| Is good ethics good business? |
| Invention Development Advice - Business Planning | |||
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To write sensibly about the topic of business ethics is to be confronted by something of a dilemma. There is, for the sake of easy argument, a temptation to put matters in a way that lends support to the claim that "good ethics is good business". The trouble is that this popular point of view suffers from two major failings. Firstly, it is too simplistic. Secondly, and more importantly, it fails to do justice to the fact that a commitment to ethical behaviour implies a preparedness to act ethically - even if there is a cost in doing so. Having said this, I believe that there are good grounds for believing that good ethics is good business. And hence the dilemma. How do you point out the advantages of acting ethically without falling into the trap of saying that the only reason for acting ethically is that it leads to an improvement in the 'bottom line'? But is good ethics good business? There have been some attempts to answer this challenge. One of the most compelling pieces of evidence has come from James Burke, former head of Johnson & Johnson. He sought to discover if there was some kind of 'objective' indicator of a positive contribution by good ethics to business. Going straight to the heart of the matter, Burke reasoned that the most persuasive evidence would be found in an examination of relative performance on the Dow Jones Industrial Index. Burke compared the performance of several companies, selected because of their demonstrated commitment to implementing programmes to strengthen a corporate climate of best ethical practice, with the performance of all other stocks. His time of comparison stretched over a forty year period. Where the general improvement in the value of the 'control' group of company stocks during that period was an average increase of 6.2%, that of those selected for study was 11.3%. One can, of course, criticise the evidence. Yet, I believe that the core of Burke's findings can be supported (but not in the amount of space available here). A potential critic will also need to take account of similar evidence, especially that derived from an examination of the performance of ethical investment funds. For example, the Herald International Tribune reported, at the end of February of this year, that: In the 8 years prior to Jan 10, 1993, the Friends Provident Stewardship managed pension fund turned in the best performance of all British equity managed pension funds, providing an annualized return of 20.2 per cent...In the year leading to Feb 1, 1994, the same fund returned 31.3% ... And the Friends Provident Stewardship income fund, also ethically managed, returned 41.3% in the year to Feb 1. That is a fairly impressive indication that something interesting is going on. The Herald International Tribune quotes the Investment Director of Friends Provident, Peter Silvester, as saying that: Companies which are well-managed enough to deal with the environmental responsibly, treat their employees fairly, and address the concerns of their communities are good places to go trawling in the first place. All of this makes sense if you take into account an old piece of wisdom left to us by the distinguished Australian company director, the late Sir John Dunlop who observed: I put it to you that the directors are responsible to the shareholders for profit in perpetuity; and that this general expression of a principle permits, indeed requires (my highlighting), directors to pay full regard to their employees, to labour relations generally, to the community, to the country, in all their decisions for and on behalf of shareholders. So, there are the bones of an argument to show that there is something to be said in favour of the contention that "good ethics is good business". Yet, the matter cannot be left there. This is because the daily experience of people in business and the professions is all about the costs of being ethical. They are regularly confronted by questions such as: * Can we afford the cost of making this product safe? * Can we afford to admit negligence even though we know that we did the wrong thing? * Can we afford to let the company's accounts show the real value of our assets? * Can we afford to refuse to carry out a client's instructions even when, in all good conscience, we believe to follow them would harm the community? * Can we afford to resist paying bribes in order to secure a contract in a difficult overseas market? * Can we afford to resist taking advantage of an unintended loop-hole in the law or a contract? If the only reason for being ethical is that it will be good for business, then it is a pretty safe bet that you will surrender your standards once you learn how to fake ethics. The temptation will be to pursue profits at any cost. Sacrificing integrity, you will distort relationships and take unfair advantage of others. There will be a day of reckoning. But by that time you may have killed the golden goose and retired to a condition of comfortable indifference. But is that really what living a worthwhile life is all about? Let me be quite clear, ethical issues rarely arise in the form of stark choices between absolute right and absolute wrong. The ethical landscape is not a place of blacks and whites - rather, it is often found to be painted in shades of grey. Like it or not (and most people do not like it!), a degree of uncertainty is part of the human condition. Yet, this still leaves room for each of us to take a fundamental decision in favour of at least trying to do what is right. This would be to recognise that our lives (including our work lives) possess an inescapable ethical dimension. Perhaps the answer to my opening dilemma is that we ought to accept that collateral benefits may reasonably be expected to flow to those who consistently act ethically. Providing only that we act according to right motives, then we should accept any rewards that might come from choosing the right and the good just as we should accept any unpleasant consequences that might flow from choosing the wrong and the bad. There is a kind of natural heroism displayed by those who choose to live a good life. We recognise their courage because we know how easy it would be to do otherwise. Courage of this type can be displayed in every forum of human endeavour - no less in the world of commerce! Discuss icon discuss this article Dr Simon Longstaff is Executive Director of St James Ethics Centre. This article was published in City Ethics (now Living Ethics) issue 15, autumn 1994 under the heading Can we afford to be ethical?. A similar version appeared in The Australian on 8 April 1994, under the title Business benefits from good ethics © St James Ethics Centre source : http://www.ethics.org.au
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