SHOULD SOCIETIES TRUST BIG COMPANIES?

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Gitanjali Maria's picture

The citizens of Bhopal, India had never imagined that the night of December 2nd, 1984 could be a very fateful night. Like most Indian cities (same is the case with most places in the third world) they had hoped for development, industries, jobs and a better life when Union Carbide set up its plant there. But the toxic gas that leaked out from the company premises that night and claimed the lives of hundreds of them will leave this society forever scarred with marks of distrust and anger against big firms.

This is not a story unique to developing countries or to manufacturing plants that spew harmful gases; it applies to both developed countries and to every corporate that disregards societal values. Lehmann brothers, WorldCom and Enron are among the popular examples that we know of. Lehmann brothers and other prominent financial institutions and their practice of un-scrutinized lending and building of toxic financial products is what led to the financial crisis of 2007, leading to world-wide dip in production and jobs. It also generated a grave mistrust towards financial institutions worldwide and people started viewing them as ugly and not transparent.

In the rush to make profits in the short run, corporates often tend to disregard the other two Ps – People and Planet. They indulge in exploiting the natural resources that are actually a collective wealth. They turn a blind eye towards environment emissions generated and sell adulterated or below par goods to maximize their profits. Many companies are motivated by growth targets, greed and personal ambition. Such companies that tend to disregard the sentiments of the societies only enjoy short-term success and profits. Companies that want to flourish for decades and centuries have to engage proactively and constructively with the society around it. A harmonious relationship between companies and groups is important to build legendary companies. Great companies are the not the ones that make the maximum profits but those ones that seek to actively engage and build the community while still reaping in money.

84% of the 2014 Edelman Trust Barometer, believe that businesses can pursue their self-interest while doing good work for the society. In his speech to the students of Rotman School of Management in May 2015 on the occasion of their convocation, Lord Browne, Executive Chairman of L1 Energy recalled a lesson that he imbibed during his days with British Petroleum (BP) in Columbia. BP had entered the country in the early 1990s against the backdrop of a polarized society and political insurrection. The company built a fence around it to keep people out. But the fence also stopped BP from connecting with the society around. It resulted in BP not understanding why the local people resented BP’s presence. This costed BP when the European press accused it of being complicit in human rights abuses by the Colombian military. BP then had to do damage control by supporting the creation of an international standard on human rights for the industry, and by enlisting the help of NGOs. Perpetual mistrust always damages companies’ ability to create value. When a company is disengaged on issues that society is deeply concerned about, it can even face an existential threat.

Companies need to understand that any system that prevents large numbers of people from fully participating or excludes them altogether will ultimately be rejected. A survey conducted by Møreforsking Mold shows that companies and society both benefit when the private sector invests in knowledge. Hence completely avoiding companies citing that they are untrustworthy, uncompassionate and not bothered about society and environment ultimately becomes a loss to the people themselves.

A few rogue companies are all that it takes to shake the trust that societies have in companies worldwide. A few like Lehmann Brothers and Union Carbide blemish the good works of plenty of other companies like HUL, Body Shop, Ben & Jerry’s and Burt & Bees, to name a few.

Hindustan Unilever created the Unilever Sustainable Living Plan, which aims to double its turnover, reduce its absolute environmental impact and increase positive social impact. Burt's Bees has focused on the well-being and "the greater good" of the society and has helped develop guidelines for what can be deemed natural. The Body Shop is regarded as a pioneer of modern corporate social responsibility as one of the first companies to publish a full report on its efforts and initiatives. The company champions causes such as environmental protection, animal rights, community trade, self-esteem and human rights.

These companies have proven that being humane does not come in their way of making profits. And one of the main factors contributing to their success is a strong customer base that trusts the companies and its products and believes that the company is ethical, environment-friendly and focuses on the well-being of the society. They keep going back to the company because they trust it. When societies lose trust in a company or its products, its market share and share value both drop, resulting in loss of revenues and reputation.

Societies trust companies in many ways in their living – be it in the canned foods they consume, the toiletries they use, the steel rods used in construction and also in the safe workplaces they consider their second homes. That is why when companies misbehave or sell wrong or sub-standard products, even unknowingly, a gap trust deficit is created. This is true even in the case of well-known brands. That is why Cadbury’s (India) had to go the extra mile to bring back their lost goodwill when worms were found in its chocolates and Nestle will have to prove that its Maggi noodles in India are not adulterated.

Today, the interaction between companies and society occurs at multiple points due to the availability of digital tools. No company can isolate itself from the society in the digital world, where wall boundaries and fences have no meaning. Reputations of companies have been thrashed and damaged badly on the internet if they do not take note of the well-being of the society. Digitization has forced companies to remain vigilant and ensure that grievances raised against them by any section of the society is addressed. Globalization has also detached organizations from one specific society while at the same time requiring that companies internalize the needs of many societies.

The responsibility of companies to give back should not be limited to Corporate Social Responsibility (CSR) plans. It is something that has to be ingrained in its every day operations and believed by every employee, especially the top level management. This focus includes contributions of money and time, a duty to provide environmentally friendly products and services, and a desire to improve the lives of individuals. Such socially responsible companies see to it that this "consciousness" permeates everything they do.

Deloitte's 2013 Global Millennial Survey asked millennials who were born after January 1982 about how business can innovate and impact society. In many countries, including the Netherlands, the U.S., India, and Germany, millennials think that the purpose of business is to improve society. Businesses that want to attract millennials need to emphasize their innovative ways and positive societal impacts. Hence for success in every aspect of its operations, be it sales, hiring or marketing, it is important that companies gain the trust of societies.

It is also essential that societies trust companies. Companies have the power and resources to innovate and to create things that make life easy. DuPont, Google and many others have made products like Teflon, Google Maps etc. that have revolutionized our lives. There have been many companies like Corning Glass (Houghton family) and Tatas that have built up beautiful cities like Corning and Jamshedpur with all the amenities that a good city needs. Companies have helped build societies, generate employment to people of the locality and elsewhere and built wealth for the area. They have been one of society’s pillars since the beginning of the industrial era.

Though many companies have been responsible for environment degradation and illegal resource mining, there have been many others who have grown orchards and farms in addition to their core business, who have spent millions for greening the environment and finding solution to reduce carbon emissions. While there may be many companies that have done financial manipulation and blown up hard-earned savings of many a common man, there are plenty of companies that have helped pull families out of poverty by helping them have a steady income through employment.

Hence if societies don’t trust companies, the greater loss is going to be the societies and the country. But at the same time being vigilant about the actions of the company and regulating and scrutinizing them on a regular basis through laws and mandatory disclosures is something that the state will have to do to ensure that companies do not forget the Ps – People and Planet. Only a mutual trust and cooperation can help in sustainable development.