Governor, Dr Philips Lowe recently stated that the responsibility for controlling asset prices is not that of the RBA: “That’s not our mandate. I don’t think it’s sensible and I don’t think it’s even possible”.
That the RBA cannot and does not control asset prices is similar to the fact that the RBA cannot and does not control the social phenomenon of inflation.
Yet the RBA can and does influence asset prices, simply look at the ripple effect of the 0.1% cash rate. The RBA can and does also target asset prices, noting the RBA bond-buying programs which are designed to prop up bond prices. To suggest otherwise is misleading.
Like any other public institution, the RBA is accountable to those they serve – the general public – not to their own ends. And the Australian public may want a little more rigour in that accountability than, ‘that’s not our mandate’ when dismissing the policy options put forth by economists such as Milton Friedman, Frederic Mishkin and Patrick Honohan.
It might be true that alternative policy options such as cash transfers through the budget (where the central bank issues money directly to the government who distribute it) or direct cash transfers (where the central bank issues money directly) are unworkable.
However, allowing the RBA to dismiss their policies’ negative effects because their mandate does not require this consideration, is not something Australians should consider acceptable.
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