Thanks big six, you SO prove the business case for ethical practices

Today Ofgen has announced it is referring the "big 6" energy companies for a full investigation by the Competition and Markets Authority. This is basically because there are clear indications that the companies have been operating unethically and without transparency.

Apart from the costs already incurred in terms of Ofgen fines for customer redress e.g. SSE £10.5m and NPower £3.5m in recent years, two of the arguments for good ethical practices in organisations is that:

• without them companies are eventually likely to be on the regulator and politicians' radars.This sector has now become fully politicised and under intense scrutiny. 
• the uncertainty over the next few years as to whether the sector will be broken-up etc now means less confidence and more risk for the investors in the sector.

So basically, if this isn't clear enough, adopting good ethical business practices is cheaper in the long run. Stakeholders: customers, employees and investors etc will have more certain futures, higher levels of satisfaction and the business gets left alone.

Factors blinding people to compromise their standards

In research conducted by Ethisphere they looked at the factors which "blind" people and cause them to compromise their ethical standard.

These are the results:
70%: pressure to meet unrealistic targets
39%: desire to further one's career
34%:desire to protect one's livelihood
31%:working in an environment with cynicism
28%:ignorance that the act was unethical
24%:lack of consequence if caught
24%:need to follow boss' orders
15%:peer pressure


It is clear from this that reducing the pressure employees work under to achieve unrealistic targets is the one factor which could materially improve ethical standards in organisations and ultimately customer outcomes. This is where the need to engage more with stakeholders could, literally, pay dividends. If employees are more actively involved in the target setting and their issues listened to and addressed to create realistic targets they are more likely to achieve or even exceed these targets without cutting corners, damaging the customer experience and/or organisational reputation. In the same way there needs to be more active engagement with shareholders explaining the need for a slightly slower and longer term focus.

On-going and determined dialogue with stakeholders is one of the ways of building trust  and boosting value.

A utility group doing it well: Northumbria Water Group one of the world's most ethical companies

Northumbria Water Group was selected as only one of four UK companies in the Ethispere 2014 World's Most Ethical Companies. (the other three were Ethical Fruit Company, Premier Farnell plc and Marks and Spencer).

The criteria for selection means that an organisation has to:

• go beyond making statements about doing business "ethically" and translate these words into action
• not only promote ethical business standards and practices internally but exceed legal compliance minimum 
• shape future industry standards by introducing best practices today".

Northumbria Water shows that as a business it is possible to "do the right things" and succeed competitively, in fact it really gives them a competitive advantage. Heidi Mottram the CEO states in their "Vision and Values" document:

"as one team,together we can action our vision of being the national leader in the provision of sustainable water and waste water services.  To do this, we need to excel and lead across every part of the business".

Their section on ethics states " we ensure ethical standards not compromised by commercial, financial or other pressures". We are open, honest and trustworthy.  We accept responsibility for our own behaviour and learn from all experiences whether good or bad".

This is "just" a utility company showing how it can be done and demonstrates the very realisable business benefits of having an ethical edge!

What does "value for money" really mean?

If you're an organisation genuinely committed to providing "value for money" for your customers, what does this phrase really mean?

If you're operating in the financial services sector the Regulator (FCA) is becoming more and more interested in how you prove you're providing value for money. Basically a good starting point for any external scrutiny will be with "following the money" ie which products and services contribute most to profits.

A recent Oliver Wyman research report for the insurance industry looked at this aspect of "value for money". It suggested that companies:

• review their products, justifying any disproportionate levels of profit and what this means for customers.
• review policy conditions, eg. are their high excesses or exclusions which effectively reduce the value for the customers
• review the impact of any "hidden charges" again because this might reduce the overall value for the customer
• review the impact of the value/cost of selling bundled products and add-ons to improve returns on low-margin core products.

 And of course making sure that the products are still relevant to customers over time as their circumstances change.

This approach is good practice for any business but it does actually mean that a product or product range might have to be fundamentally changed or withdrawn altogether so it's probably a pretty "big ask" for most organisations. But in the regulated industries, proving value for money is going to become an important part of demonstrating fair treatment and better outcomes for customers.

Fair treatment of suppliers helps to build trust and reputation

The fire at the Rana Plaza factory in Bangladesh a year ago, in which 1,100 workers died, damaged the reputation of retailers such as Primark and Bon Marche among others. The incident demonstrated the need for businesses to rigorously monitor their suppliers' management practices to ensure that employees are treated fairly and in this case to have the appropriate health and safety measures in place safeguarding the well being of workers.

Primark has now paid c12m dollars towards the compensation fund to support the Rana Plaza workers and their families. Paul Lister, the Company Secretary of Primark's owner, recently stated "we are determined to meet this responsibility to workers in our supply chain".

This example, yet again, helps to demonstrate the business case for ethical business practices. If key stakeholders such as suppliers are not treated well the outcome can be very damaging, not least to the hard-to-quantify cost of damaged reputation but also the potentially hefty cost of stakeholder redress.To reiterate the point of this blog, fair treatment of stakeholders and transparency helps to build trust and boost value.

Rolls Royce Ethics Line:a quick, but maybe, ineffective fix?

Rolls Royce's reputation has been tarnished recently with a string of bribery and corruption scandals in a number of countries. In addition to training on its revised anti-bribery code of conduct it also launched a 24 hour "ethics line" last week to encourage would-be whistleblowers.

Rolls Royce states it is "committed to creating and maintaining an environment where you can ask questions and raise concerns about business ethics without fear of retaliation".

The Ethics Line blurb states it is "better to ask a question or raise a concern at an early stage rather than to let the situation get worse". The helpline is operated by an independent company called EthicsPoint where anonymity can be preserved if required  and the whistleblower can be given feedback anonymously too by a confidential "report key" and password.

The policy however points to the manager as the first point of contact if an employee has concerns. And this really goes to the heart of it. How can organisations engender a culture where managers throughout the reporting line welcome and encourage discussions about ethical issues without reprisals? Is Rolls Royce really starting a meaningful and effective dialogue on ethical business practices internally if the "easy" fall- back position is to use an independent helpline of outsiders, the Ethics Line could just be a quick, but ineffective, fix?

Co-owners get share of benefit pool: collaboration success of John Lewis Partnership

The John Lewis Partnership business model means that everyone from management to the shop-floor are co-owners of the business and share in the profits of the company.

The bonus pool was announced yesterday which works out as 15% of the average salary for staff with a pre-tax profits increase of 10% and encouraging business results for the start of the year. The bonus pool is lower than last year and this is attributed to more money set aside to fill the gaping hole of the pensions deficit and to give back holiday pay to those who missed out due to mis-calculations over a number of years.

Even with slightly poorer results the alternative business model for a company with sales now reaching C£10 billions pa is a success story. To quote the JLP's chairman Sir Charlie Mayfield in the 2013 Sustainability report entitled "achieving more through collaboration he says:

"When John Spedan Lewis started his bold experiment in employee ownership, he understood that more could be achieved when people worked in collaboration with each other. Our sustained commercial success is the proof that he was right.By staying true to his vision and working together we will continue to meet our responsibilities to society and the environment in an increasingly complex,interdependent world."

NPower: the power of regulation, improved customer service?

From recent, direct experience i.e. moving energy suppliers, NPower has shown that it has massively upped its game and improved its customer service. It almost feels like it might actually care about its customers, both new, existing and those leaving, and its service could possibly be heading for "best practice"?

For example, the energy bill clearly spells out which phone numbers to ring. There was an option to get NPower to phone back, and not lose your hard-won place in the queue, saving time. After a few security questions the account was readily available, the operator able to deal with refunds, notes of the conversation made and most importantly, the operator's name was provided in case there were further queries or something went wrong further down the line. This then smacks of real accountability, empowerment and taking full responsibility in terms of treating customers with respect.

And while it's actually pretty simple and straightforward practice, ie treating others as you'd like to be treated yourself, it does demonstrate the power of regulation, fines where it hurts and of course the further wound of customers leaving in droves. Let's hope all these service companies are now upping their game so that talking about the basics in this way no longer becomes something to shout about but the norm of everyday ethical employee behaviour.