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| Path: Main Street : Resources & Library : Research Articles : Feature Article |
Ethical principles may provide competitive advantageJuly 31, 1996; Canadian FundRaiser
Community investment strategy depends on business-related considerations - the industry, the particular communities the company serves, and the company's self-image. Presenting at the 6th National Conference on Business in the Community, Ronald Berenbeim, Senior Research Associate, Corporate Governance, The Conference Board (NY) made a case for the growing recognition that a company's commitment to core ethical principles can be a source of competitive advantage.
Addressing the potential conflict between legitimate elements of enlightened self-interest and a company's ethical commitments, as well as the role a company's ethical principles should play in determining the strategic priority assigned to individual community investments, Berenbeim went on to say that stakeholder governance principles hold that corporations owe some degree of accountability to constituencies other than shareholders. "The viability and credibility of stakeholder governance depends in large measure on whether corporate behaviour can be informed by ethics or must be determined by prudence," he pointed out.
Prudential view accommodates ethical necessity but puts shareholders first
Contract law, he said, provides the ethical requirements for the prudential view. It accords primacy to the company's relationship with its shareholders and the fiduciary obligations of loyalty that it imposes on officers and directors. Contract law's ethical requirements emphasize fairness in business relations and competition, and the importance of honouring agreements."Political support needed for stakeholder view
Berenbeim believes that proponents of the stakeholder theory of corporate governance have a heavy burden to overcome; and that efforts to establish stakeholder principles rest not on the support of law or custom, but on the marshaling of political support. "In the U.S., these initiatives have achieved some success in states that have passed statutes encouraging directors to examine and give due consideration to the claims of other stakeholders - particularly employees and local communities."Ethical systems provide many benefits, such as the reduction of costs from theft, poor workmanship, and the consequences of socially irresponsible corporate behaviour like pollution and unsafe plans. Berenbeim pointed out, however, that these corporate savings can be, and often are accomplished through the exercise not of ethical standards, but of prudence.
Ethical process harder to imitate
"The difference between ethics and prudence is not practice, it is process," he said. "You can re-engineer practice. If another company has a code or compliance system, you can copy it. When competitors improve the quality of their products and services and develop measurement systems to determine their success, you can follow suit. In contrast, an ethical decision-making process worthy of the name cannot be so easily imitated; and the more demanding it is, the greater the potential competitive advantage that can accrue from using it."Unspoken delegation of power
Today, said Berenbeim, most shareholders accept the need for a certain amount of strategically-focused beneficence to further profit-making objectives. Ultimately, he points out, shareholder tolerance for corporate investment in communities may actually rest on an unspoken delegation of power to the company to devise an ethical framework for its business activities."To stockholders who remain skeptical, we can say that ethics-based decision making processes are indispensable to growth and autonomy. A sense of increasing obligation first to people, then to institutions, and finally to ideas informs the development of a child's moral imagination. Autonomy, or the capability for independent action, is the child's reward for the successful cultivation of moral awareness. Over two hundred years ago, Edmund Burke recognized that at least in this regard, institutions are no different from people. They mature and enlarge their capabilities when they freely choose to do the right thing for the right reasons."
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