Insights

Reputation and Ethical HR Practice

Global

10.02.22

8 ’

Summary

As we conduct more business online, the reputation of a business becomes harder to protect, and the consequences of reputation damage increasingly farreaching. An incident that happens in one corner of the world can be heard loud and clear on the other side of the world – and within milliseconds. Social media enhances the effect, as people voice their anger, invite their followers to do the same, and boycott products. And due to the nature of the internet, the incident can never be erased, never completely forgotten.

This worrying context enjoins businesses to pay the utmost attention to their reputation if they value their customers.

Ultimately, reputation and ethical practice should reflect a deeper sense of corporate purpose. The Covid pandemic prompted millions of workers to re-evaluate their lives and goals, triggering the Great Resignation. Employers need to compete for talent and money alone is not enough. Workers today want to feel proud to be associated with their employer, and to become a digital ambassador for the company they work for. Equally, clients and customers want to know that the businesses they work with are responsible global citizens and will reinforce their own ethical goals rather than undermine them.

Richard Miskella

Diversity & Inclusion - Restructuring & Labour Relations - Employment Rights

Being aware of online comments

People ‘google’ brands before spending their money. According to a survey conducted by Brightlocal, 93% of consumers use the internet to find local businesses, and 87% read online reviews of them. Moreover, 94% of consumers reported that positive reviews made them more likely to use a business, while 92% said that negative reviews made them less likely to do so.[1]This shows how important it is for a business to have a good reputation online and explains why keeping a close eye on social media, contacting dissatisfied customers, responding to critical voices, and correcting misunderstandings are now all part of the daily activities of most businesses.

Being trustworthy

Unmet promises can affect how customers view a business – and so it makes sense only to make promises that you can keep. Another aspect of trustworthiness is how you protect personal data about your customers – and employees. When big data breaches occur that impact customers across the world, they make headline news and damage the reputation of the companies that allowed them to happen.

Being Human and Transparent

If a crisis happens despite all precautions, one strategy is to be honest and apologise instead of being defensive – provided, of course, that your lawyers agree, as it’s also important to reserve your rights in any potential litigation.

A great example of the mea culpa effect is how KFC reacted in 2018 in the UK, when faced with a chicken shortage that caused hundreds of restaurants to close and widespread customer dissatisfaction. KFC understood that a staid or dull corporate apology would not be enough and so they went the extra mile, coming out with a series of ‘FCK’ ads. These bold and clever ads thrived not only in the UK, but worldwide. It seems the local team that came out with these ads understood their audience, analysed the data they had and worked out their strategy accordingly, publishing their full-page ad in two national newspapers. They determined that the best course of action was to try to show their human face, be transparent about their failings and set out how they planned to solve the problem. And the public reaction was overwhelmingly positive.[2] KFC repaired their damaged brand, the ad campaign gained awards and the incident became one of the best examples of good corporate crisis management.

Being a responsible corporate

Cold and ruthless corporates are a thing of the past. People are increasingly looking for humane, responsible, and ‘ethical’ businesses – and are making their choices accordingly. According to the Edelman Trust Barometer 2021, 68% of people agree that ‘CEOs should step in when the government does not fix societal problems’, 66% agree that ‘CEOs should take the lead on change rather than waiting for government to impose change on them’ and 65% agree that ‘CEOs should hold themselves accountable to the public and not just to the board of directors or shareholders’ [3]– and it’s worth emphasising that this is a major shift in the way the public perceives how businesses should behave.

In 2020, the Edelman Trust Barometer revealed that ethical drivers (76%) were three times more important than competence (24%) in terms of people’s trust in a company.[4] In that survey, integrity, dependability, and a positive impact on society were used to define the ethical dimensions of a company. And ethics are not only important for customers but also for employees: IBM reported that for 41% of employees, employer ethics and values are key engagement factors.[5]

An ‘ethical’ company implies a company that is honest, dependable, socially responsible, upholds human rights, respects nature, is diverse, inclusive and equitable. The Environmental, Social, and Governance (ESG) criteria can help to attain the aim of becoming an ethical company.

“Environmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.” – Investopedia

Nor is conforming to ESG criteria just a moral choice. The law is evolving to enshrine legal expectations around this too. The forerunner of this was a paper published in 2011 by the UN on Guiding Principles on Business & Human Rights. The text is not legally binding, but it established some global standards that are starting to be picked up and legislated for in countries around the world. The Guiding Principles urges businesses to respect human rights, including avoiding ‘causing or contributing to adverse human rights impacts through their own activities’ and addressing those impacts when they occur. Businesses should also seek ‘to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products or services by their business relationships, even if they have not contributed to those impacts.’

Some of the most interesting emerging legislation around this imposes obligations on businesses to check their supply chains conform to certain standards. The ideas behind this are (i) to ensure that customers know more about the origin of what they are buying, and (ii) to drive standards up across the world. After all, if big businesses in major economies won’t buy from a supplier in a poorer part of the world because their ethical and employment standards are too low, the supplier will lose business. Supply chain due diligence laws thus require companies to ensure respect for human rights and the environment, and to have good governance rules in place, not only for themselves but also within the companies in their supply chains.

The EU appears to be leading the field: France has already passed supply chain due diligence legislation. A Dutch law introduces a duty of care in relation to the prevention of child labour. Just recently, Germany introduced new law (in force from 1 January 2022) and other EU member states such as Sweden, Austria, Finland, Denmark, and Luxembourg are debating the introduction of similar legislation. Within the European Economic Area (EEA), Norway and Switzerland also have new laws. And the EU itself has taken up the mantle, with proposal by the European Parliament that the European Commission should initiate an EU directive on corporate due diligence and corporate accountability. If and when passed into law, the obligations contained in that directive would affect all organisations that do business in Europe.

But ESG goes wider than supply chains: it’s a vast area encompassing environmental, social and governance behaviours. There are many national laws and international agreements in these areas that affect business operations. Although there are few employment laws requiring organisations to take account of the climate emergency, this is likely to change in future. New laws in France oblige employers to inform and consult with their Social and Economic Committees (similar to works councils) on the environmental implications of business decisions affecting the workforce. Meanwhile, Italy has introduced laws requiring large companies to engage ‘mobility managers’ whose responsibilities now include reducing use of private cars for commuting to work and promoting sustainable mobility. We also see that with the Paris agreement and more recently with COP 26 in Glasgow, nations are pledging to act to counter global emergency by, for example, reducing carbon, methane emissions and deforestation. For more on the climate emergency, work and employment law see our article with comments from 14 countries here.

Being culturally diverse and espousing equality

Another issue is discrimination and inequality in the workplace. Despite a plethora of supranational conventions and national laws, discrimination and inequalities persist in both society and in workplaces. The European Commission reports that 75% of people without disabilities are in employment while this number is 50.8 % for disabled people.[6]

Similarly, women earned on average 14.1% less per hour than men in the EU in 2019. [7]

On the subject of the gender pay gap, our lawyer Inger Verhelst (Ius Laboris Belgium) explains that the problem is less a case of direct and more a case of indirect, passive or covert discrimination, which falls into three categories: more women being represented in low paid sectors; women spending more time on caring and household work; and the existence (still) of the infamous glass ceiling, meaning women are less well represented in management positions. Harassment and bullying based on gender also continue to be problematic. Verhelst recalls an incident that happened in Belgium: unaware that his sound recording was on and broadcasting, a sports journalist made some inappropriate comments about women in the Belgian national basketball team. The incident provoked a fiercely negative reaction from the public and the reporter was suspended. Verhelst explains that to avoid these kinds of incidents, employers should work to increase diversity in their workforces and actively seek to change mindsets that are outdated or derogatory. It’s important to implement workplace policies that clearly explain the vision of the company and the values it stands for. Verhelst reminds us that employers should not only raise awareness about diversity, equality and inclusion but also how values and norms can be different across different generations and cultures and that re-education about what is acceptable in the workplace is part of the task.

So how can employers make sure that their diversity policies are working? One way is to monitor them, but our Spanish lawyer, Javier Alonso de Armino, explains that employers first need to check the law in their countries, as in some places, even asking or collecting information about diversity, for instance, is prohibited or breaches data protection laws, or is considered to indicate that discrimination might take place. If in doubt, take a look at our report on diversity monitoring, where you can find a global map covering 28 countries, as well as a podcast featuring Ben Favaro, an expert data privacy lawyer in our UK law firm.