The Importance of Corporate Ethics

“To be able to practice five things everywhere under heaven constitutes perfect virtue……
gravity, generosity of soul, sincerity, earnestness and kindness.”
(Confucius 551 – 479 BC)

Ethics can be defined as having a set of principles or as the study and evaluation of
human conduct when related to moral principles and decision-making especially among those people who wield the power and influence to affect the circumstances, conditions or lives of other human beings. That definition implies a sense of duty, obligation, responsibility,
accountability and code of conduct when executing personal or business affairs. And, it tends
to be the code applied by military personnel and explains, perhaps, my position on the
subject.

In the United States the subject of ethics and ethical values, not just in business but
in politics, has achieved a much higher profile during the first few months of the 21st Century.
Indeed, it could be suggested that the campaign of Senator John McCain, which centred on
the fervent belief that big business and their influence on decision-making in the US Senate
and Congress should be removed from politics, has acted as a catalyst. So much so that he,
apparently, attracted votes from people who would not normally have voted for his political
party. In surveys most Americans now agree that dishonest and unethical behaviour,
especially lying to win votes, is unacceptable.

But can moral and ethical principles really be applied to business? I think that it was
John Wesley who suggested some two centuries ago, that one should make as much money
as possible but not at the expense of other people. The majority in the world of business
would, undoubtedly, suggest that they are in the business of business, that is wheeling and
dealing in products, commodities, shares or even people, or, more simply in the business of
making money. Some might even suggest that not only is there no room for kindness,
generosity or sincerity in business but that there is no room for ethics. Indeed many would
appear to subscribe to the mantra of Milton Friedman, who wrote,

"Few trends could so thoroughly undermine the very foundations of our free society as the
acceptance by corporate officials of social responsibility other than to make as much
money for their shareholders as possible.”
(Milton Friedman. Capitalism and Freedom)

But is that really the case for business now? Do people really believe that companies
are in business, simply, to make money for shareholders and do directors have no
responsibility other than to be held accountable to shareholders? Should business not accept that the creation of wealth, through the managed and controlled effort of a workforce, also includes moral and ethical responsibilities? What about society, what about communities, what about ecological and environmental issues? How many companies make any kind of effort to question and review the needs of all their stakeholders? How many companies have a mission statement that includes mention of customers, suppliers and employees and how many have a code of conduct for their staff?

Education and the media, not just newspapers, magazines and television but,
increasingly, the Internet are all improving the general knowledge and understanding of
people on environmental and medical as well as political issues. Even in the middle of the last century when World War II was at its worst, information and pictures on what was happening during the conflict took a long time, if ever, to reach ordinary people. Information on natural disasters like tidal waves, monsoons, hurricanes and floods were not easily or readily
available and, in that respect, did not touch the lives of people in other regions of the world.
Now the recent floods and devastation in Mozambique, disasters on the continent of South
America and the after effects of earth tremors are brought to our living rooms almost as they
happen. The conflict in the former Yugoslavia and horrific information and pictures of the
mistreatment of human beings help to turn the tide of public and world opinion against
oppressors.

If we have reached thus far with technology think how much greater the availability
and exchange of knowledge, with the growth of electronic and media systems during even
this decade, will inform people at large. Multi-media will provide information not only on
natural disasters and tragedies but also of misdemeanours in the world of business!

Therefore, executives, senior managers and political and business leaders should be
aware that any actions and decisions they make must take into consideration moral and
ethical values. This includes addressing the subject of conflict of interest. For example, in the
British House of Commons elected politicians are required to register any connections they
may have with a particular company or business field, other paid sources of income such as
from writing newspaper or magazine articles, public-speaking engagements, non-executive
directorships or family-owned businesses. And they must state such interests if speaking on
the subject or a related matter in Parliament. For the time being such rules do not apply to the
unelected House of Lords, however, public opinion is likely to change that position.

There are many examples, especially in business and politics, where information
gained from one source can or could be used to personal advantage. This could be
something as straightforward as nepotism where an employee in an organization might use
his or her influence to obtain employment for a relative. Or, through a position of power or
influence, arrange for a contract to be awarded to another company in which they or a relative
have a vested or even a controlling interest.

Other more simple acts are accepting bribes when awarding contracts or using your
employer’s property, for example stationery, computers and printers to carry out private work
or work for which the company is not contracted. Other more blatant acts might be to set up a
company that might feed from your employer's business or operate in direct competition by
‘poaching’ customers or, offering consultancy services based on information gleaned from
your employer.

Apparently the only test as to whether there is a ‘conflict of interest’ is to be able to
answer the question - “If my employer, my employers customers or clients, my business
colleagues, professional institutions, the legal profession or the general public knew what I
was doing would they still trust my judgement and have faith in my ethics”. Nonetheless, there is, allegedly, a very fine line between trusting, liking and feeling comfortable with what are deemed to be acceptable and what are ethical decisions.

Increasingly, there is a global dimension to the whole process of work and profit and,
therefore, a global dimension to the risks involved in business decision-making and especially in the use of global resources. In some countries, or even continents, the wheels of industry and commerce are, still, oiled by financial means. Some call it ‘fragrant grease’, perhaps ‘baksheesh’, a ‘kickback’ or simply a gratuity; they all mean the same thing, bribery.

More importantly, how should a company, by that I mean the board of directors, respond to the
concept of doing business through backhanders? Without rules, guidance or policies – Codes of Conduct - how do employees deal with such difficult, and often tempting, situations? And, what should be done to ensure that employees are aware of any such guidance? Posting a copy on internal notice boards and putting a copy onto the company Intranet is not much use if the guidelines are not monitored and enforced.

If such an approach is considered acceptable is it really in the best interests of the
company, its shareholders or other interested stakeholders? And, is it not possible that, with
enough scrutiny from governments, appointed regulators or even the public, the reputation of
a company or organization will suffer? Similar conditions apply to companies who form cartels for the very basic business reason of sharing contracts in order to maintain high prices and profit levels. As Adam Smith pointed out:

"People of the same trade seldom meet together, even for merriment or diversion, but the
conversation ends in a conspiracy against the public, or in some contrivance to raise prices."
(Adam Smith. The Wealth of Nations)

We have all seen and read, recently, of the tactics employed in some areas of the call
centre industry where staff, when not employed in responding to customer queries, carry out
what is referred to as ‘cold calling’ contact with customers. These unsolicited phone calls are
nothing more than pressure selling of products or services and some of the alleged methods
employed are, quite clearly, seen as unacceptable to the public. Does the call centre industry
have a Code of Business Conduct that staffs adhere to?

Similar circumstances can be applied to areas of business in which there is little or no
competition as in the case of state telecommunications, water, gas, electricity or public
transport monopoly systems. Where there is no competition a company or an organization is
in the enviable position of being able to hold customers to ransom and charge whatever costs they like for their services. Therefore, where any kind of monopoly operates government has a duty to either introduce greater regulatory systems, with powers to fine or punish, or
promote positive competition or break-up the monopoly. As Henry Ford, the founder of the
Ford Motor Company observed,

“Monopoly is bad for business. Profiteering is bad for business.”
(Henry Ford. Ford on Management (My life and work (1922))

It is widely recognized that for a company to be successful and continue to exist it
must make a profit but surely it should be possible to temper increased profit levels with
increased social awareness and involvement? Good corporate social responsibility, perhaps
like that exercised by the Quaker companies in earlier centuries, is one way of helping society
whilst improving the corporate image through recognisable good deeds. And, it would be even better if a company accepted such social responsibility without seeing it as little more than an opportunity to use what might be called ‘slick public relations’ to improve a brand name.

And what should one do about the professions, that is, for example, accountants,
solicitors and barristers, teachers and even dentists and doctors? Why should they be
allowed to hide behind the mantle of self-government and self-regulation? The Hippocratic
oath, in the case of the medical profession, may be fine but we still have many reported cases of medical negligence that, allegedly, go unpunished. It is little wonder that people are
adopting the ‘victim culture approach’ and signing up to sue medical professionals.

What about the legal profession and the Office for the Supervision of Solicitors
maintaining a twin role as not only the regulator, acting in the interests of the general public,
but also as the trade union for solicitor members. If a profession is policed by its peers, who tend to be protective of their own kind even in cases of misconduct, what chance is there of an honest review? And, so that the formula is not weighted one way or the other what code of conduct is
applied within the trades unions movement? How can one organization and one group of people adopt an impartial view and is this not a conflict of interest?


The public now has greater access to all forms of communication and media. Any
notion that boards of directors act in the interests of employees, customers and suppliers as
well as shareholders, has been severely dented by the increase in alleged dishonest and
disreputable financial accounting methods and dealings. It is little wonder that the public does not trust corporate ethics.

Is it not time to establish agreed standards, guidelines or codes of conduct for areas
of business and politics under which people in each profession should, universally, operate?
And, is it not time that anyone found to be in blatant disregard of any such ethical code of
conduct, as directors, managers and administrators, should be removed from corporate
governance? In an increasingly uncertain global village what people are looking for, in my
view, is some indication of consistency in political, moral and ethical values. Or is that too
simple? As Confucius apparently also suggested:
“A gentleman considers what is right; the vulgar consider what will pay.”

Capitalism is teetering toward the brink of bankruptcy not financial bankruptcy,
although it is a possibility, but moral, social and ethical bankruptcy because of the
unadulterated greed of bankers, including the likes of fund managers and other financial
institutions, and businessmen who consistently take out more than they put in. One cannot
help but wonder how much money, investors, shareholders and creditors money, is regularly
being siphoned off by greedy senior managers during their ‘time on watch’. It would be
interesting to conduct ‘snapshot’ audits of all major companies and see how many were not
applying financial and ethical procedures. President Theodore ‘Teddy’ Roosevelt regarded
the criminal rich and soulless organizations run by businessmen as, ‘malefactors of great
wealth’ who used their position, power and influence to oppress the poor, weak and helpless.

This was his basis for his square deal for everyone, "We demand that big business give the people a square deal; in return we must insist that
when anyone engaged in big business honestly endeavors to do right he shall himself be given a square deal."
(Theodore Roosevelt - Letter to Sir Edward Gray, November 15, 1913)

At the end of the day we should all apply, perhaps, the maxim “Do unto others as you
would have them do unto you”. Therefore, companies, and organizations, might do well to
establish their core business values and make sure that manager and employees are aware
of them, there is no room for complacency. We should ensure that we treat our customers,
clients, employees and suppliers in the manner we would expect to be treated by them, with
courtesy, respect, honesty, generosity and kindness as well as social awareness. Who
knows, with a genuine burst of openness and integrity, companies might find that people
would come back.