January 25, 2013 / 6:20 PM / 5 years ago

BREAKINGVIEWS-“Don’t be evil” business mantra not conflict-free

By Chris Hughes

DAVOS, Switzerland, Jan 25 (Reuters Breakingviews) - G oogle’s (GOOG.O) mantra, “Don’t be evil,” sounds so easy. But businesses, including the search giant, have struggled with avoiding harm while aspiring to do good. Executives gathered at the World Economic Forum in Davos see a simple logic: comporting themselves in socially beneficial ways can hurt financially in the short term, but must be good for business over time. Immediate conflicts, however, could make that promise difficult to uphold.

The pressure to change comes from society. In banking, it’s because taxpayers rescued the banking system. A financial firm that devises complicated structures to help clients minimise tax bills is going to find itself vilified by the media. Tax structuring is, in theory, a perfect post-crisis business for banks: it requires no capital and is highly profitable. But it doesn’t pass a socially useful test and can damage the brand. On balance, that makes a decision to exit easy.

Banks with big, capital-intensive commodities operations face a similar quandary. These units may serve a useful purpose by helping corporate clients hedge certain costs. But the same resources may also be utilized to help hedge funds speculate on prices and potentially exacerbate a squeeze on vital products like wheat, increasing food costs in a way that may not benefit society. A bank can’t easily cherry pick its clients.

It’s not just a banking problem. Consumer-goods businesses are particularly vulnerable to changes in popular sentiment. But strict application of an evil-mitigation strategy could lead to some aggressive portfolio pruning. It’s one thing to dispose of an obesity-fuelling snacks business when it is mature and low-growth. But if it’s the hot thing in emerging markets, the company may be tempted to justify keeping the business for shareholders’ benefit.

The traditional corporate approach was to offset “evil” by handing money to charities or doing good works, like giving employees a day off to plant trees to counter environmental impact. It’s laudable that chieftains in Davos are earnestly grappling with a holistic approach to making a positive impact. But they may find managing evil easier than avoiding it altogether.





(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

- For previous columns by the author, Reuters customers can click on [HUGHES/]

(Editing by Rob Cox and Martin Langfield)

((chris.hughes@thomsonreuters.com; Reuters messaging chris.hughes.thomsonreuters.com@reuters.net)) Keywords: BREAKINGVIEWS DAVOS/

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