Business ethics: an outsider’s view Speech to Professions Group Wales, 12th January 2011

You expect the Church to talk about moral values but it is fascinating to observe that the world of business also uses spiritual, even religious, language. Businesses talk about the need for “vision”, and having a “mission plan”. They are concerned about the “well-being” of their employees and emphasise “service” for their clients. Businesses at their best are no longer seen as merely places of work or anonymous corporations nor to be regarded as merely money-making machines. In a post-industrial age personal relationships have become crucial in business. People need to feel valued and cared for in their own right. Indeed there is a growing recognition that there is more to business than being able to balance budgets and make profits.

Indeed, there has been a discussion at Harvard Business School for those doing MBA’s as to whether there ought to be an MBA oath.  It’s a question of whether business executives should sign a pledge having the same force as the Hippocratic Oath for doctors.  Doctors vow “to prescribe regimens for the good of my patients according to my ability and my judgement and never to harm anyone.  I will preserve the purity of my life and my arts.  In every house where I come, I will enter only for the good of my patients, keeping myself far from all intentional ill-doing”.  Such an MBA Oath would lay out principles for business people and I will talk about it later on in this lecture and it has attracted support from more than 250 business schools across the world.

In this context ethical behaviour is seen as needing to underpin all business dealings. When newspaper headlines report huge financial payments or bonuses to executives people are outraged. Allied to this is the growth of the fair trade movement so that workers in countries where clothing and food are produced are paid a fair and just price for their work.

There is more emphasis on the need for ethical behaviour in business today than ever before.  The banking crisis has brought all that to the fore and the question asked is, why did bankers behave in the way they did?

In the popular mind people regard ethics as a system of guidance based on a set of principles or rules. Such rules determine what is right or wrong. The crime novelist R D Wingfield has his character Inspector Frost tell a prisoner whom he is trying to encourage to incriminate a colleague, “Forget ethics, think of survival”.  In the play “Enron”, a smash hit in London, the chief executive says “We’re just dealing in numbers” and another character says “A strange thing goes on inside a bubble.  It’s hard to describe.  People who are in it can’t see outside it, don’t believe there is an outside”.

To talk about ethics means talking about how we should live our lives and the kind of people we ought to be and the way we would like our communities to function. In the context of business this used to be regarded as irrelevant, pious or even weak. It was not seen as ‘businesslike’ in a world where competition ruled and financial growth was the only marker of success.

However we are now coming to realise that every time we make a choice or take a decision we are reflecting our personal values and commitments, indicating the kinds of people we are and the way in which we organise our lives. And in making those choices and taking those decisions we not only directly affect the lives of those around us but may also influence the way they may behave even unconsciously.

If we ask people why they take the decision they do, why they pursue a particular course of action, they may offer all kinds of reasons. We then learn something about their underlying assumptions and values, the ethics of their decision-making. And this operates even if we don’t actually articulate our thoughts verbally. When we blindly follow the patterns and methods developed by others, our predecessors, our mentors, our colleagues and competitors,
we are giving tacit approval to those same modes of behaviour.

Of course ethical dilemmas arise in a number of ways, most frequently when two or more principles call for contradictory responses in the same circumstances. None of us is always consistent and our judgement can let us down.  And this frequently takes place in full view of the media.  However ethics is about individuals’ relationships and how we choose to live in community, particularly in recognising the way others are affected by our actions.

What then of ethical leadership in business? Management is concerned, or ought to be concerned, not only with the financial, technical, and legal aspects of business but the values which underpin it.  In other words, what is its social purpose?

These values affect everyone connected with the business. One of the key functions of such leadership is to create
conditions by which the organisation’s values are harmonised with one another so that its mission is best served. There has to be consistency of message and behaviour across the organisation for its mission to be effective. Often however in the concern to increase productivity and hence profits, the need to comply with the plethora of bureaucratic regulations, and maintain a skilled workforce, to remain competitive, to anticipate trends in the market, it can take a secondary place and sometimes can be forgotten about altogether.

But it ought to be a fundamental given that institutions are created for people, not people for institutions. The mechanics of an organisation are obviously important or there would be no business to run but the key component must be the development of a culture, customs, traditions, and an ethos where people are valued. This means that the exercise of responsible ethical leadership is crucial. People need to be inspired, to have vision, to be enabled to make choices within the business, be empowered to suggest change, to exercise their own set of managerial skills. Effective leadership means that the ethical values operating should be explained so that others are encouraged to understand and explore those values for themselves. This is not always straightforward in a society which is multicultural.

What then are the tests which can be applied to ensure that
organisations  operate ethically? Dr Simon Longstaff, from
the St James Ethics Centre which works with individuals,
business and institutions in Australia concerned by ethical
dilemmas with which they are faced, highlights six:

  1. Would I be happy for this decision to be on the public record?
  2. What would happen if everybody did this?
  3. How would I like it if someone did this to me?
  4. Will the proposed course of action bring about a good result?
  5. What will the proposed course of action do to my character or the character of my organisation?
  6. Is the proposed course of action consistent with my espoused values and principles?

 

These may well be obvious to most of us but they are not always at the forefront of our minds when faced with a decision to be made. They need to be so ingrained that they are automatically applied as filters in the decision making of business. This set of test questions will enhance an organisation’s reputation because it is seen to be acting with honesty and integrity, genuinely seeking to implement structures which value those who are employed and those who are a business’ clients. Such scrupulous honesty brings with it accountability but positively shapes the environment in which business operates.

That being the case, let us look at some blatant examples of where the public has really been incredibly shocked by what has gone on in several different spheres.

  1.  The first obvious one is the banks.  Now we need banks to supply capital, create markets, devise savings schemes, facilitate payments and to provide insurance.  But where banks go wrong is when they try and get around regulations and devise executive remuneration schemes which promote greed.  Apart from the 2008 debacle, we’ve had plans by the banks to pay an estimated £7 billion pounds in New Year bonuses.  That is five times the amount charities received from corporate sources in 2009, at a time when we, as individuals, give £10.6 billion pounds to charities.  The Chancellor and the Business Secretary are still negotiating with the banks.  As the Business Secretary put it “The bonuses are completely unjustified.  The question then arises as to whether we can have new measures on top of strict new rules by the FSA”.  In fact the tax payer has stakes in two of our main banks.  In 2009 there were bonuses of £7.3 billion pounds.  I know all the arguments about having to pay bankers or else they go and work abroad but these people would have been out of a job were it not for the fact that they were rescued by the Government and ultimately tax payers.  This pay seems to be excessive and unjustified and ignores public anger.  It raises in acute form whether banks should be self regulated or have measures forced on them by the Government.Incidentally, in the UK, companies donate less than half of 1% of their profits to charities – significantly less than their American counter-parts.  And all of this is at a time when there are benefit cuts, rises in tuition fees and VAT at 20%.


Linked to all this, of course, is the disclosure of executive pay.  Apparently 200 employees in RBS were paid far more than Fred Goodwin, the Chief Executive, and that wasn’t even known to the directors, let alone the shareholders.  At Barclays, one person was paid £14million for what has been called “organising the bank’s tax avoidance” and the Board did not know that  either.   Quite amazingly, payments made by banks to senior management , staff and traders are not made public and Lord Myners, the previous Labour Minister said there was a lack of scrutiny given to companies by institutional investors who owned them and some were run for their top employees who had the freedom to indulge in all kinds of self serving behaviour.

Vince Cable, answering the objections of Government interference, says that banking is not a normal industry “it’s a bit like a power station.  When the power stations are functioning normally, you get heat and light.  If something goes wrong – there’s a strike or they blow up – the whole country’s plunged into darkness.  That’s why they’ve got to be run on a fundamentally different basis from other industries.  People in the industry don’t seem to understand or accept that”. 

There certainly needs to be some kind of banking reform and an independent commission on banking has been set up.  There is also the question of what people do with all that money and what effect does all this have on people who work hard but earn little.  And whilst we are talking about the banks, it’s not just a question of remuneration and bonuses but also too some of their practices which affect all of us.  For example, if you have a Cash ISA with a bank then that bank may or may not tell you that your one year deal, which looked very good when it was begun, has come to an end and that actually you are now earning 0.01%.  It also seems immoral to put new ISA savers on a higher rate from their existing customers and refuse to let the latter change.  It’s almost as if they disregard loyalty and faithfulness .  “Banks” said somebody “are like great white sharks – they just feed”.   There is little transparency or openness in banks or indeed in the asset management industry where there is opaqueness about the way fees are charged.

  1. Lest we think that I have it in especially for banks, telephone companies and broadband providers do some pretty immoral things as well.  Some of the telecoms companies treat their customers appallingly.  I’ll give you a personal example.  My wife’s telephone contract with a particular company came to an end and she decided to take out a contract with another company but through an agency.  That agency promised that the phone would be delivered within three days but in any event the customer had another 14 days to cancel the contract if you so wished.  Since the phone did not arrive after 7 days, my wife cancelled the contract and informed the agency.  Three days later the phone arrived and she sent it back by registered post.  In the meantime the telephone company with whom no contract had been taken out, sent her a bill.  She explained that to them and that the phone had been returned.  They still sent her a bill for more than £500 for the cost of the phone and rental.  This continued for 6 months, in spite of many explanatory letters.  It was only by threatening to go to OFCOM that she finally got them off her back when they also admitted that they had restored her credit rating.  Reading the newspapers, you will know that this is not an isolated incident – it is common practice among phone companies to send threatening letters and phone calls demanding payment for debts that are not owed and they often employ debt collectors who can be very menacing.
  2. Then there are airline companies.  Very often, they refuse to compensate you if your plane is cancelled even though they are legally obliged to do so.  People with complaints also often find it hard to speak to a human being.  Instead you end up filling in forms and submitting them by e-mail which are often not answered or acknowledged.  Or there are energy companies who do not automatically transfer anyone to their cheapest deal but force you to work it all out which is very difficult given the complexity of their systems.
  3. And then there is the issue of MP’s expenses. Someone has called all this “a moral blindness to be found in closed societies”.  MP’s found it difficult to understand why voters should be shocked at the exploitation of the expenses system, they themselves had devised and some of them still don’t get it.  Custom and practice had overridden any moral values.
  4. There have also been some striking demonstrations of companies trying to avoid their legal and financial responsibilities by restructuring.  One company in Australia, which manufactured asbestos products for the United States and Australia, was forced to establish a compensation fund for those who suffered with Mesothelioma.  To try and avoid doing so, it restructured itself in the Netherlands.  Interestingly, the public outcry was so vociferous that the company was forced by public action to compensate those suffering from this deadly disease brought on by its products.  An ethical dilemma was faced by shareholders who had to decide whether to retain their shares in a company which had acted so unethically.

In any organisation there are bound to be examples of bad practice or outrageous demands.  There is a great deal of difference, however, between human error and immoral practice. The MBA Oath is something worth considering because in the end conventional regulation cannot cure moral blindness or rule out greed.

There are 7 promises designed for all businesses.  The first deals with the right ordering of priorities.  “I will manage my enterprise with loyalty and care, and will not advance my personal interests at the expense of my enterprise or society”.

The second deals with the spirit as well as the letter of laws and contracts.  “Governing my conduct and that of my enterprise”.

The third renounces “Corruption, unfair competition, or business practices harmful to society”.

Four talks about how you treat people.  “I will protect the human rights and dignity of all people affected by my enterprise, and I will oppose discrimination and exploitation”.

Five deals with the environmental responsibilities of business.  “I will protect the right of future generations to advance their standard of living and enjoy a healthy planet”.

Six is about speaking the truth to regulators, tax authorities, share-holders, lenders and the wider community.  “I will report the performance and risks of my enterprise accurately and honestly”.

The seventh principle deals with management.  “I will invest in developing myself and others, helping the management profession to continue and advance create sustainable and inclusive prosperity”.

Andreas Whitham-Smith, writing in The Independent believes that since the Hippocratic Oath has left a great imprint on the practice of medicine, this business oath could do the same for business.

In the end, all companies are social organisms – they have a social purpose and have corporate social responsibilities – just look at how Rowntrees and Cadbury’s behaved towards their employees and society.  Wealth cannot be pursued regardless of the consequences.  Economic decision-making raises questions about the common good, but also about human character and integrity.

It is worth remembering that the word “economy” in origin is the word for “housekeeping”.  A household is a place where life is lived in common and housekeeping guarantees that all members grow and flourish so that the vulnerable, old and young are nurtured, the active support the household and relationships matter.  Good housekeeping seeks common wellbeing, balances the needs of all members of the household and seeks to secure trust among them.  If in any household all is reduced to how productive you are and how much wealth you produce, you are heading for its disintegration.  So too in our world, if we separate economic life from longer term goals for humans and fail to ask the questions of what life is for, and assume that the profit motive is paramount, then we will not be seeking the wellbeing of all, especially the most vulnerable and our society will unravel.  Shared wellbeing and how we achieve it are the most crucial questions that our country and world faces.

As the Archbishop of Canterbury puts it “The most basic relationship between one human being and another is not the carefully calibrated exchange of material resources.  Being a human self is learning how to ask critical questions of your own habits and compulsions so as to adjust how you act in the light of a model of human behaviour, both individual and collective, that represents some fundamental truth about what humanity is for.   And for the Christian, that is having resonance and harmony with the rhythms of how things most deeply are, with what Christians and others call the will and purpose of God.  Theology does not solve specific economic questions but it does offer a robust definition of what human wellbeing looks like and what the rationale is for human life well-lived in common”.

Quote 1) Simon Longstaff, St James Ethics Centre Sydney. Search Newsletter, 14th Jan 1997.