The following is part one of a two-part guest post by Alison Taylor and James Cohen.
2016 is only half-complete, but it’s already been a pivotal year in ethics and compliance. The Panama Papers and Unaoil data leaks have ushered in a transformed transparency environment. Due diligence approaches have come under particular pressure as it came clear that standard tools and approaches are not fit for purpose. Leading thinkers in compliance have called for Compliance 2.0, a boost to the power and authority held by compliance functions, to match its rising accountability. Corporate responsibility and ethics teams are working more closely together in recognition that issues of strategy, incentives, and culture require organizational change, as well as thinking and approaches that cut across internal teams. Governments, the media, and civil society organizations have become increasingly aware of the systemic drivers of corruption.
With so much going on, this is a good moment to pause and consider the future of business ethics. What will keep the compliance and ethics officers of the future up at night? We will present six ideas over two articles. Part One, here, deals with emerging global trends, and Part Two will focus on organizational responses.
Hyper-transparency and its Consequences
Today, Facebook has over 1 billion users, approximately two-thirds of the world’s population have mobile phones, and one-third have access to the internet. By 2020, 80 billion devices will be connected to the web. Amid all this, the media industry has fragmented, public debate has become less top-down and more diffuse, and both companies and governments have had to accept that their ability to control reputation has become greatly reduced.
This new environment raises complex, morally fraught questions around privacy, surveillance, transparency, and freedom of expression. Companies will learn to behave as if everything they say and do may become public, but they will expect the same of employees. Employee surveillance and monitoring will become standard practice as companies seek to detect behavioral risk before a violation can occur. Big data solutions to measuring third-party risk, emerging threats, and employee compliance are mushrooming. The vast expansion of interconnectedness will transform how companies manage and engage with their external and internal stakeholders. Information can no longer be reliably distributed over time; nor can its content be easily controlled. This will require rethinking approaches to reputation, stakeholder engagement, and values.
Governments, too, are increasingly under pressure to commit to such global transparency initiatives as the open government movement and the Extractive Industries Transparency Initiative (EITI). One high-profile transparency initiative, particularly in the wake of the Panama Papers, is the creation of national corporate ownership registries. While these tools have shortcomings, companies should expect the trend toward transparency and accountability initiatives to intensify with each global corruption scandal. They should also expect more OECD countries to bolster their commitments to the Convention on Combating Bribery of Foreign Public Officials. It will be important for companies to give honest feedback regarding growing government and civil society initiatives, as well as to recognize that standards are changing. Neither self-assessment nor box-ticking will endure.
Individual and Collective Empowerment and Rising Expectations
Today’s headlines are focused on inequality and political populism, with executive pay and compensation serving as a particular pressure point for companies. But there is another underlying story: the growth of the middle class. By one estimate, the global middle class will increase from 1.8 billion people in 2009 to 5 billion in 2030, a growth trajectory that is concentrated in the Global South. This shift represents a momentous point in the story of human development; for the first time in recorded history, a majority of the world’s population will NOT be impoverished. Also, it is estimated that by 2030, 90 percent of the world’s population will know how to read. Improved living standards and education levels will create an unprecedented level of individual empowerment, along with rising expectations from business and government. We are already seeing this play out in soaring popular anger about corruption in countries as varied as Brazil, India, China, Russia, Turkey, Malaysia, and Indonesia. Corruption provides a powerful explanation for the misuse of public funds and the failures of government to meet the public’s aspirations for more just and prosperous societies. This is becoming an issue in the Western world, too, particularly given the lack of benefits from globalization.
Individual empowerment is also bolstered by collective action. There is no longer such a thing as a remote region in the world. Through social media, citizens in the most distant locations can galvanize around issues or work together on hackathons of open government data. Such endeavors, in turn, create evidence for action against those regarded as responsible for breaches of ethical and accountable corporate practice. Citizens in highly corrupt countries once generally lacked the tools to confront corrupt governments and corporations, but this is changing. As “anti-corruption literacy” grows among the public, companies should expect more of their business dealings to be part of the open data that the public reviews. This applies to any global business: Citizens around the world are tuning into how international illicit financial flows work.
We can expect demands for the fulfillment of individual human rights to continue. This will lead to an increase in public expectations from government and business, more powerful advocacy for social, economic, and environmental justice, and the creation of a more vibrant and extensive civil society. The role of the business sector will change as expectations around its responsibilities shift. The standard, outdated concept that the purpose of a corporation is to “drive shareholder value” may be replaced by broader concepts of stakeholder trust and “shared value.”
The Demographic Shift and the Automation of Work
The world is getting older, as illustrated by two statistics. In 2012, the size of China’s workforce reached its peak, and today over 60 per cent of the world’s population lives in countries in which the fertility rate is below the replacement rate. This aging process poses sweeping social and economic implications, including a decline in the number of workers available to business and an increase in local communities’ need for (and demand for) services associated with an older population.
Countering this overall decline in the workforce will be the expected sharp reduction in the need for workers, owing to the automation of jobs. Companies across various industries are embracing technology to improve operational efficiency, conserve natural resources, reach new markets, and support innovation. These forces, though they can be powerful drivers of economic opportunity and improved well-being, carry a host of risks, most notably the elimination of large numbers of jobs. Many experts cite labor’s declining share of GDP in many advanced economies, structural unemployment, and rising economic inequality in many countries as indicators that a transformation in the labor market is already underway, with technology as a key contributor. Many jobs will be eliminated and others will be created. The effects of this transformation will vary enormously across countries and demographic groups, with risks of widespread societal and political disruption in a number of areas.
The complex interaction between these two trends makes predicting the consequences for society particularly difficult. Still, it is likely that in an era of reduced employment opportunities (and reduced job creation by business) the pressure for equitable sharing of value will be intense. This will place a premium on the abilities of business to support local communities via investments, local contracting, and tax revenues – and to explain the value of its support. Communities of the future may require far more extensive provision of services and facilities to support aging populations. The role of business in supporting more inclusive economies will be reexamined.
Alison Taylor is the Director of Advisory Services for BSR (Business for Social Responsibility). Her bio can be found here. Also, here is a link to my video interview with Alison on “How Organizations Impact Corruption.”
James Cohen as an expert on anti-corruption, international development, and security sector reform. He is based in Washington DC, and can be followed on Twitter at @JamesCohen82.