How to make your family company more ethical

As we reported last week, family businesses were very well represented in a list of the world's most ethical companies (click here to read our coverage of the story). Companies as diverse as insurance firm Aflac, the Ford Motor Company, cosmetics giant L'Oreal and facilities management services business Sodexo were all chosen by international think-tank Ethisphere as being standard bearers of corporate social responsibility (CSR), writes Marc Smith.

But what defines an ethical company and how can family businesses – traditionally seen as being inherently socially responsible – improve what they do in this field?

"Any business that believes in achieving a win-win for itself and its stakeholders is ethical," says Kavil Ramachandran, Thomas Schmidheiny Chair Professor of Family Business and Wealth Management at the Indian School of Business. "For such businesses, both the process and the outcome are equally important. Though they could be tempted to make short cuts, ethical businesses are not tempted by short-term gain."

Kerstin Born, executive director of CSR Europe, which helps companies to integrate CSR into the way they do business, says that building meaningful dialogue with stakeholders is crucial, but not always easy: "CSR issues are complex by nature, and companies are faced with diverse and often contrasting expectations from different stakeholder groups. However, bringing about real change requires open and honest communication and constructive cooperation between companies and other societal players."

One family company that is renowned for its ethical stance is US-based SC Johnson & Sons, makers of household cleaning products. "We look for more creative ways to make a bigger difference in the world. We are driven by a commitment to do what's right, it's not just about a business obligation, it's a family one," current fifth-generation chairman Fisk Johnson said in November 2009 when he launched a family-based ad campaign highlighting the company's commitment to sustainability.

SC Johnson, founded in 1886 by Samuel Curtis Johnson, is involved in a wide range of ethical initiatives. Since 2001, for example, it has been assessing the impact on the environment of the ingredients it uses in its products. As a result of its "Greenlist" process, the company can now rate 95% of its ingredients and is working towards only including those that have the least impact on the environment. 

So what, practically, can family businesses do to increase their ethical behaviour? According to Ramachandran, family businesses will only become ethical and socially responsible if family members are brought up with the right values. "They should believe that they are the trustees of society and that they have no right whatsoever to destroy any part of it," he says.

Making these values sustainable and company wide is a question of good communication. "Open discussion should be encouraged both within the family and the business about the extent to which they both practice the core values. This will not only reinforce the values but also develop clarity in the minds of younger members about the critical relevance of the values," says Ramachandran.

CSR Europe's Born says family businesses should develop CSR practices that are aligned with their overall business strategy. "CSR should not be an add-on to the core business, but a way of doing business. Buy-in from the top is essential, but it is equally important to engage all business functions at the grassroots level. It is also important to set concrete, measurable targets and key performance indicators in order to assess the impact of CSR activities," she explains. 

Born says many companies find that developing a solid CSR reporting framework helps them both to improve their internal management processes and to communicate their efforts to external stakeholders. She cites the sustainable reporting guidelines developed by the Global Reporting Initiative as an example of a useful tool in this area.

The benefits in the long run are clear, continues Born, who says an increasing number of companies are exploring how CSR can drive innovation and new business opportunities. "In a recent survey of 1,200 European CEOs conducted by management consultancy brands & values, nine out of 10 business leaders said they see ecological and social challenges as motivators of innovative products and business models."

As consumers increasingly drive demand for more responsible products and services, ethical business practices are also becoming an essential tool in building trust and creating a sustainable, competitive advantage.

Both Ramachandran and Born believe family businesses are uniquely placed to capitalise on this trend thanks to their values-driven management, their connection to the communities in which they operate and their ability to take a long-term view.

With a full year ahead before the next ethical company's list is announced, there is plenty of time to improve your company's socially responsible offering.