Democracy that Delivers #403 – The Future of Corporate Responsibility in a Volatile World

On this week’s episode, Alison Taylor, Clinical Associate Professor at NYU’s Stern School of Business, joins CIPE’s Regional Director for Asia and the Pacific, John Morrell, to discuss her new book, Higher Ground: How Business Can Do the Right Thing in a Turbulent World. Professor Taylor, who also serves as the Executive Director of Ethical Systems, draws from her professional experience and academic research to explain why modern businesses care about anti-corruption practices, how she’s seen ethical compliance change over time, and what the next era of corporate governance should look like.

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Transcript

Announcer:

Democracy that Delivers is brought to you by the Center for International Private Enterprise. Now, to your host.

John Morrell:

We’re joined by Professor Alison Taylor. My name is John Morrell. I’m the regional director for the Asia Pacific Department at CIPE. And much of my background both within CIPE and before joining CIPE was in the anti-corruption space. It was the issue I worked on before joining CIPE.

I actually worked on large corporate corruption scandals, and since joining CIPE, I’ve worked closely with CIPE’s Anti-Corruption & Governance Center on some of CIPE’s most exciting and innovative anti-corruption programming, which is how I came across Professor Taylor’s research and her work. And so this is a conversation that I’ve been looking forward to having for quite some time. Alison Taylor, I won’t read her full bio, but her bio is available on the link attached to this podcast.

Alison Taylor, she’s a clinical associate professor at the Stern School of Business at NYU, and she’s the executive director of something called Ethical Systems. But how I came across Professor Taylor was her book. It just came out earlier this year. It’s called Higher Ground. Higher Ground: How Business Can Do The Right Thing in a Turbulent World. I’ve read the book. It’s very, very well done, very eye-opening. And that’s the first question I’m going to have for Alison is just to sort of tell us the genesis of the idea.

Because when I read the book, the overall sort of message seems to be the issues of ethical systems, compliance controls. These aren’t just feel-good things, sort of like corporate philanthropy. Okay. Corporate ethics. It’s a feel-good thing, sort of a touchy-feely sort of thing. But at the end of the day, business is business, and what matters is the bottom line.

Your argument, Alison, is that this is relevant to the bottom line. This isn’t something just for legal compliance. These are forms that you have to submit to the SEC, a nice feel-good thing for a company to have, but it’s not really integral to the company’s business or to its brand. So your thesis, Alison, is that it is. This is central to how businesses operate in an increasingly turbulent world.

So do you think I synopsized the book accurately, professor? And if you could share with us the motivation for the book, what went into it, because it’s not only focused on anti-corruption, but anti-corruption’s a big part of it.

Alison Taylor:

Hi, John, and it’s really wonderful to be here. Thank you so much for the invitation, and thank you so much for reading the book. I think I do agree that there is a business case for being ethical, but I actually think there are enormous numbers of books and people making that argument. And I’m trying to make a slightly bigger, broader argument.

So the genesis of the book is that I wrote an article for the Wall Street Journal called How to Build an Ethics Program for a New Era, and as a result of that, Harvard Business Review Press asked me to pitch them a book on the modern landscape for business ethics. And that turned out, the more I thought about it, to be a really, really fascinating question. And one of my key arguments in the book is that globally and as a society, we’ve become utterly confused about what it means to be an ethical business. And as some of your comments alluded to, there has been this tendency to treat this as a compliance problem, to equate business ethics with legal compliance.

But I think if we think about headlines in the business news, if we think about issues like climate change, human rights, inequality, biodiversity, the list goes on and on and on, we can see that legal compliance frameworks are no longer adequate or sensible to explore these wider questions. And we can also see that there is a raging debate about these questions that in the US at least takes the form of are you pro- or anti-ESG?

So my book is about topics like corruption, which have been historically dealt with via corporate compliance programs. But they also try to address bigger, broader, and more contentious questions about what the role of business in society should be, which are normative discussions.

And then the final point I would make is there’s almost become an allergy in this whole context to talk about ethics. I found it very, very interesting. I did about 200 interviews for the book. I found it very, very interesting how many prominent business ethics experts I would get on the line with, and who would say, “I try to avoid using the word ethics.”

And so another point is this is an area of tons of jargon and tons of confusion. And so the goal of the book was to try to clear up some of that confusion, to talk to general business leaders as well as people in specific functions, about how these questions need to evolve and how corporate approaches need to evolve. That’s true of anti-corruption. It’s true of a number of other areas as well.

John Morrell:

My primary interest in your book is the topic of anti-corruption, which I know it’s the focus of chapter five. But before I ask you about that, another issue that your book does touch on, and it’s also in the book, if someone reads the description on Amazon. Again, Higher Ground: How Business Can Do The Right Thing in a Turbulent World.

Even the description in the book jacket on Amazon says that one of the things that the book touches on is how should a company comment on contentious political and social issues? This is increasingly salient, especially for younger professionals, who, for whatever reason, tend to have expectations of their employer. That their employer take a stand on issues that maybe previous generations would’ve considered, “You know what? That’s a political matter. That’s a social matter. It has nothing to do with my company. It has nothing to do with my employer.”

A growing percentage of the American workforce has that expectation, that their employer should take part in these debates. Your book touches on that issue. How should a company navigate that? Any insights you could share on that topic, I think, would be of great interest.

Alison Taylor:

Sure. So, yes, that is one of the prime arguments of the book, that for a variety of reasons that are discussed in a lot of detail in chapter one, we have become more enthusiastic and more focused on the idea that business should take positions and should do something to address social and environmental issues, and particularly social and environmental direct impact. So there’s also been, and we can see right now, there’s a debate over what corporations, universities, et cetera, should do about the conflict in the Middle East.

So I think this is certainly an issue in the US, but it’s also an issue globally. I’ve just been touring Europe to promote the book, and this conversation came up over and over again in Europe as well, and I know it comes up in Asia as well. So I think there is a wider shift in values and then a wider concern and frustration of the role of business in causing some of our big problems such as climate change, such as corruption, and so on.

And so a lot of these pressures, I think, have led corporate leaders to over-promising and to treating communications on these issues, so standing up and taking positions on racism in the aftermath of George Floyd’s murder, for example, and there’s been a tendency to treat these as PR approaches, rather than understanding that you need to have your ducks in a row internally, you need to be doing something about the issues you purport to care about, and you need to be doing something about very widespread perceptions of corporate hypocrisy.

And so I think this really illustrates the conversation that we were just having about how none of these questions sit neatly in the traditional ethics and compliance function. These are partly communications challenges. They’re partly sustainability challenges. They’re partly human resources challenges, because they affect organizational culture. They’re partly government relations challenges because a lot of what companies are doing is saying one thing in their sustainability reports and doing something completely different with their lobbying and political spending budgets.

And so I think part of what we need to do is be more honest and realistic and focused about what we say as corporations, the problems we’re going to take on and seek to address. And especially given the backlash against ESG and DEI going on in the US right now, we need to be much more realistic, focused, cautious, and restrained about what we do and don’t do.

Because I would argue that in the late 2010s, in the Trump administration, it was sort of the worst of both worlds. Companies were over-promising and talking to their stakeholders and implying they could solve all these systemic challenges, which led many people to think these challenges were being addressed, and in fact, they were not being addressed.

And so we need to get to the point, we need to really get to the bottom of these questions, and we need to, I think, stop doing the same thing over and over again and expecting a different result. But it’s a very, very complicated picture, and for sure, that’s a big reason why I wrote the book.

John Morrell:

One last question before I ask you about chapter five. You mentioned in the United States, the growing pushback against even just the usage of the terms ESG and DEI. Not even the underlying concept. Just those terms. Even though each of them only has three letters in the acronym, both of them have become four-letter words in American politics.

You mentioned that you’ve been touring this book, again, Higher Ground: How Business Can Do The Right Thing in a Turbulent World. It’s very, very interesting work. I highly recommend it. I have a copy in my office.

But you mentioned, Alison, promoting the book as traveling through Europe. Do you see this phenomena in other major markets, whether it’s in Asia but in particular Western Europe? The fact that ESG and DEI, which I had previously thought were kind of technocratic terms, but they’ve become terms with real political salience. People run for office either for or against these concepts. Do you see the same political dynamic emerging in other markets? Or is this an American thing?

Alison Taylor:

I think the particular toxicity of these three-letter acronyms is a peculiarly American problem. And this is partly, I would argue, the result of an organized social media and political campaign by the right wing. It’s also, I think, a consequence of many progressives pushing companies to go further and faster, and never being satisfied, no matter what companies do. And so there’s, as we know, a very, very, very polarized landscape in the US, and DEI and ESG have become subject to those polarization dynamics, just as many, many other things have. We’re in a lot of trouble in this country.

But let me give you an example to answer the question about Europe and how this applies in Europe. I spoke to several audiences when I was in Copenhagen a month or so ago, and I think when I introduced the anti-ESG backlash and the anti-DEI backlash, I think the initial reaction of senior executives in Denmark was, “Americans are just crazy, and this has nothing to do with me.” But when I got into wider human rights, ESG reporting pressures, supply chain oversight dynamics, and then the question of speaking up, it quickly became clear that these questions resonate in Europe as well.

So in Denmark, or in Copenhagen specifically, there is an organization called Copenhagen Pride, which is exactly what you think it is. Corporations have sponsored the annual Pride Parade for a very, very long time. This is obviously a big feature of Pride parades here, at least until very recently.

But Copenhagen Pride, the organization popped up this spring and said to its corporate sponsors, “If you’re going to sponsor Copenhagen Pride this year, you also need to take a position on Palestine.” And that had caused all these corporations to, I think, rather understandably, withdraw their support, because they felt that this was a very, very divisive issue.

And so I think it’s a good example of how these issues are becoming conflated. I think it’s a good example of the kind of pressure that corporations are under from activists, from employees, from external organizations, to solve or address issues that I think most of us would agree, the challenges in the Middle East are pretty intractable.

And so I think when you kind of double-click or dig beneath the surface, many of the same challenges are showing up globally. They look very different depending on the regulatory context, depending on the wider social norms and wider social contract. And we have particular problems with the social contract, I think, in the US, but I think it would be wrong to characterize this as a uniquely American issue.

John Morrell:

Thank you. It’s fascinating. The sociology, the politics, how this issue has evolved and how it’s evolved so rapidly.

Alison Taylor:

Yes.

John Morrell:

And you made a really good point, Alison, that so many companies, whether it’s, again, the post-George Floyd issue, or companies issuing statements on DEI, or for or against ESG, it’s PR. So much of these are PR efforts, if nothing else, because these are sometimes broader societal issues that an individual toy manufacturer can’t necessarily impact themselves.

One issue though that companies are increasingly dedicating attention to, and it’s the focus of chapter five in this book, is the issue of bribery. Now, one company can’t by itself, unless you’re talking about a small market that’s dominated by one gigantic employer, and there are a few markets like that around the world, but for even the larger emerging markets, no single company has that sort of dominant pricing power. So for the most part, an individual company can’t by itself make a country less corrupt.

But what a company can do is reduce the probability that its employees engage in bribery. I can’t necessarily affect the broader marketplace, but by God, I can reduce the probability that my employees engage in bribery. And that’s not just a matter of PR. You’ve mentioned how there’s a growing number of books focused on the business case of business ethics. The business case for anti-bribery, the business case for anti-corruption, is clear. It’s empirical, it’s documented.

Corruption’s bad for business, and businesses are willing to make real investments to reduce their exposure to those risks, and the Foreign Corrupt Practices Act investigations and the billion-dollar fines that can ensue. So this issue of private-sector approaches to reducing bribery risks, it’s not just PR. It’s a real issue, and it’s the focus of chapter five in your book, Alison. And so what are the main arguments that you lay out in chapter five?

Alison Taylor:

Thank you. That’s a really great set of questions and a really great description. Let me start by saying that, like you, my background is in anti-corruption. I was in corporate investigations for 12 years, and I did a lot of anti-corruption due diligence, and a lot of anti-bribery training, and a lot of thinking on anti-corruption and particularly its relationship with political risk. And so chapter five is about corruption, but it’s also, I would say it’s a wider discussion about the limits of regulatory compliance frameworks. Let me explain.

So I think if we look at the evolution of anti-corruption programs, and John, I’d be interested to hear whether you agree with me, but I suspect you would agree with me, it is nothing short of miraculous the level of international consensus that we have on what a corporation needs to do to fight bribery. I think if you had looked at the picture in, let’s say, the year 2000 or 2003, that was still an era where if you mentioned corruption or bribery in a business meeting, there’d be an awkward silence, and bribes were tax-deductible in Germany up until the late 1990s. There was an idea that that’s just the way they do business over there, and you’ve just got to kind of bribe to get things done.

20 years later or so, we have enormous amounts of FCPA enforcement, and then many, many other countries in the world, which we could all name and list, have also put in place very Draconian anti-corruption measures. And at the same time, a consensus has emerged on what it takes to run a good anti-corruption program, which I suspect listeners are familiar with as well.

You need policies and procedures, you need officials with authority, you need to do third-party due diligence, you need a whistleblowing hotline, you need to do investigations, you need to report to the regulator. So we have made astonishing progress on this topic. And at the same time, ethics and compliance functions have grown exponentially.

But as your question also implies, that raises a number of very, very difficult questions. I think any big, credible multinational will have these anti-bribery processes and training in place. I think third parties know they need to sign anti-bribery agreements anywhere in the world if they want to do business with a multinational company.

But I think we might ask questions about how much corruption has really been reduced during this era. It seems that it’s raging out of control, and much of it is legalized corruption. And then I think there’s also a question of what we do if there is either endemic corruption in a market, so you cannot operate there without getting repeatedly hit up for facilitation payments, for payments when you’re getting your goods through a port or going through a police checkpoint. Often, this is combined with extortion. There are questions about whether and how you can operate in a kleptocratic environment.

And then there are wider questions about the impact of corruption on society. I mean, corruption of course needs somebody paying the bribe and somebody receiving the bribe, so there are also questions about the public sector and the private sector.

And that is, of course, John, where I came across you and your work and all the work that CIPE has done on collective action in Thailand. So I was so fascinated by your work and also the work of an organization called the Maritime Anti-Corruption Network, because you are thinking systemically. You are getting companies together to think about and tackle these more systemic issues in a market, in your case, Thailand, and have made absolutely remarkable progress, which I think in case listeners aren’t familiar, you should tell us about.

But that is the kind of thinking that is much more typical in the human rights space and that we need much more of in the anti-corruption space. And I think really, this story illustrates that, yes, you can get so far with internal policies and procedures; yes, you can do something to ensure that your employees don’t pay bribes. But if you are not tackling or thinking about those wider systemic challenges, there is a scenario where your employees are being told, “Don’t pay bribes. You’re going to get fired. And also make sure you grow your business rapidly. And if you don’t do that, you’re going to get fired.”

And if you’re in a very high-pressure, very corrupt environment, it may be impossible to meet both those goals. So we need to have a more systemic and realistic conversation, and that’s how I learned about your work.

John Morrell:

Yeah. It’s interesting you say that, because in the project you’re referring to in Thailand, which is based on collective action, I mentioned how one company, unless you’re talking about a tiny frontier market with one gigantic mine or something, that one business venture has disproportionate pricing power. Those are pretty rare. Even in emerging markets, these are still gigantic multi-hundred-billion-dollar markets. One company can’t influence broader societal trends. They can address their own risk.

But really, for companies to have an aggregate impact, Alison, you used the term the way things are done. It’s just the way business is done in that marketplace. If businesses work collectively, and if you get enough businesses working collectively, enough businesses abiding by the same ethical business practices, then you can start to have aggregate national-level impact.

Because Alison, one thing that’s documented, and I know you’ve come across this because you refer to it in your book, whether or not to pay a bribe is the result of a cost-benefit analysis, just like any other human behavior. Whether or not I should pay this bribe to the government official in order to win the contract. It’s basically governed by two factors: how likely am I to get caught and how much of a return can I expect for doing it?

If I can make a lot of money off this, life-changing money, millions of dollars by rigging this one contract, and nobody will ever know, no record. I’m responsible for keeping all the records, nobody will ever know, so I’ll make a bunch of money, 0% chance of getting caught. The probability that I do it, that I engage in that illicit behavior, it is self-inherently greater. But if I can’t really make that much money, if the expected return is low and the odds of getting caught are high, I am self-evidently much less likely to do it.

The sort of controls that you’ve mentioned, Alison: does your company have a whistleblower mechanism? Does the company have anti-bribery policies in its bylaws? None of these things eliminate the risk that someone does something bad. If I were cleverer than I am, I could find a way to embezzle money from my employer. I’m just not smart enough to do it. But if someone’s smart enough, they can find a way around whatever rule is in place.

But these systems do reduce the risk. They reduce the probability that an employee engages in bribery, precisely because the expected return goes down and the odds of getting caught are higher. Enough companies living by the same practices, you can start seeing aggregate impact.

In your research, Alison, is this sort of collective action approach becoming more common both within the anti-corruption space, but also in matters of environmental compliance, human rights protection, things like that? Is this collective action approach still kind of a niche concept, or are you seeing it more and more?

Alison Taylor:

I don’t think it’s a niche concept, but one thing I would say is that there is much more collective action in the sustainability and human rights space, at least until recently, than there has been in the anti-corruption space.

So I worked for a sustainability non-profit called BSR for several years, and BSR runs many, many, many collaborative initiatives on sustainability topics. So palm oil, climate change, watches and jewelry. There are many, many, many collective action initiatives.

And I think part of the reason that historically there’s been so much more collective action in sustainability and human rights is that these are not regulated areas, these are voluntary areas, so it is easier for companies to collaborate than when they have to think about antitrust, and they have to think about confidentiality agreements, and when there are a lot of legal concerns about sharing confidential data and that kind of thing.

And so it’s also an interesting illustration of what happens when an issue becomes more regulated. And so I think what needs to happen in the anti-corruption space is many more initiatives like your initiative in Thailand, or like the Maritime Anti-Corruption Network, which really works globally on these systemic issues in the port sector, and has had absolutely remarkable success.

I know there’s an initiative in pharmaceuticals that, compared to the number of initiatives in human rights and sustainability, there’s still not nearly enough. And that’s perhaps because internal ethics and compliance officers are focused on those internal controls at the expense of thinking about the wider impact and the wider collaboration opportunities.

And so part of my argument in chapter five was to try to draw attention to your work and to other similar work, and to try and show business leaders that that kind of action is where we need to go next on anti-corruption. So, yeah. Your work is a huge inspiration here, and I think there should be more of it.

John Morrell:

Well, thank you for that. One last question. In addition to your role as a clinical associate professor at the Stern School at NYU, you’re also the executive director of Ethical Systems.

So in your multi-hat-wearing career, and you’ve generated some of the research yourself, you’re familiar with the cutting-edge research in these fields, these fields of business ethics and related fields of anti-corruption. So my last question for you, Alison, is what do you think needs to happen to see the next breakthrough of progress?

Alison Taylor:

There’s so many ways to answer this question, but let me just focus on a few things that would be of particular importance to people working on anti-corruption. The first is, I think there is a need to have a question, a conversation, rather, about internal governance. Anti-corruption does not fit neatly in ethics and compliance if what we need to do is consider wider impacts, including on human rights. So I think there are questions.

There are also questions raised by the evolution of sustainability about who has responsibility for what, and also how companies communicate and how they ensure they’re not being hypocritical. So questions about the role and remit of the board, of the C-suite, and of various internal functions need a dramatic rethink in our really hyper-transparent era, with the rise of employee activism and the politicization of business. So that’s one big area where I think there needs to be a lot more fresh thinking.

The second area which speaks directly to my work at Ethical Systems, is about human behavior. So you said earlier, and I don’t necessarily disagree with you, you talked about cost-benefit analysis. And yes, human beings do think in terms of cost-benefit analysis, but human beings are also extremely influenced by social norms, by the social context, by looking at how leaders behave, by thinking about what sort of behavior is being incentivized and rewarded, so that might be formal compensation. It’s also how do you need to act to get promoted around here?

And so, again, I think we’ve reached the limit of sort of procedural legalistic process-oriented approaches to anti-corruption, and we need to think more widely about how we shift social norms, how we think about human behavior in organizations, and how we think about that social context.

And this shows up in a lot more areas beyond anti-corruption, but I think it’s a fascinating area of research, is that kind of integration of behavioral science and social psychology into the questions of how human beings behave in groups, including in our corporations. So I would say those two things, but you’d really need to read Higher Ground to get the rest of it.

John Morrell:

Absolutely, which I recommend. Higher Ground: How Business Can Do The Right Thing in a Turbulent World. And Alison, I think you may have just teed us up for a follow-up conversation, because you’re closing with the discussion of norms, and how when people view a certain type of behavior, even an illicit behavior, whether it’s bribery or whether it’s things like domestic abuse, if people view a behavior, even an illicit behavior, if people view it as being common, unavoidable, everybody does it, can’t do business in that country unless you do it, you’re far more likely just on a human instinctive level to engage in that behavior.

Whereas if you realize that you know what? Not everyone does it. You can operate a business profitably without doing that. You can be a man in good standing without doing those things at home. If you believe that those sorts of behaviors aren’t universal, you can avoid them. Just on a human instinctive level, you’re far less likely to do it.

Alison, I would love to have a follow-up conversation with you about that, if nothing else. It’s always fun talking to a fellow Oxford alum, and your impressive CV shows that you studied at Balliol?

Alison Taylor:

That’s right.

John Morrell:

I spent some time in Trinity. Beautiful school. I was actually there when one of the Harry Potter books was released. Everybody was running around with brooms and witch hats. It was a lot of fun.

But all of our listeners, I’m sure, no doubt, appreciate you taking the time to speak with us, Alison. Once again, one more plug: Higher Ground: How Business Can Do The Right Thing in a Turbulent World. Interesting, interesting book. A lot of critical data. It’s data-driven analysis that’ll help businesses make more informed decisions. And also, there are a lot of lessons for anti-corruption practitioners who oftentimes miss the role that the business community can play in achieving desired societal outcomes.

So Higher Ground: How Business Can Do The Right Thing in a Turbulent World, written by Professor Alison Taylor. Alison, thank you so much for taking the time. We look forward to having you back.

Alison Taylor:

Thank you so much, John, and your own work in shifting social norms was a huge source of inspiration for me as I think about these topics. Thank you also for your work and for having me today. A wonderful conversation.

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