Wednesday, July 20

Ethics in Business

Ethics in business has become more widely debated as collapses of staggering proportions prompt debate and a demand for improvement in overall corporate responsibility. The scale of losses and extravagances are of such mind-blowing proportions the general public are baying for blood.

The responses, particularly in North America have been to introduce prescriptive type controls, in the form of improved reporting and much heavier penalties. Recent convictions involving lengthy prison sentences for former executives of large failed groups have had an effect on the corporate culture, for the time being at least. In other westernised countries the solution has been more descriptive in laying down what might be called principles which provide a guiding light over corporate activity. Either way, whether descriptive or prescriptive the question really arises as to how you classify ethical behavior. By that I mean how do we attempt to understand the application of ethics in the modern dynamic world. It becomes somewhat of a moving feast as our understanding increases and we can no longer blissfully claim lack of awareness of the consequences for our actions. Some might say principles remain as such, but this is untrue as society reflects changed aspects of acceptable behavior in itself a reflective of our new- found knowledge or enlightenment.

Many would categorise aspects of business disclosure and activity as simply a question of integrity leaving ethics only for the more difficult dilemmas not easily answered as either right or wrong. Ethics itself is subjective and in the context of this article I will provide the link to community standards of acceptable behaviors. Of course what is acceptable can vary markedly within individuals and groups.

I will examine the different prescriptive and descriptive type ethical provisions within cells in society to ascertain the potential for change and recommended pathways foreword. Business does takes up a gigantic slice of the community pie, yet we have this fear it should be totally left alone. If we meddle the patient my die of terminal illness. I think much of this thinking is justified by the protestant work ethic that still permeates society today and in my opinion has been a poor servant to our overall wellbeing.

I will approach the matter of ethics from 5 key areas.

Individual Ethics
The ethical base for corporate governance principles.
Ethics in practice in State and Federal Laws, government and policies
Social justice
The Environment and our ultimate sustainable

Individual Ethics

Capitalism and competition have provided a continued improved standard of living as measured purely in economical terms. However the market itself which is an acknowledged mechanism for efficient trade is in no way concerned with the ethics of those transactions.

As a starting point, I think most would agree ethics is universalism through the law and in most cases to the spirit of the law.
The law is meant to be a reflection of the values of society, in legislation enacted by parliament who amend and present new bills on our behalf. In essence they come from the people, but in practice are more likely to be as a consequence of lobbying on behalf of the various pressure groups in society.

To day just understanding all of our legal responsibilities is somewhat of a daunting task, that is to be sufficiently familiar with the large number of laws that apply to trading. Hence under new trading provisions and more recently with the introduction of the Financial Reform Services Bill extensive retraining and accreditation have been necessary to license service providers.

Whether these extensive prescriptive type controls actually result in more ethical delivery of services remains to be seen.

Personal ethics can arise from ones philosophy or religion or a combination of both or any number of influences. In Australia many would simply refer to the need for a 'fair go' in what might loosely be described as ethics based upon the proposition of fairness. What I mean by a 'fair go' is an individual or group is entitled to sufficient respect so they are treated on an equal basis. A somewhat vague notion, not easily defined, but a characterization of our society in Australia. So it's ethics that symbolises a state of embracing a concept of an egalitarian society, where all can succeed and have equal opportunity, a far cry perhaps from reality, but nevertheless part of the folklore and ethos within Australia society. Many would lament such a concept is fast disappearing before our eyes.

The golden rule of do unto others is a familiar one but it does require a lot of imagination in to-days complex business world that presents many difficult ethical issues. An initiative being adopted by companies is to support employees on ethical issues by providing counselors from the St James Ethics Centre.

St James Ethics Centre can be found by clicking on the icon at the beginning of the article Centre assists organizations, be they private or public, for profit or not-for-profit, to identify and address the ethical dimension of what they do. By following the links in the table of contents you learn more about the Consulting services offered by St James Ethics Centre: I think it is particularly helpful for large multinational companies to have on line counselors from the St James Ethics Center to assist employees wherever they are stationed.

The ethical base for corporate governance principles

There is no doubt that the corporate landscape has undertaken a metamorphose of recent times.

The adherence to a regularity environment and the attainment of superior returns was previously seen as conflicting objectives. What's happened to a large degree into the current business mix is the introduction of integrity. What you typically see in Annual Reports is an undertaking to produce desired results within the frame work of behaviors that encapsulate integrity. Additionally companies are keen to espouse the ASX Corporate Governance Council principles. Theses initiatives are designed to provide transparency and fairness to the investing community. By transparency I mean the free flow of information between contracting parties, so that an element of fairness prevails. It does not mean that companies cannot still sign confidentiality agreements, an important element to business, but rather those involved in the agreements are tansparent in their dealings with one another and that market sensitive information is made available as soon as it is known and the agreements secured.

The principles prescribe certain desirable characteristics such as a majority of independent directors, well constituted committees to oversee auditing, risk management, communication, share trading, remuneration, safety and disclosure matters. Environmental issues often figure very prominently.
A key feature is to align a large slice of remuneration incentives to the longer terms increases in shareholder funds.

Ethics in practice in State and Federal Laws,government and policies

Our society is governed by various laws operating at 3 levels of Government, Federal, State and local. Common Law based on individual cases provides an additional input. We don't have a Bill of Rights and I don't propose to debate this issue but suffice to say I think its introduction would lead to a fairer society.

Our legal system however is quite comprehensive as one can consider just a few of the more recent laws as part of the financial reform bills recently enacted. Hence there is a community expectation one would be familiar with provision that relate to aspects on: Code of Conduct and whistelblowing, Sexual Harassment, Restrictive Trade Practices, Customer Relations and Privacy Law, Fair Trading and Occupational Health & Safety.
This is a highly prescriptive approach through legislation. Having studied all of theses provisions I maintain the same outcomes could be achieved by more guiding principles and less detail as much of what is proposed comes down to basic fairness and common sense.

We have experienced a period of sound economic growth in Australia yet there is a growing awareness in the community that many are not receiving a 'fair go'. More importantly politics seems increasingly to lean towards placing the appropriate spin politically on important issues and the general standard or debate is lacking. Against this environment one needs to ask the question. Where to for Australia?

A recent initiative has been the formulation of a wellbeing manifesto.
Please refer to the permanent link I have provided on my website. Click on wellbeingmanifesto to view their website.

Many Australians feel that the political system has let them down, and that governments are not responding to their real concerns. We seem to have lost sight of a vision for a better society and to have entrusted our future to wherever the market takes us.This website presents a new manifesto, one that takes as its starting point the belief that governments in Australia should be devoted to improving our individual and social wellbeing.We now know a great deal about the factors that enhance our wellbeing. Increasingly the negatives seem to outweigh the positives, despite our affluence.The manifesting is a blueprint for true progress in Australia. After reading it, why not join the other 3409 people and give it your public endorsement?

I was pleased to add my endorsement.

Social justice and Community groups

This is indeed a "weighty" topic to cover in a few brief sentences. It goes to the heart of our society and it's hard to know where to begin. But I will begin with democracy, as a democratic system of government embracing a private enterprise system. It seems to the best model for Social Justice.

I dont propose to launch into an economic debate on the benefits of an open market system within a democratic environment as this would involve a considerable discourse. However I think its fair to say those countries that lead the way out of poverty and hunger have largely done so from a base of an open style economy. A good example is China and whilst I dont want to debate there human rights case against it I think any fair commentary would embrace the move to open markets that has assisted the country out of poverty over the last say 15 years. So that is I am keen on the private enterprise system within a democracy. We know complexity arises effortlessly from non complex beginning and many primitive societies have collapsed in the past from a centralised or attempted controlled stance.

The experiment of having everything owned by the State has been a dismal failure as its simply too complicated for states to make the multitude of decisions necessary for the efficient distribution of goods and services and there is not enough incentive for these models to work in practice. At least history reveals that is the case so far.

The structure needs to be flexible enough to provide incentives, but an important feature is that it can also include safeguards to protect those "who fall between the cracks". For these there needs to be a "hand up". We also know that largely uncontrolled environments allow small groups or even individuals to gain vast wealth at the "expense of the majority". This is the current position in Russia where there are more "billionaires" per capita than anywhere else, but the country overall is struggling.

There is a need for "equitable" safeguards" to provide an "equitable distribution" of the sum of our production and services in the economy, without which we most certainly can count on these undesirable outcomes.
I like the ideas expressed in the manifesto of wellbeing as this new term needs to be built into our democratic system to be measured,just like Gross National Product as Social capital already exits but it needs to come to the forefront and be measured and debated, ensuring it's showing an improving trend, just like unemployment.

The Environment and our ultimate sustainable
I recently attended a lecture in the city given by the visiting scientist Jarred Diamond who spoke about the themes of his recent publications indicating the reasons for past collapses of civilizations. The lecture was organisms by 'Readings' and he was interviewed by Larissa Behrendt who is Professor of Law and Indigenous Studies and Director of the Jumbunna Indigenous House of Learning at the University of Technology, Sydney and Director of Ngiya, the National Institute of Indigenous Law, Policy and Practice and Indigenous Studies.
Larisa is an interesting person in her own right and you can catch her interview with George Negus by clicking on

Larissa asked him a number of thought provoking questions about the implications for Australia and civilization as a whole.
He gave an example from his book entitled 'Collapse' about the disintegration of the community at Easter Island. Cannibalism was the last answer to the dying civilisation. It was an illustration of the why communities collapse. To day we know the lessons and the implications of our actions so there is a hope we can learn from these experiences.

Nevertheless there are no assurances that these same consequences as to what happened to many recent and ancient civilizations that have collapsed will not ultimately occur to planet earth, unless we change our ways as we remain in the twilight zone.

The questions turned to Australia. He considered this country to be one of the most fragile, driest, infertile continents on earth does not have the advantage of a rich volcanic soil as most of the nutrients were leeched from its soil by the sea over its prior 4 billion year's of inhabitance. The aborigine's inhabitation the land for the past 46,000 years but also found it inhospitable and at times also decimated the landscape through burning and overuse.

He spoke of the changes as he observed since last visiting 40 years prior. Then the country seemed more British than the British themselves and there was no notion of land care or responsibility as now exists land then was considered yours to do with whatever you like.

He has a cautious optimism for Australia, but I don't want to go into too much detail here. One need to make the point that there are ethical issues as to how we look after our land and treat the environmentalism will effect the next generation, and the economy as whole.

It also prompted me to reflect on the sustainable of enterprise as a whole. Scant attention is made to the ultimate sustainable of enterprises in Annual Reports but this must surely be one of the most important aspects of interest to any long term investor.


There are 4 key areas I would recommend going forward.

Independent external ethical counselors for all enterprises. St James Ethics centre can be found by clicking on the icon at the beginning of the article or on the link to ascertain the range of services that can be provided.

Adopt the wellbeing manifesto. Click on the links section of my website to view the wellbeingmanifesto website.

sustainable aspects included in Annual Reports of organizations.

Consider the introduction of a Bill of Rights whilst modifying the existing legal system.


minddance said...

Intriguing article. It seems that an adherence to the law is less important for change than an adherance to the Spirit of the law. So many of the laws these days are being made by people in their own self-interest rather than in the interest of the people.

If there is adherance to the spirit of the law, then anyone who breaks the law will be willing to suffer the consequences. This makes people more willing to want to change the laws that aren't working. But what seems to happen more often is people break the law looking for loopholes to get by with it. It's not about the system, it's all about them.

Lindsay Lobe said...

Thanks for that comment as its the essence of what I am saying. And If people really want to enter into the "spirit of the law" than there is also no need to be prescriptive to the extent of most of our current legislation.

There needs to be penalties, but the more presciptive the law is, as you say, often the easier is to find loopholes.

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