Case Histories in Business Ethics

Chris Megone, Simon J. Robinson

• Publisher: Routledge
• Year: 2002
• eBook ISBN: 9781134735808
• Topic: Business
• Subtopic: Business generale
• Index: Business

Case Histories in Business Ethics illustrates and extends the role of case histories in the teaching and study of business ethics. Typically, case histories are used to illustrate assertions or arguments, or to stimulate debate about an issue within business ethics. This volume examines that role, illustrating the link between case histories and mo

Part I
Theoretical approaches to business ethics

Chapter 1
Business dilemmas

Ethical decision-making in business

Sir Adrian Cadbury

Why should it be that issues of company conduct and personal conduct in business seem now to be higher on the public agenda? Is it because our behaviour is now worse than it used to be? Well, in due course I will give you an interesting example of nineteenth-century behaviour which, in my view, is very similar to the sort of behaviour found today. So I doubt behaviour has changed that much. It seems to me that there are a number of strands to be identified in answer to this first question.

First of all, business has become more international and, by becoming more international, it is seen, I suspect, to be less accountable. Since it is spread across the world and no longer rooted in a single community, it is held to be responsible to no single jurisdiction. When, by contrast, I joined the Cadbury business, it had its main factory at Bournville and was very much part of that local community, which in turn was part of the city of Birmingham. There were very strong local pressures, providing instant feedback, more or less, on the actions and decisions taken by the company. So, in a sense, you had a force for governance operating on the spot, which doesn’t really exist now when companies have their centres spread all round the world. However, the importance of accountability, the need particularly for large international corporations to be answerable, is quite undiminished. The ten largest corporations in the world directly employ between them 4.3 million people, and of course many more indirectly, probably at least twice that number, so the way they conduct their affairs does have considerable social and economic importance.

A second reason why governance has risen up the agenda has been the occurrence of disasters. The Exxon Valdez tragedy, Bophal, Maxwell, corporate collapses – all of these highlight this question of accountability. Take the case of Bophal, for example. Who actually was responsible? How do we try to ensure that that kind of disaster does not happen again?

Third, there is undoubtedly more interest shown by shareholder groups, and by governments themselves, in ethical and environmental issues. For example, we have had in the United States the passing of the Foreign and Corrupt Practices Act. (I always rather like that because it suggests to me the idea that corruption is something that is only foreign. Well, I doubt that is true!) But the very fact that governments felt that they had to intervene in what was essentially a matter of how far a business should go in buying business (a question to which we will return to a bit later on) – that is, I think, something new. Such intervention raises the problem for governments of trying to define limits on conduct, of settling what is acceptable and what is not acceptable, in a world where transactions are moving faster and becoming more complex all the time. It is very difficult for them to keep up.

Fourth, there are issues raised by deregulation of the utilities, as well as the increased public expectations of business, and growing media interest. All of these have pushed the questions of conduct, both company and individual, more to the fore. In the face of these levels of concern, there is, I would suggest, a lack of general agreement as to what the rules of conduct should be, both for companies and for individuals. On the individual side, for example, life is very competitive and pay is related to winning. We may possibly be seeing changing attitudes towards what is right and wrong in this kind of area. Consider a well-known quote from Ivan Boesky, ‘Greed is alright, I want you to know that. I think greed is healthy. You can be greedy and feel good about yourself.’ The interesting thing about that quote is perhaps not just that he said it, but that he said it at the commencement address for UCLA, to all those bright new students coming up to the university, prior to making their way in life. The message they got was that. That does make one think.

Well, if these are the reasons that have brought corporate governance to the fore, what should be the determinants of conduct? My object in this chapter is to look at the ways in which we should set about making those ethical choices. How are we to come to decisions in business in conditions, if you like, of ethical uncertainty?

By virtue of being Chairman of the Committee on the Financial Aspects of Corporate Governance for four years, I had the opportunity to become involved in matters of corporate conduct, both at the national and the company level, and both in this country and abroad (where there is very great interest in these matters). In particular, as a committee we had the task of drawing-up the Code of Best Practice which we addressed to the boards of companies in this country and, in the first instance, to those listed on the London Stock Exchange. One very proper question, therefore, is how useful are such codes? Does the production of a code of best practice actually help boards in their task of directing and controlling companies? And at the company level, what guidance can company codes give to managers who are faced with decisions which require some degree of ethical judgement?

The sort of company I always had in my mind was one widely spread overseas, where the manager in some outpost in the Far East or in Africa was faced on the spot with a decision which they had to take with nobody to turn to. What help were the sort of rules that we drew up within the company going to be to such a person? Thus my interest lies really in the interpretation of rules and their practical use as much as in the precise nature of the rules themselves.

It is worth noting that the majority of business decisions do have an ethical content. (Incidentally, there has always seemed to me a problem over how you fit this subject of business ethics into a business course, because there should not be a separate compartment for an ethics options that you can take or disregard, treating it as quite unrelated to everything else that is happening within the business course. It is really a thread which runs through all the functions and all the aspects of a business. For example, financial decisions might seem the most securely based on arithmetic and rules. Yet financial decisions very often require you to make some decision as between profit now and profit in the future, and to do that you have to give some weighting to the interests involved here and now, and to those in the future, so you end up with an ethical dimension to the decision. So it seems to me that, at the end of the day, there are very few business decisions which can be made on the basis of mathematics alone.)

One kind of decision to which I will refer has to be made in situations where there seem to be competing values, not cases where one course is clearly right, the other wrong. You may decide to do the wrong thing. That is entirely another matter, but in that case there need be no query in your own mind as to which course is right and which course is wrong. The difficulties come when in fact both courses seem right and we have to decide which of them is going to prevail.

Another difficulty for decision-making arises from uncertainty as to what the rules mean. We may have some rules, but we don’t actually know how to interpret them in the particular case which confronts us. Another problem may stem from conflicting orders. We are actually being asked to do two conflicting things at the same time and we have to choose between them. The final kind of problem I’ll address arises when there is a complex decision to be made. I will come to a clear example of a complex decision later on, where a number of interests are affected and you have the problem of how you are going to decide which of those interests count most and should therefore have the major say in the final decision.

This business of different shades of right and wrong takes me back to my grandfather.¹ He was deeply opposed to the Boer War and he bought the only paper in this country which, at that stage, was promoting the cause of peace and was against the war. He bought it to make sure that it was able to continue its good work. After buying it, he discovered that a great deal of the paper was taken up with racing tips and betting news and this worried him because, in addition to being opposed to the Boer War, he was actually opposed to gambling as well. So for a period he drastically cut this side of the paper’s activities. The results on the circulation were disastrous and, no doubt to the enormous relief of those working on the paper and I suppose to that of the readers, he decided in the end that to promote a journal which was going to speak out against the Boer War was actually more important than giving some mild support to gambling. So he put the news back in and all went well.

Now, my question is, when we are faced with an ethical decision such as one of those above, how do we set about resolving it? I should perhaps at this point explain what I mean by ethics. I use the word to mean the guidelines or rules of conduct by which we aim to live. To reiterate, then, what should be the determinants of conduct?

Both companies and individuals work within frameworks. The company framework is set by the law and by regulations, which are not quite the same thing as the law, but which we have to abide by although they are not necessarily statutory. Thus companies are subject to control by the Board, and to the forces of shareholder opinion through the General Meeting. There are also pressures from peer standards and public opinion. In the case of individuals, obviously some of those determinants just mentioned also apply, but there is also the personal code of the individual concerned.

But who sets these rules and who enforces them? What we find is, if we look at different countries, thinking on the corporate level now, that in fact the frameworks are different in different countries. In Germany, for example, the Board would have a greater degree of control over conduct than it probably would have in the UK. In the US the law and regulation would have a greater role to play than it does in the UK, and so on. So we are all subject to certain rules, but the particular mix of those rules is different and they change. They change as expectations change. Of course, regulation is pretty straightforward. That is clear. What is less clear is how what we come to regard as accepted standards of conduct are established and maintained. So let’s look at codes.

There are really four levels of code. There are international codes, national codes and company codes and, perhaps in between these, there are trade or professional codes. International codes constitute an interesting development and one that is relatively new. Recently there has been an Inter-Faith Declaration, a code of ethics on international business for Christians, Muslims and Jews.² This is something at the international level very much to be welcomed. There are others. There is a body called the Caux Round Table. There are the Minnesota Principles set out by a group in the United States entitled ‘Toward an Ethical Basis for Global Business’. There is a relatively new organization called Transparency International which states:

Transparency International (TI), the coalition against corruption in international business transactions is at present working on a special project dealing with the compilation of different corporate codes of conduct from multi-national enterprises and those published by institutions such as the Caux Round Table, ICC, and so on, as we believe these to be essential in the implementation of strategies against corruption.³

So, there are certain guidelines being produced at the international level that we can look towards. A second source of guidance is to be found at the national level. The Code of Best Practice, which our committee produced, is an obvious example.⁴ I mentioned that it was addressed to UK companies, and we did indeed at the beginning of the report say that we hoped that all companies, whatever their size, whether public or not, would pay attention to the principles which we had set out there. But, in the first instance, that code was addressed to listed public companies – companies quoted on the stock exchange.

Third, it seems to me, there are the trade and professional codes. These are obviously very important in the professions and have been there for a long time. But there are others as well which are quite interesting. For example, there is an advertising code under which Benneton had one of its advertisements banned. We might not think of it as a professional code, but it is still a code.

Then, fourth and finally, there are company codes, each company drawing up its own particular code in different forms and, one hopes, discussing it so as to ensure that it is not just a top–down process, but that it does actually have some basis in the way people in the company think and behave. The Cadbury committee Code of Best Practice was not specifically dealing with ethical matters, but nevertheless there was an ethical content and, I felt, it was quite an achievement to get the committee to agree on the significance of this point. We said it was important that all employees should know what standards of conduct were expected of them.⁵ We regarded it as good practice for boards of directors to draw up Codes of Ethics or Statements of Business Practice and to publish them both internally and externally.⁶ We stressed the principles of openness, integrity and accountability. They go together. Openness on the part of companies within the limits set by their competitive position is the basis for the confidence which needs to exist between business and all those who have a stake in its success. So company codes should reflect this.

Returning to the Cadbury code for a moment, one of the other points we dealt with was the need for independent members of a board. We defined what we meant by independence in this particular context and what we were referring to was independence of judgement. We made this suggestion in order to help boards resolve conflicts between the interests of the executive directors and the interests of the company. This led to a misunderstanding, in my view, that somehow we were implying that outside independent directors were more ethical than executive directors. That was not the point. They can all be equally ethical. What we were saying was that the outsider has less direct interest in the business, is more disinterested, more objective. Thus on issues like take-overs, management buy-outs, directors’ pay, top management succession – all things in which the executive directors have an interest – then the outsiders have a particularly valuable role to play. This is not a question of their personal virtue. It is a question of their objectivity.

In general, the response to the Cadbury report was very encouraging and two general points were established, quite apart from whether or not companies followed our recommendations. First, public companies now have to make a statement about their compliance with governance requirements and all have in fact to review the structure of their governance processes, and that in itself seems salutary. I also believe that we have helped to clarify responsibilities in an area where we found there was a good deal of confusion, namely, that between directors and auditors.

So, codes are one determinant of conduct, but I suggested that a second way in which standards of conduct were set was by peer pressure, and this can be seen if you look at the UK financial sector which, as a convenie...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contributors
• Acknowledgements
• Introduction
• Part I: Theoretical approaches to business ethics
• Part II: Topics and case histories
• Part III: The role of case histories in business ethics