Corporate governance is about promoting corporate fairness, transparency and accountability, former World Bank President John D. Wolfehnson defined. His definition may be summarized as the FAT principles of corporate governance. And ethics is its underlying principle.
Ethics is about integrity, honesty, uprightness, commitment to do what is right, good and proper, and upholding a Code of Ethics that expresses the basic values of the company. It is about avoiding conflicts of interest, of how an honorable person should behave, and of having the character and courage to meet the challenge when doing the right thing would cost more. Robert Haas, former CEO of Levi Straus, once said, “In the next century, a company will stand or fall on its values.”
It has to be said that people are growing tired of rampant corruption that has pervaded business and politics for decades. Disgust over corruption is seeing a steady progression toward ethical issues that encompass every aspect of the way companies do business. Companies will come under increasing scrutiny of the public. Those seen to be abusive in terms of short-changing customers, mistreating workers, polluting the environment, etc., will suffer as customers defect to competition. Moreover, they will also come up before new legislation protecting consumers, workers and the environment. Indeed, business ethics is an issue that goes straight to the bottom line.
Malaysia’s former deputy prime minister was noted to have said, “If I were in business, I would not want to ally myself to any individual or group in the political party in power. It is not wise long term…you sow the seeds of your company’s downfall. It is simply not clever.”
Corruption is one blatant example of corporate misconduct. More vocal customers will make life difficult for those they perceive to be transgressing the rules of proper conduct. Governments that become more responsive to public opinion will play a key role in this. Companies should not fall into the trap of thinking that business ethics is
an oxymoron.
In fact, cutting down on corruption has many implications over and above merely moral considerations—it does have an impact on the bottom line. Paying bribes to government officials to gain a contract gives a company a one-time advantage over competitors, but the situation may spin out of control. The cost of “help” keeps going up, as other departments ask for a piece of the action. Another side effect is that red tape tends to proliferate, and there is little incentive for officials to make things simpler when every bureaucratic hurdle provides them with more opportunities to squeeze business. A bribe can solve a short-term problem, but in the long run, it simply won’t pay.
Being ethical doesn’t mean just obeying the rules. Corporations that instill ethical behavior strengthens the organization and can be profitable, as well. Likewise, in the wake of growing concern over the environment, one US company, AT&T, formulated a plan to reduce the company’s emissions of chlorofloro carbon and to eliminate them entirely. Its move actually came before the laws required it. AT&T estimated that this saved the company millions. The company asserted the decision to act before the laws were passed made a big difference. Its experience illustrate an interesting point in the ethical debate—that a firm can gain an advantage by moving ahead of legislative requirements rather than waiting for a law that forces it to change.
Many ethical debates will continue, but a wise company that establishes its policy and gets a code of conduct in place sooner than later can expect benefits in its bottom line. Adopting clearly defined approaches to ethical issues is good for business. Companies that fail to take notice may benefit in the short run, but will pay a higher price in the long run, as public opinion shifts against them and customers flock to their more ethical rivals.
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The opinions expressed here are the views of the writer and do not necessarily reflect the views and opinions of Finex. merci.suleik@gmail.com.