Corporations must help shape a better world – or risk being left behind
The duty to pursue profit as a CEO is a duty of temporal order, while the pursuit of long-term advantage involves preserving and enhancing the competitive advantage over time, protecting the reputation and lifespan of the enterprise, and considering not just interests of the shareholders, but those of key stakeholders.
Legal and societal pressures on businesses operating around the world are rapidly evolving. There is a call for efforts to better align the activities of corporations with society’s drive to build a more inclusive, equitable and sustainable economy. Increasing demand from institutional investors to put funds into sustainable businesses, combined with stakeholder expectations around corporate responsibility, are putting a greater pressure on companies to place environmental, social and governance (ESG) concerns at the centre of their business management. Many governments are struggling to address challenges in today’s globalized world, and citizens are increasingly looking to the larger multinational companies to make use of their untapped potential and resources to fill some of the gaps left by the public sector.
Taking a holistic approach to implementing respect for human rights and addressing corruption together makes more sense in today’s business environment. Those who take on this more proactive approach will be well positioned to meet new and future regulatory requirements, even if it means going beyond the requirements of current legal frameworks. This might require enhanced collaboration and coordination between business units, in-house teams and functions, including corporate responsibility, procurement, business development and legal, in addition to senior leadership, but breaking down these silos will lead to more sustainable business practice in the long term.
Corruption and poor human rights pose similar risks to companies, and multinational companies often operate in regions of the world that are high risk for both corruption and human rights violations. The political risks and the impact that corruption has on values and culture, both internal and external to company operations, is often missing from the picture, and dilutes the more normative goal of fighting corruption as part of corporate responsibility. Contributing to corruption should be viewed as similar to having an adverse impact on human rights. The World Economic Forum, through the Global Battery Alliance, is developing collective action to address challenges in the cobalt supply chain, among others.
Human rights, social and environmental due diligence can be integrated within existing corporate risk-management systems. Findings from human rights impact assessments can be integrated into internal functions and processes to ensure holistic risk management, giving a more complete picture of the situations in which a company operates. Responsible business conduct should be built into the very core of a company, with rules and values that influence positive behaviour and ethical corporate culture. Through a more holistic approach, companies can meet their responsibilities in a systematic way, be prepared for developments towards mandatory non-financial reporting and immaterial risks and make their compliance programmes more robust. Interconnected strategies on anti-corruption, human rights and sustainability can optimize both the use of resources and the integration and involvement of both internal and external stakeholders.
Many companies have strong compliance programmes addressing corruption already in place. Companies can learn from existing compliance programmes to develop a structured system for managing human rights and corruption impacts in an integrated way. Support from senior management is required to set the tone from the top and make sure the message goes across to all personnel and business partners that responsible business culture and addressing human rights and corruption are priorities to the company.
Effective implementation can be ensured by aligning policy commitment in codes of conduct and contract clauses, integrating procedures such as training, reporting and auditing, and combining risk assessments and due diligence processes, as well as establishing cross-functional working groups within the company to make sure that governance issues are addressed holistically. Each individual company should tailor its compliance with regards to its specific challenges and operating environment. Internally, the company might want to set up working groups with representatives from existing functions such as ethics and compliance, human rights, procurement, safety and operations to work together to ensure a horizontal and holistic integration of these issues.
The question of holistic corporate governance is primarily a question about sustainability and social purpose, not just legal compliance. Financial institutions and private investors are increasingly incorporating human rights into the environmental, social and governance standards now influencing investment, adding content to the “S” in ESG. Companies have an interest in improving their track records on human rightsn so as to be ahead of future legislation on the topic, to protect their reputation and image and to attract funding from investors who are increasingly holding companies to account on ESG issues.
This content was originally published here.