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What is an ethical business?

Bernardo Toro, an advisor to the Avina Foundation, said it clearly and with humor during the opening ceremony of the Latin American Impact Investment Forum (FLII) which took place in Mérida, México at the end of February: “It is a business that doesn’t prey on people; one that creates real value; one that pays attention to what’s important, not what’s showy.”

Simple and to the point.

I tend to write about down-to-earth issues such as the best practices to reach people who live at the base of the pyramid with goods and services, or why the low-income market is a huge business and development opportunity. Nevertheless, after attending Toro’s session I’ve been thinking about the ethics of business, and if the business models I’m familiar with actually live up to his definition.

While FLII had a great agenda full of interesting topics such as how to scale impact investment, the ABCs of public-private partnerships, and acceleration of social business, among others, the question of what makes an ethical company kept ringing in my head.

Shared value, conscious capitalism, inclusive business, social responsibility, impact investing, and ethical or socially responsible investing are some of the many terms that are used to refer to investments, companies or businesses that have a positive social, economic and environmental impact. I’m aware of the subtle differences between the different concepts and what makes people prefer one over another. And, like Toro, I tend to think the common denominator is that all of these ideas promote business or ethical investments that don’t ignore society or the environment.

However, in practice, and to my surprise, there were several rankings and awards for ethical companies. For example, the Ethisphere Institute, a think tank that promotes ethical business practices, presents each year a provocative (and perhaps “showy”?) list of the World’s Most Ethical Companies. Ethisphere determines whether a company is ethical based on its Ethics Quotient. (I wonder if something like ethics can really be measured with an index).

During their 2013 awards, Ethisphere Director Alex Brigham said, “Companies have become increasingly aware of the advantages being ethically conscious has to offer, especially in the global economy.” Brigham explained that the reason why the index has caused so much interest in companies is because they can “promote the recognition in their recruitment materials, as studies show that employees increasingly want to work for an organization that aligns with their own personal values. They are more loyal to such organizations.

“In addition to providing a competitive advantage in workforce recruitment, many companies also display the designation in their marketing materials to attract customers, particularly in new markets, where the company may not be well-known,” he added.

These types of rankings and recognitions may have positive consequences. They do keep employees and people accountable, for example. Nevertheless, shouldn’t the goal of conducting business ethically be sufficient? Why use ethics for marketing purposes? Beyond judging what Ethisphere does, I’m simply using their case to bring attention to the fact that it’s not easy to define what an ethical business is or what it should be.

Once Toro finished his speech at FLII, many stood and applauded. It was evident that his message resonated with most of the attendees. Making ethical investments and ventures should be simple: do not prey on people or the environment, create value, look at what’s important and avoid being showy. These simple rules should guide any business. Only when they are put into practice are we talking about sustainability. Only then is there a win-win relationship.

It was the right way for the FLII organizers to have opened their event.

Lina M. Salazar Ortegón works at the Inter-American Development Bank’s (IDB) Opportunities for the Majority Initiative (OMJ) in outreach & partnerships, communications, grants and knowledge.