Ethics and Business

In the wake of the latest Goldman Sachs scandal, Gordon Brown has accused them of “moral bankruptcy”.

http://news.bbc.co.uk/2/hi/business/8628231.stm

But polticians would be well advised to see to it that they also actually operate under an ethics code of their own.

Milton Friedman, Peter Drucker and others must bear their share of the responsibility for having propagated the view that corporations should only be concerned with the profit they deliver to shareholders. They have – maybe inadvertently – supported the view that humans in a corporate setting can and should abdicate their own ethical codes. The Wall Street Journal has even declared from on high that ethics cannot be learned and ethics courses are irrelevant to business. Utter rubbish of course, but even the “newspapers of record” such as the New York Times or The Times or Der Spiegel or the Wall Street Journal have lost their famed objectivity and have become political advocacy channels. It is such high-profile and basically amoral views which have been greatly responsible for providing a cloak of respectability for the attitude that:

  1. Corporations have no business to concern themselves with ethics, and
  2. Even if ethics is important then compliance with law is a sufficient substitute for having a code of ethics, and
  3. If an action is seen to be compliant with laws then this is sufficient.

Large corporations, ably assisted by the Big Four auditing firms, have fine-tuned the processes and documentation needed to show compliance. After Siemens experienced their scandals in 2007, anti-corruption training courses were held compulsorily throughout the company – mainly to assist in the negotiations with the SEC and minimise the extent of the inevitable fine. The training courses were conducted by staff from KPMG and I was disappointed but not surprised that the trainers either did not have the intellectual capacity to see – or perhaps did not want to see – the distinction between corruption and non-compliance.

There is no excuse for corporations to abdicate from ethical responsibility and satisfy themselves with the appearance of compliance. By taking the position that unacceptable behaviour is only that which is non-compliant they have, of course, also defined everything else that can be done as being acceptable. But it does not stop with just the officers of the corporation. It extends to ownership. Normally an owner is expected to take some responsibility for his property. But yet, no shareholder is really willing or able or required to take his share of the responsibility for the ethical conduct of a corporation he partially owns. And this is so even though the shareholder, as an individual, may well have an admirable code of ethics of his own.

The financial world has been particularly aggressive in promoting the notion that ethics has no place in business, and only the limits set by law have been acknowledged  and accepted as constraints on behaviour. Since law is retrospective this has allowed the creation of strange and wonderful financial and trading products in areas where the law has been silent and lawmakers have not yet written any laws. In such areas, where there is also an absence of any guidance from any ethical code, financial bubbles and dubious practices have grown unfettered by any constraints.

In my view, an organisation cannot isolate itself from the social environment it is surrounded by. It must have an explicit view of its own integrity and therefore of its own ethical code. Merely being compliant with law is insufficient. The owners must be party to this. It is time to bring these into the main-stream of management and into the fundamental vocabulary of a manager. Not for the sake of public relations or for avoiding criticism but because it is the right thing to do.

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One Response to “Ethics and Business”

  1. Corruption in the European Union is alive and well « The k2p blog Says:

    […] and integrity into public life. It mainly addresses the public sector and takes little account of the lack of ethics in the commercial world. Another problem with the CPI is that is skewed and as a perception index tends to be overly […]

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