Andrei Rogobete: Business Values must be practiced, not preached

This is an excerpt of a speech given at the GSM Annual Conference on the 12th May 2016.

 

I would like begin by saying it is an absolute pleasure to be with you today. I was originally born in Timisoara but I have lived for most of my life in the UK – so it’s always great to come back home and see my family and friends.

In the brief time that I have at my disposal I hope to convince you of the importance of ethics and moral behaviour in our Globalised world of Business.

Most economists and news agencies like to claim that we are currently living in the “post-financial crisis era”.

But I would like to argue that at heart of the financial crisis was not just a crisis of finance but a crisis of morality – with reckless behaviour driven by greed and the pursuit of ever faster and larger profits. This was well illustrated in the gross and artificial subprime mortgage bubble in the United States.

Despite this challenge, the free market remains the most effective form of wealth creation: more people have been lifted out of poverty in the last century than any other time in recorded history. The United Nations reports that extreme poverty has been reduced by over 50% since the early 90s. A market economy gives people hope, purpose, and a genuine sense of achievement – but clearly we have a remaining problem: human greed and misconduct.

What would a solution to the problem of greed look like? Should the Government impose higher taxes and regulations on the private sector? Should the penalties be so high that no company would risk illegal or corrupt activity? Would a highly regulated market protect consumers without slowing innovation and growth? These are approaches that have been tried and tested, and failed time and time again.

It is my belief that we need a free market economy, but one that is built upon a foundation of ethics and moral values.

In business we are often encouraged to look forward – And rightly so. Whether it’s planning for a new product or service, it is crucial to be forward-looking in the world of business.

However, we must also be aware of the past. History is a blessing because it shows what works, and what doesn’t.

If we are not aware of the events that have occurred in the past, we end up repeating the same mistakes over and over again – And sadly, that is often the case.

 

It is for this reason that I would like us to take a look at the Quakers of 17th Century England. Here we will see how deep-rooted values played a critical role in business success.

 

But who exactly are the Quakers?

The Quakers were a group of English Puritans that emerged in the midst of the Civil Wars of the 17th Century. It was a time of fertile ground for the emergence of new ideas in the political, social and religious spheres.

One man named George Fox was a substantial provider of such new ideas. Very much a product of his time, George Fox became deeply disconnected with the teachings of the Church and its approach to faith. More specifically, the fundamental clash with the Established Church came when he advocated the notion that each individual can have a direct relationship with God without the need of ordained clergy.

Born in a ‘middle-class’ family, Fox grew up in an environment of tough religious discipline and Christian teaching.  However, Fox went beyond the formalities of doctrine and his faith a deeply personal affair – one that would dictate his path in life.

 

But how did the Quaker’s faith shape their business values??

  1. The first and fundamental belief is that all humans are of equal value.

Equality of value should not be confused with uniformity. Clearly, human beings are different, each unique in their own traits. However, historically Quakers believed that “There is that of God in everyone”.

This belief effectively translated into a practice of equality and respect within the workplace in stark contrast to the customary hierarchy of the time. A ‘flat’ organizational not only allowed Quaker businesses to be effective organizations on the inside, it also enabled them to build long-lasting relationships on the outside.

The reputation Quaker businesses established in society would go before them in the marketplace, almost guaranteeing their success in building a network of trust and ultimately, ensuring profitability.

  1. The second core Quaker belief is in a genuine, personal relationship with God. 

In claiming that each individual can have a direct, personal relationship with God, the Quakers found themselves under systematic persecution from the Church and State. However, it was their personal faith that guided their moral business code of conduct.

  1. The third and final core belief is love and respect for one’s neighbour. 

This core Quaker belief is rooted in a strong sense of community with other human beings – all sharing together in God’s creation. This led Quakers to organize in fellowships and large groups where they would meet regularly and share in the faith that united them.

For business, it translated to a great sense of responsibility and stewardship toward their entire business ecosystem. Whether work or private, a sense of collective responsibility and respect entered all aspects of life.

 

So were the Quakers successful in business?

Highly Successful. Here are some examples..

Barclays – UK’s largest retail bank

Lloyds – Major UK bank

Clarks – UK’s largest shoe manufacturer

Cadbury – Major chocolate manufacturer

And others…

 

However, what happens when companies forget about upholding the ethical values the proclaim to believe in?

 

CASE : Volkswagen

One example that I’m sure you are all familiar with is the Volkswagen Emissions Scandal.

Although not a Quaker business, the Volkswagen emissions scandal was arguably the defining corporate story of 2015. It came as a shock not only because millions of customers were deceived (11 million according to VW), but rather because the culprit was the ‘peoples-car’, Volkswagen.

The Volkswagen group has over 550,000 employees and a presence in more than 150 countries worldwide. Over the decades the Volkswagen brand has established a global reputation of reliability, robust ‘German’ engineering, and value for money.

VW built a reputation of being a brand that you can wholeheartedly trust. The company prided itself on upholding the very highest ethical values and business practices.

The Emissions scandal caused colossal damage to the Volkswagen Group. Like the Barclays LIBOR scandal, the damage was both financial and reputational.

If on the Friday, the 18th September 2015 VW’s shares were trading at 161 euros per share; by the end of Monday, the 21st September Volkswagen’s share price dropped to 111 euros per share, losing almost 30 per cent of its market value. That’s close to a 30-Billion-euro devaluation in one day of trading. Fig. 1.2 illustrates the share price plummeting.

It is a big price tag to pay for something that other car manufacturers like BMW, Toyota and Mercedes have been able to comply with. Therefore, we can only conclude that it is not an issue of technological knowledge but an attempt to maximize profit through illegal business practices.

As damaging as the financial costs are, the reputational damage even worse. It will take years for Volkswagen to win back trust from its customers and the general public. As Warren Buffet once said, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently”.

The Volkswagen Emissions scandal is a clear example of a company failing to uphold an ethical culture and paying the price for it.

 

So then, what are some lessons that we can learn from the Quakers and the example of Volkswagen?

 

  1. Purpose is greater than profit

Purpose trumps profit. The successful business of the 21st Century is one that sets its aims above profitability. While profit is crucially important, the objective of financial profit should become the result of a purpose-driven business model. The Quakers set up businesses in obedience of God and fair treatment of others. Their main objective was not just profit.

But it is not only Quaker businesses that were successful because they were driven by purpose. Arthur Guinness, the founder of Guinness Beer wanted to help alleviate the severe alcoholism in Dublin so he introduced a lighter beer as an alternative to gin or the other strong spirits. Henry Ford envisaged a nation on wheels and in 1908 he introduced the first mass-production car, the Ford Model T.

The vast majority of long-term, successful businesses have one thing in common: they are driven by a purpose that goes beyond profit.

 

  1. Moral values must become an intrinsic part of the business

Companies must truly uphold a set of moral values in the pursuit of achieving their purpose. In the global marketplace of the 21st Century, a company’s set of values must be seen as a critical part of the long-term business plan.

Values must be practiced, not just preached. They must be truly lived out in the day-to-day activity of the business.

Chief executives and senior managers have the responsibility to influence the rest of their staff and employees. They must strive to embody of the company’s culture and shared values.

 

  1. Companies that fail to implement an ethical culture will suffer

Businesses that fail to implement a sense of morality will sooner or later, have to pay the consequences.

This is mainly due to two global forcesglobalization and the widespread use of social media.

In this sense the rapid growth of social media can be seen as an effect of technological Globalization. Social media has become a global platform of discussion and sharing of information at lightning speeds. It has brought millions of people closer together regardless of geographical distance. It has democratized information, giving tremendous collective power to online communities – A power that can expose morally corrupt companies.

 

I would like to end on saying that ultimately, a business should not promote a moral culture simply out fear of social media or the online backlash – it should because it is the right thing to do: for the long-term prosperity of the business, as well as the wider society it operates in.

 

Thank you!


Andrei Rogobete

Andrei Rogobete is a Research Fellow with the Centre for Enterprise, Markets & Ethics. For more information about Andrei please click here.