On Business: Open and transparent

Self-reporting is one of the best ways to protect corporate reputations and retain credibility.

by Tom Kowaleski, World Business
Last Updated: 23 Jul 2013

Consider these two unrelated news items. HP discovers it has a dysfunctional board that leaks sensitive information. The company asks an independent security firm to find the source. The firm engages in an ethically dubious and often illegal practice called 'pretexting' (acquiring personal details such as credit card or social security numbers without the owner's knowledge) to obtain the phone records of board members and journalists.

A board member finds out, goes public, and, after a lengthy and very public investigation, HP's chairwoman is forced to resign. She and several others are now subjects of a federal investigation.

The world's tallest building, Burj Dubai, is being erected in Dubai and is being developed by Emaar Properties. There are currently more than 2,500 workers at the site and soon they will number 5,000. Many are 'guest labourers' and there has been significant controversy about their living conditions.

When asked about this, an official from Emaar said the company works closely with a contractor to ensure they meet appropriate standards. However, he added, it is the contractor "who employs the workers and it's his responsibility to provide them with accommodation and pay salaries on time". Is it really?

These incidents illustrate a problem facing corporate reputations the world over. Whether they accept it or not, modern companies are considered responsible for the actions of their suppliers and are increasingly held accountable. But their ability to cope with this responsibility is tested daily; wishful thinking, naivety, and even standards of legal practice can all lead to good intentions going awry.

The majority of companies intend to operate at the highest standards of integrity. Most have strong ethical guidelines for themselves and their suppliers. Many of these are written into contracts. Yet this seemingly iron-clad process continues to go wrong.

Michael Josephson, president of the Joseph and Edna Josephson Institute of Ethics, believes that a major reason is a reliance on written standards of conduct rather than a focus on the conduct itself. He finds written standards alone "are almost always consistently ineffectual. Standards of conduct are there to protect you legally, and almost never control behaviour unless they are quite specific and are enforced."

So where can the right moral compass to lead, guide and protect a company's reputation be found? Above all, a strong and clearly understood ethical conscience needs to exist across the entire organisation, from top to bottom. Senior management must continually set this standard and act in a manner consistent not only with policies and practices, but also according to a strong personal value system.

Employees should be required to do the same. And each needs to be able to challenge the other without fear of the consequences. It seems so simple, but not all companies subscribe to this level of open communication and transparency.

Self-reporting is one of the best ways of ensuring that you and your suppliers engage in actions that truly reflect the behaviours your ethics promise. It helps you to scour your world for adherence in the same way that a successful consumer company continually mystery shops itself. It puts into place consistent measurement and communication that lets constituencies know what standards you expect, how you will maintain performance and that you will point out ineffective action when you find it.

"Increased transparency equals increased credibility," says Kirk Stewart, executive vice-president for communications firm Apco Worldwide. "Self-reporting takes away the 'gotcha' factor that companies suffer from with conduct issues."

Stewart was the head of Nike's communications at a time when the company was questioned about the labour practices of its manufacturing suppliers. He says these questionable practices spurred Nike into action. Management was personally involved, expectations were made known in an emphatic way and self-reporting was not only instituted but formalised with regular and public reporting procedures. Out of this, Stewart says, arose another valuable lesson: "Rarely are the consequences of transparency nearly as dire as management may initially want to believe."

According to Josephson, there are two things a company must do. First, prioritise the risk. "There are some relationships that carry more risk than others," he says. "The higher the risk, the higher your vigilance must be."

Second, when you do mess up, you need to consider your immediate actions. "Look at how you operate when things go wrong. If you look accountable, responsible and handle the problem with diligence, that's all anybody can expect."

Tom Kowaleski is head of communications consultancy actk2. He was vice-president of global communications at General Motors before retiring in March 2006.

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