Since the 2008 global recession, boardrooms have been under a microscope as the public watches closely for any signs of unethical or greedy behaviour – even while in recovery mode.
Starting with the Enron scandal and bookended by the global recession, the first few years of the new millennium showed consumers a gloomier, greedier side of business, and many are still experiencing the fallout.
“Certainly what happened in 2007 and 2008 was a significant body blow to the reputation and image of a lot of what used to be very successful financial service organizations and individuals,” says Fraser Johnson, a professor from the University of Western Ontario’s Ivey Business School in London, Ont.
“I think the general public has always been suspicious of how leaders and large companies, in particular, in the financial services conduct themselves,” he adds.
Particularly, shareholders and consumers alike list disclosure and the ability to trust a company’s business practices to be ethical as a top priority these days. As a result, business practices have shifted and more companies are concentrating on showing off their good side, which includes not only their own business standards, but those of third-party vendors they hire as well.
But Dr. Johnson points out that while the recession had a major impact on the public’s faith in Canadian businesses, there are many current factors – such as recent reports of child labour and poor working conditions in developing countries – that continue to push society to have more sophisticated expectations of Canada’s boardrooms.
Global sourcing, also called outsourcing, has recently caused ethical headaches for companies such as Apple, which uncovered multiple incidents of child labour in its supply chain (particularly in Asia) through an internal audit in 2013. Canadian clothing giant Joe Fresh made headlines last year after a Bangladesh factory that made its apparel collapsed and killed more than 1,100 textile workers.
“I think everybody was jumping on the low-cost sourcing bandwagon 10 years ago,” says Dr. Johnson. “But a lot of firms are re-evaluating those decisions for a number of reasons: One of them is cost related, the other one is risk. Part of the risk is … ethical behaviour of their suppliers and sustainability.”
Because of the lack of control companies have in overseas proce dures, many firms have opted to bring their supply chains closer to their base of operations. But the competitive state of today’s market and the cost of doing business domestically make it difficult to manage the bottom line while still recovering from the economic downturn.
Consumer behaviour has shifted since the recession, challenging companies to give them quality and ethically produced goods for less, according to the Business Development Canada’s 2013 Consumer Trends report.
However, according to BDC, “consumers are willing to spend more for ethically produced and eco-friendly products” than they were 10 years ago.
“The way I expressed the new normal is that we really are in a Hunger Games economy,” says Douglas Reid, a strategy professor at Queen’s School of Business in Kingston.
He says this fear-driven economy – encouraged by both businesses and consumers – is part of the direct fallout from the recession. But not kept in check, it could misdirect the entire moral compass of the marketplace – if it hasn’t already.
“Competition has spread beyond markets to embrace society,” explains Dr. Reid. By moving from a mixed economy to a market economy into today’s “market society,” as he calls it, fear of failure in the business world drives competition instead of what is best for the customer.
The consequences of falling into this pattern are that companies are developing an inherent lack of respect for the consumer, Dr. Reid says.
“We worry about making our numbers [first] and worry about customers as an afterthought,” he says. “It’s a real venomous story because it changes the dynamic in companies from co-operative systems to competitive systems.”
For Dr. Reid, it’s going to take those at the helm of the country’s corporations to turn it around.
“The only people who will be able to fix this are people who are on the inside and say: ‘Folks, this isn’t working the way we’re doing it, we have to find a different way to compete.’”
While companies struggle with keeping up with consumer demands in the current economy, their public image has become much more important since the recession.
Lesli Boldt, president of Vancouver-based Boldt Communications, says she’s seen this trend first-hand – both as a third-party vendor hired for her services by corporations and also as a communications and marketing specialist.
She says her clients have changed their demands since the crash.
“Companies are looking for a little bit more control over how they’re portrayed and in some cases it’s less about promotion,” she says. “Prerecession it was straight up get my name out there, and I think postrecession it’s more about making sure they’re presenting themselves the right way.”
With many companies still trying to recover from losses suffered during the economic crisis, this caution over hiring third-party vendors may be cash-driven, but Ms. Boldt says budget restrictions are only part of the issue.
“Clients are maybe a bit more cautious than they were in the past about how they’re spending their money and part of that caution is making sure that they have confidence in whoever it is they’re hiring,” she says. “You know there’s that saying that any publicity is good publicity? I’m not sure people necessarily believe that any more.”