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Put Virtue On the Corporate Radar

Transparency is the way to thrive in an age of corporate scrutiny.
Companies were under intense heat in 2004, and I'm forecasting even hotter temperatures in 2005. Regulators, customers, employees, shareholders and partners will all subject the corporation to greater scrutiny.

Excellent corporations can take the heat. Indeed, excellent corporations welcome the heat. They do business in a way that withstands close examination. The more customers know about these companies and their products, the more satisfied customers become. The more employees know, the happier they are to work there. Well-informed investors are more confident in management, and partners are more trusting.

Smart corporations understand that they must improve their behavior in this age of increased transparency. Jeffrey Immelt, General Electric's chairman and chief executive, recently told Fortune magazine that he wants virtue to be the No. 1 driver of his company's success. "The reason people come to work for GE is that they want to be about something that is bigger than themselves," Immelt said. "People want to work hard, they want to get promoted, they want stock options. But they also want to work for a company that makes a difference."

Immelt's emphasis on values leaves no aspect of the company untouched. It affects the way the company functions and how it treats its employees, the kinds of companies and countries it does business with, and even the technologies the company invests in. Immelt doesn't view virtue as a luxury GE can afford because of its size and success. Rather, he describes virtue as the key to continued success and growth in today's economy.

GE is among a growing number of companies that are becoming more transparent in the way they conduct business. Many of these firms publish sustainability reports, which document the corporate attitude toward critical social and environmental issues. Some firms even take steps to invite scrutiny and constructive criticism of their operations.

Asia Pacific Resources International Ltd. (APRIL) is one of the largest pulp producers in the world. In its 2004 sustainability report, the company included completely unedited critiques from two environmental organizations, the World Wildlife Fund and Yayasan Riau Mandri. The company essentially gave these external organizations blank pages and told them they could say whatever they wished.

The company's first sustainability report was released in 2002, and APRIL solicited comments on the report from nongovernmental organizations (NGOs), such as environmental groups, around the world. The 2004 report catalogs these comments and offers a point-by-point rebuttal to each criticism. Not every response will satisfy the critics, but APRIL shows a willingness to engage in debate that goes far beyond the norm.

Just Do It

Nike has long been the target of activists for the sweatshop working conditions of many of its suppliers. The company announced its first code of acceptable labor conditions for its supply chain back in 1992. Last year, the company held its first-ever Stakeholder Forum. The two-day event brought together the company's leadership, contract suppliers and members of the academic, labor union and NGO communities to discuss Nike's responsibilities to its global supply chain. One benefit of this exercise in transparency was that the different stakeholders could see how Nike tried to cope with external demands that sometimes contradicted each other.

Nike later noted that the meeting marked a milestone in the company's approach, moving it away from a "go-it-alone attitude and defensive response" and toward a "deep and transparent dialogue with a multitude of stakeholders, each with their own viewpoints and priorities."

Doubtless there will be more corporate scandals, and prosecutors will unleash a barrage of new lawsuits for misdeeds. But I'm convinced corporate citizenship is moving from the margins into the mainstream. Business integrity is on the rise—not only because of compliance with new laws, but also because it makes sense. Because of transparency, the corporation is becoming an institution rooted in sound values and integrity.

DON TAPSCOTT is the author of 10 books about technology and society, including (with David Ticoll) The Naked Corporation: How the Age of Transparency Will Revolutionize Business (Free Press, 2003). You can reach him at www.AgeofTransparency.com.