Are business ethics finally dead?

There has been a flood of odious news in the past two weeks about the activities of News International, a massively wealthy corporation that has allegedly exploited the private misery and despair of victims of murder, illness and war through phone hacking and confidence tricks in pursuit of profit. News International CEO, Rebekah Brooks, in her address to the News of the World staff who had lost their jobs, said, "The Guardian newspaper were out to get us, and they got us." It was the very worst PR possible. It attempted to transform wrongdoing into a competitive dogfight where News International was the victim. Brooks sought to engage the sympathy of an angry workforce about to lose their jobs. Her address lacked empathy but worse still, it lacked the contrition and regret appropriate to the context.

It caused us to think about the place of business ethics, corporate social responsibility (“CSR”) and business values in the commercial world – what these words mean and how, ultimately, they relate to marketing and business success.

Before the financial crash, we, in common with many others, had believed that the world was transcending an age of ethics in corporate responsibility: one where the bad guys are being weeded out and held to account.

Between 2002 and 2004, the companies heralded as “Oscar Winners” in "imaginary arithmetic” included Enron, Barings Bank, Merrill Lynch, AIG, WorldCom, Kmart and a couple of major pharmaceutical companies. False accounting was rife; its purpose was to deceive investors, shareholders and the markets – to lead them to believe that a business was performing better than it was in reality.

In 2007, we wrote that “businesses that dishonestly exploit their customers or their shareholders for their own financial benefit or power interests are going to fail in a world where ethics, social and personal responsibility are coming to be recognised as universal values.”

Was that a case of premature expectation or simply, naïve hopefulness? There has been major change in business ethics over the past decade. A whole new vocabulary permeated the corporation that appeared to have an ethical foundation: Openness, transparency and accountability became the bywords of enterprise and government alike. There have been some notable ethical failures too: Madoff and News International being the biggest and most recent. There is the financial crisis that has been described by those who are politically motivated as the consequence of unethical self-interest and greed, whereas it’s probably more about the systemic failures of current economic and political doctrines.

So what about ethics, CSR and business values; what do they mean? There’s nothing mysterious about ethics; ethics are simply the morality of right and wrong. Businesses frequently publish “Codes of Ethics” that are usually prescriptions for (“good”) corporate conduct mixed with statements of business values, practices and attitudes. Here’s an example of an extremely wide-ranging “Code of Ethics” that also encompasses a code of conduct from First Group, a major UK public transport business. Most often, codes of ethics relate to honesty, fairness, openness, transparency, respect, integrity, truthfulness, personal and social responsibility, accountability, human decency and lawfulness; facets of conduct that might also be considered to be business values.

Defining Corporate Social Responsibility is much more tricky since there are as many definitions as there are disagreements over the appropriate role of the corporation in society. Here’s something of what we mean:

“Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible.”

Milton Friedman, 1962

“I think many people assume, wrongly, that a company exists simply to make money. While this is an important result of a company’s existence, we have to go deeper and find the real reasons for our being. As we investigate this, we inevitably come to the conclusion that a group of people get together and exist as an institution that we call a company so that they are able to accomplish something collectively that they could not accomplish separately – they make a contribution to society, a phrase which sounds trite but is fundamental.”

Dave Packard
Co-founder of Hewlett Packard Company in 1939

NB We should point out that Friedman’s exhortation to the corporation to make as much money as possible is subject to the qualification that the corporation operates within the law and “social norms”.

And this is what CSR means to the European Commission: "A concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment. A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.”

For us, that’s a simple, workable definition. The key question that CSR raises is whether corporations should, or indeed can, contribute to building a better society. Most importantly, does the corporation have that choice or does it rest with the consumer since the cost of CSR is borne by them in the price that corporations charge for their goods and services? The corporation itself is not a social entity; the social entity is comprised by the people who work within it. Only people can effect social change and arguably this cause is better served by broad consensus-based social and political movements rather than hierarchical profit-making corporations. Nevertheless corporations can and we believe should behave in a socially responsible manner and that should extend to assuming responsibility for the social and personal wellbeing of the customer in the production and consumption of its products. But is that about CSR or is it about business values and how does it relate to marketing?

We believe it’s all about business values and these come from the people within the business, especially its top management. Business values are predicated upon a will to succeed in all aspects of work and are central to driving profitable and healthy growth.

Values include the dimensions of the physical, organisational and psychological world of work. They put the wellbeing of people, customers and staff before other considerations in the certain knowledge that a satisfied customer and an engaged workforce are central to achieving successful development and growth. All stakeholders expect ethical behaviour and will rail against unethical conduct. CSR initiatives might be greeted by a shrug of the shoulders and the words, “So what? What’s in it for them?” There are also issues of credibility in CSR, perhaps best exemplified in BP’s approach to the environment and MacDonald’s concern for health.

We’re not convinced by those long codes of ethics either since more often, healthy values are derived from the way that people work together and behave towards one another at work. Values are frequently tacit and unspoken but usually observable in a way that a company does business. Values also underpin and drive marketing.

On our home page, we say, “People buy your beliefs about why you do what you do first and foremost, then they rationalise about features and functions.” This is not to say that features and functions are unimportant and that the determination of whether a product satisfies a need is irrelevant but that they are secondary to the attractiveness of your beliefs and values about why you do what you do. Corporations get hung up on functional considerations simply because they are easier to understand and relate than fundamental beliefs and values. It’s these beliefs and values that create sales and marketing attractiveness that make for results since:

1. Attractiveness is capable of expressing the fit between the corporation’s values and the values of the customer that creates the sense of working on the same side towards common goals. Attractiveness is the sum of both organisational matters and personal relationships of the individuals in both organisations.

2. Both parties invest in a commercial relationship if they find the other attractive.

3. Mutual attraction is the basis of a long-term relationship, which a simple exchange of value is not.

4. if there is mutual attraction, the parties give extra effort to each other (e.g. they work harder for availability of the products) which can not necessarily be obtained by paying higher prices.

5. “Soft values”, for example, honesty, taking the welfare of the other party into account and social support are seen as important and as a means to finally achieve monetary goals.

In this behavioural analysis of values that underpin “attractiveness”, other key considerations are flexibility, honesty, openness, commitment, communication and the social satisfaction derived from working in partnership.

So are business ethics finally dead? We say not since they underpin the values and marketing attractiveness that drive profitable growth. What do you say? Do please let us know your views.