<B>Ethical directors: from inside or outside?</B>

By Joshua Jampol. Journalist. The Time

15 July 2003

Many firms are still feeling their way in our new, “more ethical” business world. Whether due to a push from consumer pressure or a pull from a new generation of managers and investors, the result is the same: businesses are reexamining their social role.

For many, especially in an economic slump, it is also a matter of how best to lure new customers. Their first reflex is finding an ethics director, a sustainable development manager, leaders in environmental issues or social politics. These persons ideally rise out of company ranks, since the posts demand knowledge of the corporation and a global vision of where it wants to go. Also essential in these positions is the unflinching support of the CEO. These individuals likewise should bring expertise in areas such as ethical funds, which can help other managers integrate the idea of socially responsible investment, a notion assuming greater importance in the sector.

Ethical leaders typically spark, then coordinate actions, leaving each division and manager to take over. In one French insurance/investment firm, for example, the purchasing department hired a manager for sustainable development, who sets the pace. The company’s other general services then organize chasing down energy waste, auditing and evaluating what they find.

Sometimes firms will hire experts from outside, however. In these cases, the newcomers bring a fresh look and a free eye, which will hopefully delve more deeply and raise questions more easily than had they emerged from within organizational ranks.

Small staffs

Ethical managers must often be happy with small teams. Schneider Electric has 72,000 staff worldwide. Its sustainable development director, hired one year ago, has a six-person staff. A light, flexible structure is desirable, experts say, since this staff must constantly mobilize the other divisions. In France - where a new law went on the books Jan. 1 last year requiring publicly traded firms to deliver social and environmental reports on their activities - Air France’s territorial development director leads a team of five. This group seeks information from social partners it can use to spur change inside the airline’s management. Though small, such teams are probably here to stay, and many predict they will grow. Remember when, just a few short decades ago, the human resources manager’s job concerned nothing but paychecks.

Auditors too are getting into the act, hiring ethical directors. PricewaterhouseCoopers took on an ex-judge in 1999. His role is to define how auditors can work with lawyers and consultants, while respecting each profession’s ethical code. He also works with the risk manager (another new post) on conflict-of-interest questions, and assures professional secrecy. Essential to performing these duties is independence. He is attached to the company president and to no division.

Meanwhile, business schools are increasing their courses on sustainable development, social responsibility and financial ethics. One French school will have a chair in ethical research next year, while another will launch a masters in sustainable development. This trend is repeated at schools across Europe. At the Instituto de Empresa, a Chair in Ethics, funded by the Instituto’s Alumni Association, investigates the impact of ethics on decision-making in business. The Instituto hosts the Corporate Reputation Forum, a meeting-point for experts who analyze trends, tools and corporate reputation models. Participants include Agbar, BBVA, Repsol YPF and Telefonica. The Instituto’s Corporate Governance Centre likewise provides a platform for issues in the governance of business organizations.

These developments please recruiters, since business wants to sensitize students to notions like sustainable development. Being seen as a responsible company by future graduates is a must – and that doesn’t only mean serving organic food in the canteen.

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