Don’t just read the news, understand it. Business Management

Unit 7

Business Management

Who Cares, Wins

Nice firms often finish first

When the fledgling Harvard Business School first offered a class on “social factors in business enterprise” back in 1915, its students reacted with a mixture of bewilderment and curiosity. Three-quarters of a century later, Harvard has a $20m endowment (courtesy of John Shad, a former chairman of America’s Securities and Exchange Commission) to spend on teaching “business ethics”, and firms are falling over themselves to prove how nice they are. One new study suggests that over a third of big British companies now have “ethical codes of practice”, up from under a fifth five years ago. More than three-quarters of American firms now have such codes; a growing number also have ethics ombudsmen, ethics committees and hold ethics workshops for employees.

Typically, an ethics code explains how nicely a firm intends to treat its customers, suppliers, shareholders, neighbours , and employees; it also exhorts those employees to follow the code when doing their jobs. Just another management fad? After all, most companies profit well enough from doing nothing more virtuous than sticking to the letter of the law: not committing fraud, not paying their employees less than the minimum wage, not cheating their suppliers or overcharging their customers, but certainly not adding an extra dollop of niceness. And plenty of businesses prosper within the law by being far from nice. Take the tobacco industry.

Squeezed in its traditional markets by health campaigners and regulators, the industry is expanding rapidly into poor countries, where consumers are less aware (or less concerned) that they are puffing a product which could kill them.Unethical, perhaps – but shareholders expect the tobacco business to make money, not to set an example to society.

Citing Adam Smith, cynics remind archbishops and other members of the niceness lobby of the principles underlying capitalism’s invisible hand: that only by pursuing their own economic interests in a free market will individuals (and firms) increase the general wealth of nations. Citing Marx (Groucho), these same cynics see in corporate niceness little more than the latest insincere markeing ploy:”The secret of life is honesty and fair dealing. If you can fake that, you’ve got it made.”

Yet in many ways economics seems to be moving in the nice guys’ direction. A growing number of consumers now base their buying decisions on “non-commercial” concerns. Does a product harm the environment? Was it tested on animals? Is it recyclable? Was it made in a Suriname sweatshop? If a firm can answer “no” to all of the above, it can make an ethical killing. Building a reputation as the West’s most caring cosmetics company has helped Britain’s Body Shop to outperform the London share index by a factor of 45 since its flotation in 1984. Yet Body Shop has done nothing especially novel (many of its competitors also shun animal testing); it was simply one of the first firms to realise that wearing its ethics on its sleeve added greatly to the value of its brand.

Like Body Shop, America’s Polaroid believes that treating employees well is also a good investment. By subsidising child-care expenses for its lower-paid workers, the company encourages employee loyalty – and cuts its recruitment and retraining costs too. Michael Marks, founder of Marks and Spencer, a big British retailer, placed wooden platforms behind his market stalls in 1896 to keep salesgirls’ feet warm. A century on, the firm provides employees with doctors, dentists and chiropodists – and reckons that, as a direct result of such benevolence, it has one of the lowest rates of staff turnover in the business. Like Honda, Sony and many other big Japanese companies, Marks and Spencer is also nice to its suppliers, offering them unerring loyalty and prompt paying through good times and bad. In return, it expects and gets unerring quality – which benefits its customers, who then remain loyal too.

For any business, acting ethically means more than drafting a code of practice and pinning it on the staff notice-board. What employees want to know is what to do when they face specific dilemmas. Should they take a gift from a customer? Can they lunch with a competitor? Should they pay bribes to win orders in countries where this is the accepted practice? They also want to know if their careers will suffer if they blow the whistle on violators. Nobody said ethics was easy. If answering all those questions - and ensuring that everybody follows the rules – sounds like too much trouble, a company can stick to turning a merely legal buck. But it had better pray the nice guys don’t come to market.

The Economist

Notes

1. offered a class of –ввела предмет (в учебный план)
2. endowment –(денежный) фонд, обычно в виде пожертвования (courtesy) от частного лица
3. ombudsman –омбундсман: контрольный орган или чиновник, следящий за исполнением установленных правил и процедур
4. Adam Smith (1723-1790) –экономист и философ, выдвинувший идею о“невидимой руке капитализма” – capitalism’s invisible hand
5. Groucho Marx –один из братьев Маркс, американский комик,прославившийся своими остротами и каламбурами
6. factor –множитель; helped to outperform…by a factor of 45 –помог вырасти…в 45 раз
7. market stall –низкая витрина с прилавком (в магазине)
8. chiropodist –мастер по уходу за руками и ногами (маникюрша и педикюрша)
9. to turn a legal buck -зарабатывать деньги законным путем, не нарушая закона; buck= dollar

Vocabulary

fledgling – “неоперившийся птенец”: только что или недавно созданная компания или учреждение

ethical code of practice – этические нормы ведения бизнеса

fraud– обман

marketing ploy – маркетинговая уловка; прием маркетинга, рассчитанный на обман покупателя

sweatshop – предприятие с потогонной системой труда, игнорирующее элементарные права наемных работников

to float (a company) – организовать новую компанию и выпустить ее акции на рынок; floating (floatation) – привлечение капитала путем выпуска на рынок долговых обязательств; выпуск акций через биржу

staff turnover – текучесть кадров

to bribe – давать взятку;bribe – взятка; bribery– взяточничество; подкуп

Blow Up

It is the worst nightmare of any manager: something goes wrong with your product, and customers’ lives are threatened. Yesterday this terrible reality was confronted by Bridgestone, the Japanese tyre manufacturer, which recalled 6.5m tyres in the U.S. after they had been implicated in traffic accidents, killing 45 people. The natural instinct for any company is to wait until it can establish definitive proof that its products are at fault. The natural instinct for any company is to wait until it can establish definitive proof that its produsts are at fault. But the moral – and, increasingly, the financial – imperative must be to act as quickly and comprehensively as possible as soon as suspicion arises.

In such cases, a four-point action plan needs to be followed. First, put consumer safety above all other considerations and make clear to the public that this is your over-riding concern. In the real world, of course, this can lead to agonising decisions. Reasonable people can differ over the assessment of risk: witness the different reactions of British Airways and Air France to the Concorde crash with one airline grounding its entire Concorde fleet and the other clearing it to fly. Second, deal with disastors at the highest level. Top management must take on personal responsibility for dealing with the crisis. Third, deal sensitively with the public’s concerns, however hysterical and overblown they may initially appear to be. Fourth, make clear that you will pay compensation if fault is established.

Set against these measures, Bridgestone’s response has fallen short. The company appears to have been slow in responding to customer concerns about the safety of its tyres and did not field its very top management at yesterday’s press conference. Though comprehensive, its product recall also seems to be disturbingly slow. The critical challenge now will be to implement its plan smoothly. First and efficient action is needed to regain customer trust.

Those companies, such as Johnson & Johnson, that have responded effectively to public concerns have ended up enhancing their reputation with customers. Consumers are often prepared to pay more for branded products in the expectation that manufacturers will behave responsibly. But those companies that fail to react with sufficient vigour do great damage to their relationship of trust with the public. A graphic example was provided by Coca-Cola’s half-hearted response to a recent contamination scare in Belgium. According to Interbrand, the value of the Coca-Cola brand fell 13 per cent last year, partly as a reaction to the negative publicity. The dispute also contributed to the chief executive losing his job.

The Finacial Times

Notes

to be implicated –to be involved

to establish proof –получить доказательство; to establish fault – установить вину

to respond to public concern – реагировать на тревогу, выражаемую в обществе

to deal sensitively with the public concern – чутко отнестись к озабоченности общества

half-hearted - with little interest or enthusiasm

to set against – to compare

fell short – здесь: не достигли цели

to field – здесь: обеспечить присутствие