Tags: Corporate governance, Ethical Values, Investors
Ethical business is all about people. The Environmental, Social and Governance (ESG) revolution has seen a torrent of standards, metrics, data points and indices. Yet so little of the data involves voices from those most affected by a business’s activities. Where are the people in the numbers? Can we measure ethics better from the bottom up?
The numbers in the world of responsible and sustainable business are typically top-down. Universal metrics are used by companies to report, investors to assess and society’s stakeholders to hold business to account. When it comes to ethics and integrity, metrics commonly take a bird’s-eye view of the firm. Is there a policy? How is it governed? How many staff were trained? How many incidents were reported? What we don’t know is how good the policy is, whether it was implemented effectively, the impact of the training and whether zero incidents (data breaches, safety near misses, bribery, harassment etc) reflect genuinely ethical conduct or a weak culture with patchy reporting.
Business impacts are not uniform like costs and revenues. An ethical culture – just like a sustainable supply chain or a responsible product – is not one singular thing. An ethical culture is complex, contextual, diverse, dynamic, dispersed, unpredictable, often subjective and sometimes contradictory.
Global standards and reporting frameworks are riding to the rescue. Simplification, standardisation, categorisation and quantification work very well for some topics. Emissions, water and waste lend themselves to consistent and comparable metrics. This is because the underlying reality is uniform. One tonne of waste produced in a Shanghai factory means the same thing as one tonne produced in San Francisco. The same is true of workforce statistics like numbers of employees, proportion of women or salaries paid. The context matters but the fundamental attributes mean the same thing across space and time. But what is the fundamental unit of an ethical culture?
This challenge has flummoxed the standard setters. The new European Corporate Sustainability Reporting Directive (CSRD) has 1,102 data points. What does ethics boil down to - a narrative description of “how the undertaking establishes, develops, promotes and evaluates its corporate culture”? Qualitative descriptions provide granular context, but they don’t enable comparability at scale.
How can ethics professionals measure culture? A good place to start is IBE’s Good Practice Guide on Measuring Ethical Culture. This lists a number of measures that can be used to collect data and report. Such metrics allow for comparability, crucial for benchmarking performance and equipping investors with insights. Cultural assessments that can be used in investor analysis are the subject of an upcoming IBE Webinar.
An ethical culture is made up of many parts: attitudes, values, beliefs and behaviours. These are not in one central place but rather held in many minds. They are dispersed from leadership to employees and right across the value chain including suppliers, business partners and local communities. Importantly, ethics is not an average. Risk lies in the bumpy variance of culture.
We should recognise that even the best top-down metrics will be limited in how far they can shed light on reality. Policies, targets, investments or time spent are a starting point. But these are all “inputs” – they don’t tell us what happened. The outputs may be more useful. Most commonly, outputs take the form of event data: how many incidents of something occurred. But are employees willing to speak up? Are the numbers just the tip of the iceberg? The usefulness of an indicator depends on how good a proxy it is for the bumpy reality underneath.
What we really want to know is something much deeper and more consequential. An ethical culture is a landscape of outcomes. Issues like an inclusive working environment, genuine respect for human rights, systematic safety and a widespread willingness to speak up are complex phenomena. Unlike quantifiable, objective, counting measures, they are based on the experiences, opinions, sensations and actions of people. By their very nature, they are subjective matters. Social data is only known to those whose experiences we are trying to measure. Can we peer through the other end of the telescope and imagine a different way of measuring?
Bottom-up metrics
We might get closer to impact by approaching the task bottom-up. A more human form of data begins with people. Think of the farmer in the supply chain, the factory worker on the production line and the consumer experiencing the product. We want to understand their values, perspectives and experiences.
The geographer Robert Chambers championed the idea of participatory measurement in international development, putting the “last first”. By this, he means inviting those who lack a voice and are often cut out of decision-making, to shape programmes and judge their success.
Participatory measurement can help in measuring culture. It invites diverse stakeholders to shape both the design (what we measure) as well as the data (sharing views, assessing performance, and deciding the benchmark of what good looks like). Imagine asking those most affected by a business for their ethical criteria, their standards of good conduct and their insights into their daily interactions with the firm. The impact of a corporation can be assessed through sampling what people think, know, see, sense and feel. Alongside the policies and reported data, this might reveal greater truths about the real influences of a firm – about outcomes and impacts.
If this sounds far-fetched, consider that most companies already do a limited version with employees. It’s called the staff survey. Customers are sometimes also asked if they would recommend the brand (net promoter score). Why not extend the engagement to more stakeholders and seek their ethical views: on their values, experiences, insights, dilemmas and blockages? These are the real barriers and opportunities for transforming culture. By aggregating the views of all the stakeholders who experience the firm day by day, we might get a richer picture of what really matters. Managers and investors would both benefit from fuller insights.
Inclusive data begins where impact is felt: in the hearts and minds of those who embody culture. Participatory statistics can empower stakeholders and better equip data users with a different perspective. It can generate measures with meaning: real insight into organisational values, risk and impact. When collected alongside top-down disclosures, bottom-up measurement has the potential to revolutionise how we think about ethical culture. That could create not just more accurate numbers but more legitimate ones too.
Richard Hardyment is Head of Business Engagement at the IBE. His new book, Measuring Good Business, is published this month by Routledge.
Author
Richard Hardyment
Head of Business Engagement
As Head of Business Engagement, Richard is responsible for new business opportunities and strategic partnerships at the IBE. He has spent over 15 years advising and assessing multinational companies on responsible and sustainable business practices.
He is an independent member of B Lab’s Multinational Company Standards Advisory Council and guest lectures on materiality and measurement at the Cambridge Institute for Sustainability Leadership and Imperial College in London.
He is the author of The Wellbeing Purpose and Measuring Good Business.