As awareness about ethical products and services grows, it’s becoming harder for companies to hide practices that don’t fit with consumer expectations. Domini Stuart reports
Doing business at a distance will always present practical challenges. Every international trader has to negotiate issues around currency, transport, representation and distribution. Increasingly, exporters and importers also have to negotiate an ethical minefield.
"As an exporter, you might encounter difficulties with shipping, paperwork and getting shipments through the wharf area and customs," says Michael Segon, senior lecturer at RMIT University in Melbourne and adviser in ethics and integrity services to KPMG Australia. "Some people find that money can move the process along, and they’ll often say ‘it’s not bribery, we’re just facilitating a process’."
In some countries, the whole issue of ‘facilitation payments’ is more complex than others. "In China, for instance, there is the culture of guanxi—the development of relationships based on the exchange of gifts," Segon continues. "Some people interpret this as bribery. Sometimes it really is bribery under the guise of guanxi. Your best defence is always to be fully informed, and what staggers me is that so many business people seem to be unaware of what’s known as the Foreign Corrupt Practices Act, which makes it illegal for Australian business people to pay bribes to foreign government officials."
In 1999, Australia became a party to the Organisation for Economic Cooperation and Development's (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Since then, it has been a criminal offence carrying a sentence of up to 10 years in prison and/or a fine for any Australian citizen, resident or company found guilty of bribing a foreign public official either in Australia or while in foreign countries.
"This is where the Australian Wheat Board (AWB) case is very interesting," says Segon. "Clearly the question is did AWB officials make facilitation payments to Iraqi government officials? If the answer is yes they may have contravened this law."
The so-called AWB affair shows the impact a significant breach of ethics can have on a company’s reputation and, in this case, the damage may not stop there.
Transparency International interviews the international business community and then ranks countries according to how ethical they are perceived to be. Australia has always prided itself on being in the top five or six, but now there is talk of a slide. "AWB is a good example of what can happen when a company focuses on achieving the outcome rather than the process, and of why business ethics is so important," says Segon. "The problem is that people tend to be reactive, waiting until there’s a crisis like fraud or misuse of property before they do anything. But ethics needs to be tackled as a business strategy. You need to create, monitor, and update systems just as you do for advertising or HR."
The issue of live animal exports raises the contentious ethical issue of relativism. "Do other cultures have different standards, not only in the way they interact as a society but also in the way they treat animals?" asks Segon. "There are certainly cultural differences. Animals are slaughtered differently around the world, and we in Australia find some of these practices uncomfortable and disturbing. We have a different approach, but do we say there should be a minimum standard of treatment for animals and attempt to impose that, or do we say who are we to judge?"
Relativism can also be an issue for Australian business owners who choose to outsource manufacturing processes or services to less wealthy countries than our own.
Sportswear is a typical example. Most of us remember the Nike ‘sweatshop’ scandal, and Oxfam Australia reports that workers producing for other sportswear companies including FILA, adidas, Puma, New Balance and Asics commonly face low wages, long hours, verbal abuse, dangerous working conditions, denial of trade union rights and high levels of sexual harassment—80 percent of sportswear workers are women.
"People take manufacturing offshore because they want the lowest possible cost of production," says Segon. "But ask yourself whether you would want your son or daughter to work in that factory. If the answer is ‘no’ but you are comfortable with someone else’s son or daughter doing the job, aren’t you being a hypocrite? This is the fundamental problem with relativism. If you say something is not OK here but it’s OK there because they have a different culture, how can the same action be ethical and unethical at the same time?"
The vision of Gloria Jean’s Coffees is not only to be the largest and most profitable coffee company in the world but also the most loved and respected. Recently they embraced an opportunity to protect the welfare of coffee farmers, wildlife, and the environment by partnering with The Rainforest Alliance, an international non-profit conservation organisation.
The Rainforest Alliance works to conserve biodiversity and ensure sustainable livelihoods by transforming land use practices, business practices and consumer behaviour. The companies, cooperatives and landowners who participate in their programs meet rigorous standards of behaviour that helps to conserve biodiversity and provide sustainable livelihoods.
Gloria Jean’s now imports Rainforest Alliance Certified Single Origin Nicaraguan whole bean coffee sourced from the mountainous Jinotega region of far north Nicaragua. By the end of 2006, the company had roasted some 2,340 bags, which is equivalent to 183 tonnes of coffee, and this is available from all 400-plus coffee houses around Australia. All of Gloria Jean’s flavoured coffees have also received Rainforest Alliance certification.
"The partnership allows our coffee house guests to continue to purchase high quality coffee while now also demonstrating their support for a product that has been grown according to meticulous environmental and social standards," says executive chairman, Nabi Saleh. "We’ve chosen to partner with the Rainforest Alliance because we believe it serves the greatest good for the most people, both on an individual and community-wide level."
Gloria Jean’s are committed to ensuring that franchise partners around the world are aligned with their vision. "We currently have coffee houses in 23 countries," says Ian Martin, group chief executive. "For every country we enter, our potential franchise partners must first come to Australia for a six-week induction program. This program spends considerable time focused on our vision, values and culture. If they’re not comfortable with those, we can tell very quickly that they’re not right for our company and we don’t proceed with them."
Dr Simon Longstaff, executive director of St James Ethics Centre, says that supply chain integrity is the best way to guarantee the reliability of the goods and services we outsource. "We place a certain amount of trust in an organisation we are purchasing from and we want to know who we are dealing with," he says. "It would be intolerable if we were dealing with a company that didn’t care about the source or quality of the inputs. The advancement in communications technology means, however remote you happen to be from those who supply to you, there is nowhere to hide if the company you source from has issues that are not in line with your own core values."
While businesses tend to see ethics as a sacrifice, studies in the US, Europe and Australia show companies that cultivate an ethical culture
can actually benefit financially. They are more likely to have strong customer relationships and lower staff turnover, and are also less likely to engage in risky behaviour. All of these can impact favourably on the bottom line. Nevertheless, when a business is smaller or starting out, the owner may find there’s a powerful temptation to compromise.
Sharon McGlinchey’s MV Skincare products have the highest organic content of any luxury range in Australia. She exports to the UK and New Zealand, and her business is ethical to its core. But, for her, integrity has its price.
"I have supported the organic philosophy for many years," she says. "It’s long been obvious to me that increasing levels of toxicity are a threat both to individuals and the planet. Every time we buy an organic product we are supporting the farmers and producers who have said ‘no’ to chemicals."
The problem is that, as yet, organic ingredients aren’t as readily available or as affordable as their chemical counterparts. "Most skincare creams—even those in the luxury range—have a base of mineral oil, which costs around $2.50 a kilo," she says. "I use organic sweet almond oil or organic rosehip oil instead, which cost anything from $65 to $165 a kilo, but I can’t charge any more for the finished product."
McGlinchey also faces higher costs for her packaging. Glass is breakable and heavy, and she found that the only kinds of plastic containers that don’t leach chemicals into her products are bulky and unattractive. Her aluminium packaging is light and strong, and scores 9.5 out of 10 on the UK’s Soil Association scale of environmental friendliness, but also costs around five times more than the plastic used by most of her competitors.
"I believe that what I lose in profit I gain from customer loyalty and word-of-mouth advertising," McGlinchey says. "People are definitely more aware of ethical issues these days and increasingly seek out products and services of the highest quality that they can trust to support their own values."
The essence of being ethical around the world
• A proactive ethical strategy is also a strategy for reducing risk.
• A sound ethical culture helps sustain business relationships with customers and employees.
• Creating, monitoring, and updating systems costs money, but this is as much an investment as an advertising campaign or your HR strategy.
• It is vital to read and understand the relevant legislation—ignorance is no excuse for unethical or illegal behaviour.