Carbon Trading – Unethical, Unjust and Ineffective? by Cameron Hepburn was presented at the “Green Markets, Sustainable Business” conference on Thursday 2nd March 2017, at One Great George Street, London.
In 1987 ICI, one of the leading chemical conglomerates at the time, described its purpose as follows:
ICI aims to be the world’s leading chemical company serving customers internationally through the innovative and responsible application of chemistry and related science. Through the achievement of our aim we will enhance the wealth and well-being of shareholders, employees, customers, and communities which we serve and in which we operate.
In 1994 the company objective had changed to:
Our objective is to maximise value for our shareholders by focussing on businesses where we have market leadership, a technological edge, and a world competitive cost base.
So, what changed? What changed so that ICI no longer aimed to be the world’s leading chemical company? What changed such that ICI’s application of science was no longer to be the innovative and responsible application of chemistry and related science, but only that in which they had a technological edge? What happened to the employees, customers, and communities which we serve, to be replaced by to maximise value for our shareholders?
The answer requires a book rather than a blog but the case of ICI is illustrative of the way in which business has become separated from ethics, values and a truly holistic purpose which historically served the economy and society well.
The Quakers represented, in 1850, no more than one half a percent of the population. Thus it is even more extraordinary just how many of our household names had Quaker origins – not least in financial services – Barclays, Lloyds, Friends Provident, Cadbury, Rowntree, Clarks (as in shoes), Huntley and Palmer (biscuits). The successful iron smelting that formed the basis of the Industrial Revolution came from a Quaker family, the Darbys.
I am not suggesting that the solution to the problems of business purpose and intent today is solved if we all became Quakers! However, what I am saying is that by understanding the key reasons why the Quakers were successful (mostly) in business can inform our contemporary debates in a helpful manner.
There were four key reasons behind Quaker business success, all of which have wider application today.
Entrepreneurs do not flourish alone. Professor Mark Casson of Henley Business School has argued that the quality of entrepreneurship depends upon the quality of business culture. A strong culture is built upon trust, confidence integrity and quality. The strength of the Quaker culture had a direct impact upon their business success. The Quakers – among others – had by 1800 faced around 150 years of oppression, crucially including exclusion from the Universities. Hence many Quakers turned their minds to business. This persecution made them close-knit communities and it was within this setting that apprenticeships were developed, trust and confidence built as the major families all knew each other, with dishonesty and especially bankruptcy viewed in highly negative terms due to the impact on Quaker reputation. A strong culture which enhanced positive behaviour of honesty and integrity (quality products at fixed prices) and discouraged negative behaviour.
A major complexity today is that we have become so individualistic that moral behaviour is reduced also to the behaviour of each individual. We need to recover not ‘moralising’ but ‘moral character’ and ‘moral action.’ The reality is that much of the Quakers integrity derived from their spiritual principles. Their moral codes included injunctions against overtrading, honesty, payment of debts, caution over indebtedness, transparent and accurate accounts and understanding of the business. These principles derive from the Quaker ‘Advices’ and ‘Queries’ on trade issued between 1675 and 1793. Many Quakers became wealthy, but often had to endure the long and patient wait of the entrepreneur for success. As a result, they were not ostentatious with their wealth and certainly exercised personal discipline and frugality in the wait for a return. There are clear lessons for us today and we must become more willing to talk about moral values.
Generally speaking, negative views of business are aimed at the big corporates and more positive views of business related to smaller, local and family businesses (SMEs). All the successful Quaker businesses began as family businesses. Indeed, most involved the capital of the founders and owners being placed at risk. The opposite of limited liability. Growth inevitably led to a dilution of the family business and the need for capital ultimately led the leading Quaker businesses to adopt limited liability. However, the idea of the family business lay at the heart of the Quaker vision. The business was seen as part of the family and as a result concern for both quality products and the employees – so, everything from sport, to societies, savings clubs but also pension funds, sick pay and even bonus schemes.
The compartmentalisation of business from society is disastrous. The Quaker businesses had a much more holistic view of their purpose. Profitability was essential, but so were reputation, customers and the society of which they were part. The days of company’s building model villages providing housing – not charitable, but commercial – as well as ensuring community green space, fresh air and light may be over but the principles still provide lessons. Social purpose and commercial profitability and success are not mutually exclusive. Real relationships – between owners and managers, managers and workers, companies and customers and so on – are infinitely more purposeful than the remoteness and the contractual nature of so many business relationships.
How far we have come. Without a sense of ethical responsibility, disciplined moral behaviour and character and a recognition that capital and its economic return carry responsibilities as well as rewards, we will continue to increase the divide of business and society. However, we must also recognise that all of this can only be achieved in the context of a free economy where wealth creation is celebrated rather than despised and where the limits of government are recognised to be as significant as its regulatory and redistributive roles. A concern for society and the responsibilities of wealth do not need to be separated from a wealth-creating, efficient business enterprise. Profit is virtuous, but does not need to be maximised at the expense of all other demands.
Culture, ethics, family relationships, purpose, values, employees, responsibility – for all these things we can thank, at least in part, the Quaker businesses. All of those things are essential in restoring confidence in business today.
Dr Richard Turnbull is the Director of the Centre for Enterprise, Markets & Ethics (CEME). For more information about Richard please click here.
Those who have studied modern technology based or enabled companies will doubtless consider Platform Capitalism to be superficial. Srnicek does not provide any worked through suggestions that will be useful either to the makers of public policy or to those involved in the management of business and many of his conclusions are contentious and appear to be based more on his prior left-wing accelerationist philosophical position than on the evidence presented in this book.
And yet: the book is interesting and thought provoking. Leaving aside the eccentric use (or, rather, minimal use) of paragraphing, Srnicek has an engaging style and presents a readable and helpful overview of the impact of technology on economic activity and of the strategy of technology companies. The book is short (l29 small pages) and can easily be read carefully in a couple of evenings. It is worth devoting this time to it.
Srnicek’s subject is the effect of digital technology on capitalism. He claims that “the platform” has emerged as a new business model and his aim is “to set these platforms in the context of a larger economic history, understand them as a means to generate profit, and outline some tendencies they produce as a result” (page 6). After a reasonably orthodox (if very obviously left-wing) review of economic and business trends since the 1970’s (primarily focussed on the USA and UK), he moves on to consider the emergence of “platforms”, which he defines as “digital infrastructures that enable two or more groups to interact” (page 43). He distinguishes five types of these: advertising platforms (e.g. the Google search engine), which allow their owners to extract information on users, undertake analysis, and use the product of this to sell advertising space; cloud platforms (e.g. Amazon Web Services), which comprise hardware and software that is rented out to digital-dependent businesses; industrial platforms (e.g. that of GE), which comprise the hardware and software necessary to transform traditional manufacturing; product platforms (e.g. that of Rolls Royce), which transform a traditional good into a service; and lean platforms (e.g. that of Uber), which are like product platforms but whose owners attempt to reduce their ownership of assets to a minimum.
The analysis of each of these business models is much the most interesting part of Platform Capitalism. Srnicek concludes, perhaps surprisingly, that lean platforms “seem likely to fall apart in coming years” (page 88) but he recognises that the other types of platform are here to stay. He sees some benefits in this (e.g. better products for customers) but his main focus is on the concerns to which the emergence of platforms gives rise.
His biggest concern is the perceived monopolistic tendency of platform capitalism. He returns to this on a number of occasions and asks “Will competition survive in the digital era, or are we headed for a new monopoly capitalism?” (page 94). This is certainly a question that needs to be addressed but, Srnicek’s analysis points to various factors that suggest that there will continue to be significant competition among the platform providers. Nonetheless, his prognosis is bleak. “Let us be clear,” he says, “this is ….. the concentration of ownership” and, he continues, “Far from being mere owners of information, these companies are becoming owners of the infrastructures of society” (page 92). This is surely unduly apocalyptic.
Srnicek’s other major concern relates to labour. It is here that his left-wing philosophy is most apparent. He points to some real concerns (e.g. the mis-labelling of employees as independent contractors with a view to avoiding employment protections) and he dismisses the absurd idea that user-created data comprises the exploiting of free labour. However, he makes many statements that rely on assumptions that are at best dubious. For example, his suggestion that “In a healthy economy [people such as Uber drivers] would have no need to be micro-tasking, as they would have proper jobs” (page 82) seems to be based on the assumption that the job market of, perhaps, 50 to 70 years ago is the only acceptable model and smacks of left-wing nostalgia for the days of manufacturing-based factory capitalism. Likewise, his suggestion that companies such as Airbnb have “off-loaded costs from their balance sheet and shifted them to their workers” (page 83) suggests preference for the rigidities of integrated corporate monoliths over the more flexible models permitted by modern technology.
The book also suffers in some places from loose use of terminology. For example, Srnicek several times mentions (with apparent disapproval) the “cross-subsidisation” that he believes is inherent in some platform business models (e.g. Googles) that involve providing a free service that enables advertising space to be sold. This use of the term is eccentric. Google is no more involved in cross-subsidisation than are the owners of commercial television stations or free local newspapers that have historically survived by selling advertising space. It is hard to see what is wrong with the Google “cross-subsidisation” model from a competitive or any other point of view.
More seriously, Srnicek’s frequent attacks on “tax evasion” are mis-directed. Many people are rightly concerned about tax evasion but he confuses illegal evasion with legitimate tax minimisation. In particular, he seems unaware that, pursuant to express US law, US corporations may legally avoid the payment of US tax on foreign profits for so long as these are not repatriated. He may not like the relevant US legislation but there is logic behind it and, in any event, companies can hardly be criticised for making use of it. His statement that “The leaders of tax evasion have …… been tech companies” (page 59) followed by a list of well-known names, without any supporting evidence, is both disturbing and disappointing.
The final section of the book (relating to what the future may hold) is less disturbing but equally disappointing. One idea is piled on another. In less than two pages, there are suggestions of: co-operative platforms; anti-trust action; regulation of, or even the banning of, lean platforms; co-ordinated action on tax; the creation of “platforms owned and controlled by the people”, which must nonetheless be “independent of the surveillance State apparatus”; “post capitalist platforms” (whatever they might be); and the collectivisation of platforms (pages 127/8). None of these ideas is explored and one may doubt the realism of at least some of them and the practical benefits of others.
This is a pity because there are many issues arising from “platform capitalism” that should be explored by both policy makers and those involved in business. What are the implications for privacy and, indeed, personal freedom and how should we respond to these? What kind of protections for “workers” are practicable and appropriate in a digital world? Where do the responsibilities of the platform companies to employees, customers, suppliers and others begin and end and how can they best discharge them? What kinds of regulatory regimes (if any) are needed for this kind of company and how can they be imposed in a digital, cross-border world? Generally, what does responsible digital business look like?
Srnicek fails to offer any insights into these matters. None-the-less, his analysis of the platform companies is important because it should help others to do so. It should also help all of us to note the way in which the business world is moving and avoid suggesting outdated solutions to modern business problems.
“Platform Capitalism” was first published in 2017 by Polity Press (ISBN 1509504869, 9781509504862), 120pp.
Richard’s experience includes his time as Secretary at the UK Takeover Panel and a secondment to Linklaters’ Hong Kong office. He also served as Global Head of Client Sectors, responsible for Linklaters’ industry sector groups, and was a member of the Global Executive Committee.
I first read this book shortly after it was published in 1994, at a time when I was starting to explore the interface between Christian ethics and economics. Re-reading it some twenty years later has been instructive, now that this field has been developed rather more and is taken seriously again by at least some of those involved in politics and public life.
The book is set out in four parts, preceded by a helpful introduction in which Tim Gorringe sets out his stall by explaining how he uses Karl Marx as a dialogue partner throughout. This gives a hint as to his own political leanings. Indeed, in his introduction he even locates Marx as standing within the tradition of prophecy (p. xi). This means that Gorringe works essentially with a structured view of society and of economics that draws on Marxist theories of power and domination, rather than something more dynamic or entrepreneurial, and this is the undergirding theme of Part One. However, the theme of ‘narrative’ and economic history is certainly also present here, as part of his general critique of a version of economics that is ‘at the mercy of abstract laws which only experts can fathom’ (p. 22).
Within Part One I enjoyed finding at least two sharp criticisms of Brian Griffiths, Chairman of CEME, and having heard Lord Griffiths’ more recent reflections my sense is that he might now yield a little ground to Gorringe when it comes to the place for Christianity within public policy (see p. 13), while holding fast against the Marxist view on equality and liberty (p. 54). In certain respects, the world that Gorringe describes has changed. I particularly noticed this in his discussion of a living wage, which has now been embraced across the political spectrum in the UK.
Part Two of the book has four chapters that address more focused subjects. The first of these, ‘Work, Leisure, and Human Fulfillment’, sets out a valuable survey of Christian thinking through history on this theme, with the conclusion that ‘true leisure is not utilitarian’ (p. 77), and that both work and leisure are about human realisation. As a stand-alone section this would make good reading for anyone wanting a critique of a self-contained neo-classical economic world-view. However, the other three chapters in Part Two resonate more strongly with Gorringe’s Marxist theme, as they tackle the subjects of alienation, solidarity, resistance, and social justice. Gorringe looks for a ‘rejection of the individualism which divides people and sets them against each other, affirmation that humanity consists in working together’ (p. 102). While this is indeed a hopeful broad vision to set forth, as I read these words I found myself wondering whether it takes seriously enough the way in which entrepreneurial energies operate within the economy.
Part Three is given the over-arching heading ‘The Common Treasury’, in which Gorringe explores the subjects of personal property, inequality, planning and ecology. His general approach is one that advocates a socialist ‘control’ of the economy, and at one point he states that ‘some kind of global planning is needed’ (p. 140). Part Four then consists of a single final chapter, entitled ‘Two Ways’, in which Gorringe mounts a strong attack on global capitalism. It was here that I was surprised but pleased to stumble across a reference to the economist Joseph Schumpeter. His work had been used as ammunition within a 1980s debate between the Roman Catholic bishops of the USA and some prominent Catholic lay people. Reading this section carefully, my impression was that Gorringe brackets Schumpeter with a more general neo-classical take on economic theory, and then summarily lambasts them both. However, I would argue that he has missed something here, and that a more careful look at the contrast between Schumpeterian economics and the neo-classical approach would have been fruitful. In fact, Schumpeter has been taken in a Marxist direction, notably by Paul Sweezy, and I wondered if Gorringe might have changed his line if he had been aware of this.
On almost the last page of the book I then found this sentence: ‘There is nothing intrinsically wrong with enterprise, initiative and ownership. What is wrong is when these are harnessed to profit, power, self-aggrandisement, and inequality.’ (p. 166) As a programmatic statement this felt promising to me, but I struggled to see how large parts of the book itself could be taken to support or develop it. Rather, for Gorringe any sense of enterprise or initiative seems essentially to be subsumed within a Marxist superstructure, and the need for human cooperation to be played out in a society marked by planning and control. In the end, therefore, I found this book to be a helpful foil against which I wanted to put forward different ideas connected to human enterprise. However, as a major contribution in the field of theological ethics and economic theory its importance cannot be doubted.
“Capital and the Kingdom: Theological Ethics and Economic Order” was published in 1994 by SPCK/Orbis Books (ISBN 10: 0-281-04773-1)
Edward Carter is Vicar of St Peter Mancroft Church in Norwich, having previously been the Canon Theologian at Chelmsford Cathedral, a parish priest in Oxfordshire, a Minor Canon at St George’s Windsor and a curate in Norwich. Prior to ordination he worked for small companies and ran his own business.
He chairs the Church Investors Group, an ecumenical body that represents over £10bn of church money, and which engages with a wide range of publicly listed companies on ethical issues. His research interests include the theology of enterprise and of competition, and his hobbies include board-games, volleyball and film-making. He is married to Sarah and they have two adult sons.
The concept of “the common good” dates back at least to Aristotle and has been used by political theorists, moral philosophers and economists down the ages, including people as diverse as Thomas Aquinas, John Locke and Adam Smith. It is a basic concept in Catholic social teaching and is easily understandable by all. However, it is not familiar today in discourse about the purpose and role of business.
Wong and Rae want to change this. They suggest that, “it is an important time to reconsider what business, and our current or future participation in it, is all about” (page 28) and they undertake this reconsideration by first considering the purpose of those engaged in business. They suggest that, “The idea that business can be a calling is becoming more widely appreciated and accepted” but that “what exactly business is a calling to needs much more exploration” (page 33; the emphasis is theirs). They then launch into the required exploration. The first part of this leads to the conclusion that business is a calling “to transformational service for the common good” (page 76) and the implications of this are then worked through.
Business for the Common Good forms part of the InterVarsity Press “Christian Worldview Integration Series” and is, thus, written primarily for Christians. However, Prabhu Guptara observes in his endorsement that “Nothing in this book prevents it enriching the lives of Hindus such as myself – or, as far as I can see, those of Buddhists, Muslims, agnostics or atheists!” He is right. The book’s conclusions do not depend upon any theological propositions other than a general view of God and the World that will be shared, at least in its more important features, by millions of people of various faiths and, at least in relation to its view of the World, by many of no faith. Furthermore, although the Series Preface suggests that college students may be a primary target audience, the book is likely to assist a far wider audience, including those who have been in business for many years. Some readers will find its lack of interaction with other literature a downside but others will welcome the fact that it does not assume any prior reading and deals with issues from first principles.
After an over long Series Preface and their (shorter) Introduction, Wong and Rae helpfully examine the purpose of work, addressing the question whether work has merely an instrumental purpose or whether it also has an intrinsic purpose. Put simply, do we work merely to live or do we live to work? Many, perhaps most, people today would say that they work to live and for the poor this may seem obviously true but Wong and Rae seek to re-establish the idea that, as Martin Luther said, “The entire World is full of service to God, not only in the Churches but also the home, the kitchen, the cellar, the workshop and the field of the townsfolk and farmers” (page 60). As Wong and Rae put it, “Our work can serve as an altar” (i.e. an act of worship; page 46).
On this basis, they ask whose interests business should serve. It is their analysis of this that leads to what they describe as their “Christian vision for business” (page 76) and hence to their basic proposition that the calling to business is a calling to transformational service for the common good.
Having laid these foundations, they then turn to a series of specific issues: how involvement in business can result in negative effects on our character but how it can also transform us for good (which they rightly describe as a “rarely examined question”; page 37); what our attitude towards wealth, success and ambition should be; how we should respond to globalisation; ethics in the work place; business leadership and management; marketing; and stewardship and sustainability. Finally, they turn to what they describe as “several exciting (and very inspiring) ways that emerging practices and organisations are moving business towards becoming proactive and intentional partners in solving social problems” (page 38).
This is a huge amount to cover in a relatively short book and some parts of the book may leave the reader feeling a little short changed. However, this is not a superficial book or one that deals in generalities. It is closely argued and it is careful to explain both its starting points and its logic. It is also good to see issues such as the ethics of marketing addressed head on rather than in passing and, more generally, to have work place ethics placed in the broader context of the purpose of business rather than considered in isolation.
More seriously, many may question whether it is realistic to expect society as a whole to adopt Wong and Rae’s view of the purpose of business and whether it is even worth attempting to persuade society to do so. Wong and Rae are ethicists not business people and on occasions this is revealed in a lack of sophistication in the examples of business situations that they give. Furthermore, their view of the world leans towards the optimistic end of the theological spectrum (being in Niebuhr’s “Christ the Transformer of Culture” category and, in some respects, leaning towards his “Christ of Culture” category) and many will wish to question this optimism.
Wong and Rae recognise these issues and seek to address them. Not all of what they say is wholly convincing and they leave many unexamined issues (e.g. with regard to the role of competition). However, the points that they make should at least cause those who are more pessimistic, whether from experience or theological conviction, to analyse their views and perhaps conclude that, even if they are right to be pessimistic, Wong and Rae’s basic suggestions are worth pursuing.
Business for the Common Good provides an overview of its subject matter and, if it leaves readers with many questions requiring further exploration, that is for the good. Wong and Rae state that their intention is “to plant seeds, deepen conversations and enable changed outlooks, purposes, values and practices” (page 285). Their book should achieve this goal.
“Business for the Common Good” was published in 2011 by InterVarsity Press (ISBN 10: 0830828168). 288pp.
Richard’s experience includes his time as Secretary at the UK Takeover Panel and a secondment to Linklaters’ Hong Kong office. He also served as Global Head of Client Sectors, responsible for Linklaters’ industry sector groups, and was a member of the Global Executive Committee.
The Centre for Enterprise, Markets and Ethics (CEME) is pleased to announce the publication of Ethics in Global Business: Building Moral Capitalism by Andrei Rogobete.
Alternatively, please contact CEME’s offices via email at: email@example.com
With Liberty & Justice for Whom? is an analysis of the views of conservative Protestants about capitalism. It was written a quarter of a century ago and its focus is on U.S. writers. It is thus dated in parts and, in any event, many outside the U.S.A. will feel that Gay’s analysis is not wholly applicable to their context. Some will also find tiresome its almost obsessive quoting of other scholars, which betrays its origin as a doctoral dissertation. Nonetheless, the issues raised by it are of long-term general significance and, whilst Anglo-Saxon evangelicals are likely to benefit most from reading it, it could be read with profit by other Christians, those of other faiths and, indeed, anyone who wishes to consider the reasons why people who apparently share a common religious or philosophical starting point disagree so vehemently about economic and societal issues.
Gay divides evangelical intellectuals into three groups: the left (which, he suggests, essentially regards capitalism as oppression); the right (which, he suggests, has primarily engaged in the defence of capitalism against the critics of the left); and the centre (comprising those “whose appraisals of capitalism are neither wholly negative nor entirely positive” but who regard capitalism as a “cause for concern”; page 116). He examines the views of many people within each group, considering the essentials of their economic and political views as well as the way in which they use the Bible to support these views.
The first two-thirds of the book is largely descriptive, albeit interwoven with comment and evaluation. Gay then moves on to analysis. He believes that it is “clear that capitalism as such is not the only thing at issue in this debate but that the various evangelical factions are contending for entirely different socio-cultural visions of American society” (page 161). However, he points out that the difference between the competing views “is not a matter of competing moral and ethical paradigms but of disagreement on the question of whether capitalism promotes or prevents the realisation of the norms and values they hold in common” (page 166).
Gay attempts to use the “new class” theory of the Austrian born American sociologist Peter Berger in his analysis. He argues that those on the evangelical left are reflecting their membership of this new class (broadly those engaged in what he calls the “knowledge industry”) whilst those on the right reflect the attitudes and interests of the old middle class (occupied in the production and distribution of goods and services). He suggests that both evangelical groups have engaged in a process of “cognitive bargaining” with the secular world and, in particular, in their analyses, have compromised the more transcendent, or “other worldly”, elements of evangelical faith. He also asserts that “Both the evangelical left and right have succumbed to an ideological abuse of Scripture and a de facto (and occasionally explicit) confession of the ultimacy of economic life” (page 203).
Many of Gay’s assertions and suggestions are contentious. For example, he admits that his use of the new class theory is “provocative, to say the least” (page 203). Furthermore, one may question whether his categorisation of evangelical views (which he admits is arbitrary) is helpful. Is the analysis assisted by lumping Theonomists and Christian Reconstructionists together with Brian Griffiths and Peter Hill? Do those in what Gay terms the “evangelical mainstream” (whose views are moderately right of centre) really have much in common with the views of what he terms “progressive evangelicals” (whose views fit much more comfortably with the left wing analysis)? Gay observes that the “evangelical centre” has no economic programme, which suggests that it is not a real category worth examining. It might have been better had he examined the extreme right, the moderate right and the left (which Gay recognises is a more coherent group than the others).
Gay was doubtless conscious of the danger of being accused of criticising everyone else’s views without offering a view of his own but he wisely avoids entering into the detail of the economic and theological debate. Instead, he offers suggestions as to a way forward in the debate, which are set out in a 33 page “Epilogue”. Unfortunately, this part of the book is disappointing There is little to object to in what he says but the language used, particularly in the first part of the Epilogue, is less clear than might be desired and, overall, his suggestions do not add much to the debate. Furthermore, although he seeks to avoid taking sides, those on the evangelical left are likely to feel that he is in fact laying the foundations of an essentially right of centre viewpoint without fully justifying his position.
These are significant failings but they should not put anyone off reading this book. It provides a wealth of food for thought and challenges: Why is it that evangelical economic debate so closely mirrors the corresponding secular debate, albeit with the addition of Biblical analysis? How much of the evangelical contributions to economic debate derives from the Bible, how much from secular assumptions and how much the compromise with the groups in which the relevant authors move or a reaction against these groups? To what extent are arguments caused by a disagreement as to whether criticism of the existing economic order is to be based on a comparison with an ideal or a comparison with practically available alternatives? Should the debate focus on the detail of capitalist economics or will progress only be made if the underlying assumptions and issues relating to our concept of society are addressed? Specifically, are those debating capitalism and other economic models guilty of a failure to examine whether terms like “liberty” and “justice” are being used by everyone in the same sense?
These questions are well worth considering and, by raising them in the context of a detailed analysis of the spectrum of evangelical opinion, Gay provided and, 25 years on from his book’s original publication, continues to provide an excellent foundation for further thinking.
“With Liberty and Justice for Whom?” was reprinted in 2000 by Regent College Publishing (ISBN 10 1573831328).
Richard Godden is a Lawyer and has been a Partner with Linklaters for over 25 years during which time he has advised on a wide range of transactions and issues in various parts of the world.
Richard’s experience includes his time as Secretary at the UK Takeover Panel and a secondment to Linklaters’ Hong Kong office. He also served as Global Head of Client Sectors, responsible for Linklaters’ industry sector groups, and was a member of the Global Executive Committee.
This is a talk given by Lord Griffiths of Fforestfach at an event organised jointly by the Centre for Character and Values at the Legatum Institute and Clifford Chance LLP. and Chaired by Christina Odone, Chair of the Centre. (May 9th 2016).
I am a great admirer of Alasdair MacIntyre. He is one of the world’s greatest living philosophers, invariably provocative and controversial but never without interest or depth of thought. A few years ago he gave a lecture with the arresting title “The Irrelevance of Business Ethics”. He set out to argue that the financial crisis of 2008 was not the result of a lapse in ethics by bankers but that the very nature of dealing in financial markets was to offload risk on to a counterparty or client with no ethical consideration whatever, “the better the trader the more morally despicable”. The result is that trying to teach ethics to traders was like reading Aristotle to a dog.
From the evidence of opinion polls the very expression ‘business ethics’ in an oxymoron. The fact that since the financial crisis banks have been fined over $300 billion, Volkswagen has admitted cheating on emission tests on potentially 11 million cars, Mitsubishi has acknowledged that it intentionally mislead regulators, shareholders of blue chip companies have revolted over executive pay and the House of Commons Select Committee has investigated the sale of BHS for £1 which was subsequently put into administration with a huge pensions deficit the following year, all suggest that ‘business ethics’ is for the general public a contradiction in terms.
Why Ethics Matter for Business
Ethical behaviour by business is important for a number of reasons.
One is that the public expect business to be ethical. They expect business to be conducted in an honest, fair and transparent manner, which serves the greater good of society and not just the interests of management and shareholders. They expect the senior managers of business firms and the entrepreneurs who set up private companies to have a moral compass which respects the dignity of those who work in the organisation and those they serve as customers. They expect that businesses will have standards which do not seek to mislead or misinform customers regarding the true price and the quality of the products and services which they provide.
The fact that the public hold such views is important because through their elected representatives who pass legislation in parliaments it is the public ultimately who grant business a license to operate. Without such a license for example, limited liability companies would not exist. That license can be changed at the will of Parliament. What has become increasingly clear is that the public will not put up with unethical business. Without ethical business regulation will increase. Just look at what’s happened in banking following the financial crisis. Regulation is at best a blunt instrument in that it cannot easily be tailored to meet the needs of individual companies. Not only that but regulation is a form of taxation and like most taxes it has a deadweight cost to society.
A second reason why ethics in business matters is that it underpins the legitimacy and attractiveness of a market economy. From the latter half of the eighteenth century and Adam Smith’s great work on the causes of the growth in the wealth of nations, a market economy which fosters enterprise and freedom and allows markets to work and is by far the best driver of prosperity that we know not only that but a market economy entails a degree of economic freedom which is a key element of political freedom. Business without ethics and values therefore undermines the appeal of a market economy and a free society.
A third reason why ethics in business matters is a personal observation. Working in a company with ethical business principles and a culture built around strong values is far more fulfilling than working in a company which turns a blind eye to ethical standards and in which the culture is based principally on success and money. I have sat on the boards of fifteen companies in the private sector since working for the first 25 years of my career in the public sector. These companies were varied. Some were main boards with shares traded on the NYSE, NASDAQ or LSE; others were wholly owned subsidiary boards; some were large, others medium, some small in terms of size; two were joint ventures. The products and services covered were extensive: banking, broking, rail freight, care homes, music, cable communications, television, cleaning, killing bugs.
For me and I suspect for most of those who worked for the companies the most distinguishing factor in terms of a company being ‘a great place to work’ was the respect shown to fellow employees, the pride the firm took in its products and services, the sense of community which existed in the organisation, management’s commitment to help people develop to their full potential and the fact that it served a greater purpose than just focussing on maximising the bottom line. It is because of these qualities that such a company is trusted by its customers and the community in which it operates. It is also the reason it is able to build up a culture of trust within the organisation so that management can be trusted to make the right decisions.
Three Questions Business Leaders Must Ask
If businesses are to act ethically there are three questions business leaders must ask themselves.
First, Who Are We? Put differently, What do We Stand for? What is our Purpose?
This I believe is the most fundamental and difficult question for any business leader to ask. To explore the purpose of a business is to go beyond profit. Without profit – which is the financial return to those who provide equity capital – a business will not survive. However asking about purpose raises broader issues than the bottom line. Does the company take pride in the product or service it provides? Is being part of the firm a source of human flourishing? How does the company contribute to the common good by what it does?
The reason it is difficult to ask these questions is that they in turn ask each of us to turn inward and ask ourselves a far more searching set of questions, Who am I? What am I doing with my life? What is the purpose of my existence? Most of us most of the time want to park such questions and get on with the day to day challenges of running the business. Far better and more productive to log on and check what the markets have been doing overnight. Then respond to e-mails. After that a look at today’s calendar with slots filled in from early morning to late at night.
I served for 21 years on the Board of a US company, Herman Miller which designed and manufactured office furniture. It was in the twentieth century a world leader in its field both in terms of design (it attracted great designers such as Eames, Ngouchi, Nelson, Gehry, Stumpf and environmental stewardship well before that became an important item on corporate agendas. The Chairman who invited me to join the board was Max de Pree. It was only many years later that I came across an essay written by Nicholas Wolterstorff, a distinguished Yale professor of philosophy, that I became aware of the importance of the purpose of a business. This is what he said;
“About ten years ago now I served – quite amazingly – as a philosophical consultant to the Herman Miller Furniture Company in New Zeeland, Michigan. Max de Pree, the executive officer of the company, had invited an architect, a physician, a journalist, a furniture designer, a theologian, and me to an all-day session with him and about five of the top officers in his company. At the beginning of the day he posed ten questions that he wanted us to discuss, in whatever order we wished. He asked us not to concern ourselves with trying to say things that we thought would be useful to the company; he wanted the discussion to take whatever shape it wanted to take. I remember three of the questions. “What is the purpose of business?” he asked. Some of his younger executives were saying that the purpose of business was to make money. He himself didn’t believe that; but he wanted to talk about it. Second, he wondered whether there was “a moral imperative”, as he called it, for companies to produce products of good design. And third, he wanted to discuss whether it was possible to preserve what he called “intimacy” in a large company.
It became clear, in the course of the discussion what de Pree himself regarded as the purpose of business. The purpose, as he saw it, was twofold: to produce products that serve a genuine need and are aesthetically good, and to provide meaningful work in pleasant surroundings for those employed in the company. He added that these purposes had for a long time shaped his operation of the company.
Now it seems to me that these two purposes are, or can be, an expression of charity – that is, both consist to promote the welfare of the other. As a matter of fact, it became clear in the course of the discussion that it was de Pree’s religious commitment – specifically, his Christian commitment – that had led him to embrace these goals. He saw his operation of the company as an exercise of charity – though he didn’t use the word. His own case, at least as he presented it, was a case of “transcendental faith” shaping economic activity.
Was he prevaricating? Or deluded?”
Second, is the question What are our values? Have they been set out explicitly? Are they so general as to be vacuous? Who in the firm owns the values?
It is easy to write down a set of values for a business. Indeed nearly all large companies have similar sets of values: respect for the individual, honesty and integrity, social responsibility to the community, environmental stewardship and so on. Far more difficult is to assess their effectiveness. How do the values shape the way I work and the decisions I make? How do I behave differently because these values are set down and I am a member of that firm? What responsibilities do I now have because of these values? Do I treat colleagues differently? Do I treat clients differently?
I have found that the key to effective values in business is that they must be lived by the leadership of the company. The leadership must walk the talk. Without that the values are empty and the leaders guilty of hypocrisy. Preaching one thing but practising another. The leaders of a business cannot rely on regulation. Leadership cannot outsource the values of a business to regulators.
One test is what the leaders of a business think their values really are? Would that be shared by the average employee? Would it also be the perspective of clients and suppliers?
I was reminded of this recently in an article which appeared in Forbes magazine by Professor James Heskett, professor emeritus at Harvard Business School on the subject of servant leadership which is a more used term in the US than in Europe. The concept of servant leadership places great emphasis on the role of a business leader serving employees. Heskett recalls an incident at a ServiceMaster board meeting at which I was present and remember distinctly when the Chairman and CEO, William Pollard spilled a cup of coffee prior to the board meeting. “Instead of summoning someone to clean it up, he asked a colleague to get him a cleaning compound and a cloth, things easily found in a company that provided cleaning services. Whereupon he proceeded to get down on his hands and knees to clean the spill up himself. The remarkable thing was that board member and employees alike hardly noticed as he did it. It was as if it was expected in a company with self-proclaimed servant leadership”. (Forbes 5/01/2013. “Why Isn’t Servant Leadership More Prevalent?”)
The third question is ‘What is going on in our business?
As a non-executive director of a company whose board meets four or six times a year, one of the most frustrating challenges is obtaining sufficient information to really find out what is happening in the business. I believe it is very important that non-executives meet not only senior but middle management and even junior staff. Only once have I ever found senior management reluctant to allow non-execs talking directly to management. Frequently the binding constraint is the time non-exec’s are able to devote to meeting employees. However it is only then that they find out what is really happening in the business.
In small companies finding out what is really going on in the business is not really a problem. In large multi-nationals however the issue is a major challenge. In the money laundering activities carried on by certain banks the sheer size, organisational structure and large number of countries in which the bank operated have proved a major obstacle to effective control.
Practical Steps to Making Values in Business Effective
A number of steps are necessary in making values effective in business.
First, it is important to set out explicitly the purpose of the business. For this a one-time mission statement is typically far too general and vague and begs the question of what the purpose of a business really is when spelt out in practical terms.
Second, it is important to set out in some detail the ethics, values and business principles of the firm. The temptation is to frame these in general terms. Management must accept that the actions of today will be judged by the standards of tomorrow, which means being ahead of the curve.
Third, on the basis of its purpose and values, it must build a culture with implications for all employees, affecting every aspect of the business; reporting, firing, promotion, human resources, selling, buying, accounting, auditing and so on.
Fourth, senior leadership must show through ‘the tone from the top’ that they live the values and they are committed to ensuring that the same values permeate the middle and lower echelons, the ‘permafrost’ of the firm.
Fifth, the leadership must be able to constantly appraise the effectiveness which its values, code of ethics, business principles have on conduct. They must trust but verify. This will include keeping a close eye on disciplinary matters and terminations, with regular surveys of staff and clients. Such information is important in compensation discussions and promotion recommendations.
Sixth, in all of this non-executive directors have a key role to play in that on behalf of the shareholders and stakeholders they are the guardians of the purpose, values and ethics of the company.
Size, Ownership, Competition
The challenge of implementing values in a business can be made easier or more difficult by certain factors, namely size, ownership and the extent of competition in the markets in which the firm operates.
The size of a business matters. Implementing values in a small firm is easier than in a large firm. In a small firm it is much easier for senior management to know what is going on. A large firm needs systems of control and trust in those responsible for them. It may also be easier in a firm delivering a single product or service rather than in a conglomerate in which there are different kinds of businesses with different business cultures, something which becomes even more challenging when the company has operations in different countries.
Different forms of ownership will face different challenges. A private firm and especially a family business may find it easier to develop an effective culture than a publically traded company. A partnership may have built in checks and balances to maintain high standards. That any concept of intimacy has disappeared.
The competitiveness of the markets in which a firm operates is a further factor to be taken into account. Competition is beneficial. It drives down costs and will lead to lower prices for consumers. It allows new firms to enter the business. It encourages innovation. However, in a highly competitive market when margins are under pressure, hiring staff is difficult and expensive; if competitors begin to use questionable methods (“tolerated practice”) ethical standards will be under pressure. This raises an important issue for public policy. What is the optimal degree of competition? Reducing barriers to entry and opening markets to foreign companies is beneficial but is there a point at which competition becomes excessive and undermines ethical behaviour? Will the market itself be self-correcting? Should it be left to regulation? And if it will, at what social cost?
I believe that the subject of maintaining ethical standards in business, of creating business cultures in firms which make them “great places to work” and of punishing wrongdoers for illegal activity is fundamental to a market economy and a free society. I am grateful for this opportunity to raise some issues associated with it this evening and look forward to our discussion.
Lord Griffiths is the Chairman of CEME. For more information please click here.
The Centre for Enterprise, Markets and Ethics (CEME) is pleased to announce the publication of The Challenge of Social Welfare: Seeking a New Consensus by Brian Griffiths, Richard Turnbull, James Perry and Maurice Glasman.
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Sports Direct’s founder and Chief Executive, Mike Ashley has admitted to paying staff below the minimum wage. The consultancy firm Mckinsey & Co. has been found to have a ‘secretive’ £5bn proprietary investment fund for its partners and BHS, the high street retailer has filed for bankruptcy in a downward spiral of events that would put most soap operas to shame.
What a week it has been!
It sure does feel like the year’s business stories have all been compressed in the space of one week.
Here are some thoughts:
1. There will always be a few bad apples
In the ‘free’ marketplace there will always be those that play so close to the legal line that they sometimes trip themselves over. Such was the case with Mike Ashley’s Sports Direct where staff were required to go through excessive security checks during which time they were not paid. In the parliamentary enquiry, Mike Ashley admitted that staff were paid below the minimum wage and also that the company “outgrown his ability to manage it”.
I remain rather sceptical.
Within a free market economy there will always be some (especially at the low-cost end of the spectrum of any given industry) that are so ruthless in minimizing costs that they sometimes, intentionally or unintentionally, dip into illegal territory.
Alongside Primark, Sports Direct is effectively the Ryanair of the sports retail industry. And like Ryanair, Sports Direct operates with an iron fist on efficiency.
But financial efficiency should not come at the cost of employee fairness and the well-being of staff. Indeed, the two are prerequisites for the long term stability of a company (see also point 3 below).
Perhaps of even greater moral concern is the widespread use of zero-hours contracts by Sports Direct as the normal means of employment.
There is a case against the minimum wage and there is a case in favour of zero-hours contracts. However, for wages to be so low as to breach (even on a technicality) the law and for zero-hours contracts to be the norm rather than the exception does not give confidence that the directors and senior executives of a business are aligning the interests of all rather than just some of their stakeholders.
Mike Ashley’s admission that the company has got too big for him to run raises very deep questions about governance.
2. Not all businesses are evil
We must not assume that all businesses are run in this way. The majority of businesses, and therefore people, involved in the private sector are upright and strive to do well in the workplace as well as their private lives.
It’s difficult to believe this when you hear stories like BHS owner Dominic Chappell giving death threats to Darren Topp, then CEO of BHS. When Darren questioned him about an unannounced £1.5 million withdrawal from the company’s accounts, Mr Chappell reacted by saying that “If you kick off about it I’m going to come down there and kill you.”
As atrocious as these events may sound, we must not lose hope in the good that business can bring.
Yes, the collapse of BHS was ugly beyond imagination and yes, the 11,000 people that are now unemployed is a tough pill to swallow – but despite all this we must not paint the entire private sector with the same colour.
Simon Walker from the Institute of Directors recently said in an interview that “… [the BHS case is] completely inexcusable and outrageous, and what worries me is that it makes people think that’s what British business is like and it’s not. British business is about hard working people who have often mortgaged their houses to get businesses going, this is as far from the world of normal businesses in this country as anything can be” (BBC Newsnight).
We need to hear some good stories.
3. It all comes down to Ethics
I have said it before and I will say it again: A company’s genuine commitment to a set of core moral values is crucially important to its long-term financial and reputational stability.
A strong commitment to a set of moral values will impact the entire business. From staff pay and working hours to the firm’s products and services, the senior management should strive to ensure that their decisions and actions are aligned with the firm’s core values.
Businesses that fail to instil a sense of morality and wider responsibility will sooner or later, have to pay the consequences of their actions.
It’s people’s livelihoods on the line so the stakes couldn’t be any higher. Let’s hope businesses are listening.
Business needs to argue its case.
Andrei Rogobete is a Research Fellow with the Centre for Enterprise, Markets & Ethics. For more information about Andrei please click here.