THE ISSUE: Unethical behaviour can ruin image
For many people, business ethics is an oxymoron – the two simply do not mix.
This is generally due to the view that companies are only concerned with making money without considering the impact of their practices on other parties.
While earning profit is not wrong in itself, the now infamous fallouts from the relentless pursuit of monetary gain demonstrate that the end does not always justify the means.
Businesses should therefore be careful not to engage in practices that harm individuals, countries or the environment.
Not only will the business eventually have to account for its actions or lack thereof, but damage control can be expensive or even impossible.
Delivering the feature address at the recent launch of a business ethics programme for small and medium-sized enterprises, Minister of Industry, Small Business and Rural Development Denis Kellman noted that unethical behaviour remained prevalent among companies of all sizes.
“Good business ethics should be the core practice of any business and should be a consideration when dealing with both customers and suppliers. It increases profits as more customers are attracted to do business with the company. It attracts quality employees as individuals seek to work with the organization and it is easier to attract credit,” he said.
On the other hand, as Kellman noted, unethical behaviour ruins the reputation of business in the marketplace and can even lead to closure.
He suggested that the recession created the opportunity to pay attention to ethical standards.
“Now more than ever it is necessary to make sure that the playing field is level and that no enterprise be allowed to profit from unethical behaviour.
“Attention therefore has to be paid to the ethical practices of our domestic SMEs. Failure to do so could result in lost opportunities or progress.
“The costs incurred to take care of damages arising from lawsuits or in advertising to reverse bad publicity could very well cost the organization more than it out to improve its ethics.”
The minister added that those costs have implications for the country as a whole.
“A high proportion of local business entities noted for unethical behaviour has the potential to ruin the country’s image in the international community. Accusations of corruption, fraud and bribery impact a country’s ability to attract foreign investment and may lead to scrutiny by those watchdog agencies set up for such purposes,” he said.
In the March 30, 2009 BARBADOS BUSINESS AUTHORITY, Gordon Moore, president of Sepia Associates – a United States-based company that provides internal control services such as fraud detection and investigation – noted that fraud was usually the result of compromised ethics.
Also, he said the ethical standards employed by management usually set the tone for the rest of the organisation.
“The law doesn’t cover ethics. The law covers right and wrong from a legal perspective, but right and wrong from a moral perspective is not always covered,” Moore said.
He added that small companies with less than 100 employees were 100 times more likely than larger companies to experience fraud from within, usually due to lack of internal controls.
“And because it takes longer to detect fraud in small companies, the average loss per instance is 20 per cent larger than the average loss of a large corporation,” said.
In addition, the Association of Chartered Certified Accountants (ACCA) urged businesses to focus more on their ethical responsibilities and on prioritising the recruitment of senior executives and financial staff with strong ethical compasses.
A new ACCA report, Risk And Reward – Tempering The Pursuit Of Profit, examined where the financial system went wrong prior to the crisis, with a massive failure of “people risk” being identified.
“The financial crisis has highlighted serious ethical failings,” says Paul Moxey, ACCA’s head of corporate governance and risk management and one of the authors of the report.
“Businesses of all kind, including the banks, have been increasingly policed by reams of rules and regulations. But we have seen during the crisis that, despite all these regulatory requirements, or perhaps because of them, individuals exploited gaps,” he said in the June 14, 2010 BARBADOS BUSINESS AUTHORITY.
Moxey added: “Take Lehman, for example. According to the official United States government investigation into its collapse, Lehman’s executives were able to move debt on and off their balance sheets at will by picking and choosing which legal jurisdictions and accounting standards they wanted to comply with.
“But in doing this, Lehman’s never broke any rules; the absence of any benchmark of conduct which would have prevented this sort of regulatory arbitrage arguably actually legitimised what they did.”
The paper argued that a strong commitment to ethical business conduct on the part of directors and key staff is a strong line of defence against reputational damage and should be an essential part of any risk management strategy.