Business Ethics and the 21st Century Organization Edited by Peter Whates To Gem, Tris and Oli – for always starting with unconditional love then going way past the extra mile. (cid:1) First published in the UK in 2006 by BSI 389 Chiswick High Road London W4 4AL © British Standards Institution 2006 All rights reserved. Except as permitted under the Copyright, Designs and Patents Act 1988, no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means – electronic, photocopying, recording or otherwise – without prior permission in writing from the publisher. Whilst every care has been taken in developing and compiling this publication, BSI accepts no liability for any loss or damage caused, arising directly or indirectly in connection with reliance on its contents except to the extent that such liability may not be excluded in law. The right of Peter Whates to be identified as the author of this Work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. Typeset in Sabon by Florence Production Ltd, Stoodleigh, Devon Printed in Great Britain by Hobbs the Printers Ltd, Totton, Hampshire British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN 0 580 45465 7 Introduction Peter Whates Business ethics is a fascinating topic and not just for the subject matter it covers, vital though this is for business, society and the individual. To my mind, there is no other issue on the contemporary manage- ment agenda with greater resonance and relevance, nor one with greater capacity to both fascinate and bewilder in equal measure. At the core of business ethics, after all, are deceptively simple, long- standing notions such as ‘doing the right thing’ that no reasonable per- son could possibly decry and no rational manager would wish to ignore. Nor are the controversies sparked by how this is translated into the policies and processes of an organization particularly new. Campaigns on topics as diverse as the abolition of the slave trade and the adul- teration of beer are rooted deep in the past. What is different is the relatively recent emergence of a generalized ethical consciousness, not to say conscience. Notions of ‘ethical busi- ness behaviour’ are now embedded in the public consciousness and vocabulary, with arguments just as likely in the pub bar as the company boardroom. While its form and character are undoubtedly still evolving, this new ethical landscape has already manifested itself in recent years in ways we now take for granted. It has, for example, spawned a new breed of shareholder, the socially responsible investor. According to a recent survey quoted in the Independent on Sunday newspaper (Shaw, 2005), there are now more than 60 funds to choose from in the UK alone. The same report valued what they described as the ‘green or ethical product’ industry at £24.7 billion. A process generically described as ethical tourism has also emerged to make travellers aware of the impact of their activities. This issue broke further new ground in the aftermath of the devastating tsunami xiv Introduction in December 2004, when the focus switched away from the abstract ‘tourism’ product onto the tourist as an individual. If the discomfort of individuals exposed to the unforeseen and not always subtle probing of 24 hour news crews was not enough, the ‘ethics’ of both staying and travelling to affected areas was subject to critical comment at different times and by different interests. Some of this head-scratching confusion undoubtedly finds resonance inside organizations seeking a simplistic solutions-based approach to ethical issues. So undoubtedly does the more generally antagonistic view of business ethics expressed by television critic Tim Dowling (2005) with his self-penned characterization of the ‘seven ethical dwarfs’. His re-branding of the famous fairy tale characters came in the course of a review of a business reality TV show called The Apprentice fronted by Sir Alan Sugar, a well-known entrepreneur and chairman of major UK company Amstrad. Pouring scorn on the contestants, Mr Dowling suggested that the group reminded him of the seven ethical dwarfs ‘Shallow, Unctuous, Transparent, Self-important, Pushy, Scheming and Smug’. How ironic in the context of the general business ethics debate to find transparency listed as a vice. Purpose From even these limited examples it is self-evident that business ethics is a hot topic issue. But to make a valid contribution to the debate, this book requires a distinct purpose and myself a clear vision of how to deliver it. The purpose is relatively simple. It is to ‘dig below the surface’ to first identify and then better understand the unique and sometimes perplexing conundrum that is business ethics and its impact on the modern organization. The book is not designed to provide a forensic examination of the ethics process, however, so in the purest sense of the term is not a man- agement textbook. Several widely and soundly researched theoretical books already exist and there is simply no merit in merely cloning them. It is also consciously structured to provoke thought and debate rather than signpost seductive and at times illusory ready-made solu- tions. It is therefore not purely a management workbook, either. Several sources, including our own Institute of Business Ethics in the United Kingdom, have well-produced publications available to meet that need. Introduction xv Perhaps, most importantly, the book is not a campaigning vehicle to promote one specific point of view. It does have many strongly expressed opinions and deeply held convictions, but these often reflect conflicting points of view as part of the ebb and flow of the debate. It also makes no attempt to promote any single sectional or business interest, particularly with regard to the role of the British Standards Institution as the National Standards body for the United Kingdom. Personally, I have long held the belief that a robust system of inter- national accreditation may provide a sensible compromise between the largely discredited reliance on free market self-regulation and the very real spectre of restrictive legislation that ultimately may damage legitimate enterprise. Accreditation could actually even prove to be a valuable resource for the numerically huge mass of medium to small size enterprises that currently have ethics ‘done to them’, as much by major multinational companies as by any campaigning NGO. A respected system could also deliver significant cost savings for multinational corporations forced to devise their own monitoring and evaluation systems. There was never a time when I intended to amplify on this personal perspective here, not least because it is a narrower debate than the broad scope I intend for this book. I am delighted to say there was never a time when the publisher even remotely hinted that I should reconsider. Authors The onus of delivering my vision for the book fell naturally on the authors, both as individuals and as a part of the wider writing team. As a team, I wanted them to provide a wide-ranging brief on the nature of the interaction between the tenets of responsible business behaviour, the organization and its stakeholders. I also wanted the reader to gain an understanding of the different ways that business ethics issues can arise to challenge the modern manager. To achieve this I set out to recruit contributors who could communi- cate lucidly and express views cogently without resorting to polemic. I was also looking for people with distinct opinions, whether or not they were fashionable. As each individual contribution arrived, I considered it against a simple ‘four Is’ test. I wanted to read informed opinions based on experience, insights based on an ability to interpret events, the ability xvi Introduction to describe the impact of business ethics on an organization and the skill to communicate this in a way that would interest the reader. I also wanted an international dimension to be included wherever relevant and appropriate, in keeping with the universal reach of the subject across the globe. One of the benefits of working in this area for many years is that I knew the majority of people I hoped would contribute before making the approach to them. In particular I had heard a number speak at two excellent conferences on the subject organized by Wilton Park. It is not for me to judge how successfully the contributions collec- tively match the vision I had at the outset, although any gap between the two clearly derives from my failings as editor. I can only confirm that every author in the book was my identified choice. Themes Reading the contributions in this book has developed my general thinking and crystallized my views in some specific areas of the debate on responsible business behaviour. It made the editing job rewarding in the widest sense. I will not be imposing my interpretation on the reader by stating the conclusions that I have drawn, however, for a reason rooted in my undergraduate past. As a cash-strapped student forced to rely extensively on the univer- sity library, I grew to hate any prior reader who conveyed their judgement of what was important by underlining or similarly defacing the text. In particular I grew to loathe the person who adopted a five star grading system, always in dark green ink, especially as they appeared to be the most diligent student on campus. I intend instead to isolate four key themes that struck me as each contribution arrived and then again when reading the whole manuscript prior to submission. The first concerns the future of regulation. The era of self-regulation within the firm, probably within an industry and perhaps even within an individual nation state, appears to be drawing inexorably to a close. The debate is crystallizing instead around what system, or set of mutually reinforcing systems, can best replace it and to whom can the regulatory burden best be entrusted. Introduction xvii This is a dynamic and fluid process with contrasting approaches already being taken at all levels including the individual firm, national legislators and international trade bodies. It is also a process into which external stakeholders including, but not limited to, NGOs have demanded the right to be involved as full participants. Multinational companies in particular, it seems to me, now have little option other than to negotiate and then repeatedly renegotiate the terms of the global responsible business ‘contract’ in the manner of the annual wage round, only infinitely more frequently. Agreeing the terms of the ethical licence to operate is a particularly high stakes game in finance, which is why I have devoted two chapters to it, but the outcome is growing in importance everywhere. The second theme appears self-evident at first glance. Ethics is a modern day issue with genuinely global reach that impacts on every form of organization wherever it is domiciled, in whatever it trades and to however many (or few) shareholders it remits its dividends. What is less self-evident, yet of considerable contemporary signifi- cance, is how deeply rooted and entwined are the bonds between the economic and political structures of many countries. I believe that in the UK, we often underestimate how much disruption the free market economic system elsewhere in Western Europe has faced from oppres- sive regimes, conflict and the like. The natural corollary is that we tend to underestimate its impact elsewhere in the world too. My purpose in focusing on Latin America was to shed light on an often relatively neglected continent with both long and often complex traditions and several globally significant economies. What I learnt is that the ethics conundrum is just as flourishing, although in no sense can that be a cause for rejoicing. That same unfortunate universality is clearly also much in evidence when looking at the impact of socio-political or pure militarily domi- nated conflicts on human and other rights. This fact was more a reconfirmation than a surprise to me, but none the less depressing for being so. This brings me to the third clear theme to emerge, the current paucity of management education in responsible business behaviour of all descriptions. On the one hand, a growing number of organizations do appear to have belatedly recognized that signing up to seductive mantras such as ‘every employee is a reputation manager for the company’ is the start of the journey rather than the destination. It does not as yet seem to be being translated into a systematic investment in programmes to equip xviii Introduction staff with the tools to better understand and then manage responsible business behaviour, however, particularly something based on values rather than compliance. A strong clue as to why training remains generally undervalued emerges in the shape of the current patchy international provision for teaching responsible business behaviour in MBA courses. In this highly competitive customer driven sector of education, a reluctance to deliver ‘what the customer ought to want’ is understandable. But if it is what the customer actually needs, and evidence continues to mount that it is, then the sooner the ‘big hitters’ of tomorrow see business ethics for the hard discipline it is, the better for all of us with pensions invested in under-prepared managers gambling with shareholder value. The final theme snakes mostly silently through the book in the form of a ready-to-be-primed string of unknown length connected to an extremely destructive explosive charge. It concerns the emerging debate on just what constitutes ‘responsible capitalism’, whether society has a right to expect it and, perhaps most fundamentally, whether a profit- driven system has the capacity to even deliver it. I approached Sir Geoffrey Chandler to address these issues because I knew he possessed the rare blend of experience, strategic vision and clarity of purpose to place the debate on business ethics in its widest context. It was a poignant moment, because 20 years ago, he had agreed to write the foreword to my first handbook on corporate community relations. Fortunately he not only agreed, but placed only one, albeit telling, condition on his contribution. He would gladly author ‘Towards a responsible capitalism?’, but only if I removed the question mark from the title. I will leave the reader to decide whether this optimism is in any sense misplaced. But relatively few business leaders seem willing as yet to fully champion the responsible business behaviour message and drive it deep into their corporate soul. Maybe they judge that with a market- based economy in the global ascendant there is no imperative to pay more than lip-service to the challenges posed by business ethics. I hope this confidence survives the next global downturn when it comes without provoking serious social conflict. Nobody cheered more loudly when the Berlin Wall crumbled; indeed, I have a piece of it in my office. But we urgently need robust and sustainable paradigms for modern corporations that reach beyond merely seizing the profit- making opportunities that arose in its wake. Introduction xix I would genuinely like to thank all the authors, who followed my brief far more closely than I had a right to reasonably expect while still delivering contributions of maximum interest that required minimal editing. When I did suggest changes, they considered them always with good humour and grace. Finally, it’s back to my university days to briefly reflect how greatly technology has lightened not only the editor’s load, but that too of the previously long suffering colleague now spared laborious reams of retyping. For this book, however, I dreamt up a subtly different tyranny instead, that of ‘second reader to a deadline’, to inflict on my long- suffering partner, Zchina Dowlatshahi. Not only did she give me an informed MBA perspective on several chapters, but also managed to stay resolutely cheerful and read each slightly different version of this piece as if it was totally new and fresh to her. Her enthusiasm was both infectious and inspiring, even when I ignored her sensible advice. Thanks so much. References Dowling, Tim (2005) The fools of the trade Guardian 31 March Shaw, Esther (2005) Ethical funds hit the target with investors Independent on Sunday 10 April Contents Notes on the Contributors vii Introduction xiii Peter Whates 1. The Role and Limits of Ethics Legislation – The US Experience 1 Phil Rudolph 2. Beyond the Limitations of a Written Code of Ethics 21 Alyson Warhurst and Kevin Franklin 3. Recruiting Ethics – Citigroup, Corporate Governance and the Institutionalization of Compliance 40 Justin O’Brien 4. The Role of NGOs in Creating an Ethical Climate for International Business 57 John Sayer 5. Human Rights in Business: The Scope of Accountability – A New Horizon 80 James Oury 6. Inter-governmental Initiatives in Support of Appropriate Standards of Business Conduct – Are They Effective? 96 Kathryn Gordon