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Legislating on ethical standards

Will legislation improve ethical standards? Sheena Carmichael argues it will result in businesses doing the minimum required, while Peter Williams states the case for basic ground rules.

Legislation is not the answer, by Sheena Carmichael

It might appear that the case for ethical business has been won. Three quarters of UK companies surveyed in 2000 had a code of conduct, while 62% of respondents from FTSE 350 or equivalent sized unquoted companies claimed that ethical policies were a priority.

And when all the major accounting firms offer ethical auditing services, surely the Friedmanites who insist that the business of business is only business must be in retreat?

Corporate social responsibility may be highly regarded in the abstract, but the reality of life within many organisations remains less palatable.As the global reach of Western-based corporations spreads, so too should their responsibility to uphold the standards of their home country.

The danger of the compliance mentality is that only the minimum is done, as corporations become attuned to the letter of the law rather than its spirit.

And this approach doesn?t permit questions about wider ethical issues relating to the corporation. The limits of the term ‘ethical’ became apparent at a conference when the ethics officer of a major defence contractor was asked if staff ever raised concerns about the firm?s involvement in the manufacture of weapons of mass destruction. He looked puzzled, and replied: ‘Our only client is the US government, and the US government operates in defence of freedom.’ End of discussion.

The business ethics agenda is changing with e-business and globalisation. But there is still only one woman at the helm of a FTSE-100 company. A few women are gaining access to the boardroom, though too many still arrive there by virtue of the man they married, rather than on their own merits alone.

The starting point is greater transparency on the part of business: good corporate governance means more than just ensuring the independence of directors. Effective ethical auditing will give companies the tools to understand and run their businesses more effectively, and public reporting on social issues will help to build bridges between businesses and the wider public.

Ever more complex legislation is not the answer: the long-term solution must lie in the development of trust-based relationships in the context of a global view of business as the underpinning of society, rather than the other way around.

This is an edited version of an essay by Sheena Carmichael in The Moral Universe published by Demos

Don’t leave it up to business, by Peter Williams

A framework-based code of ethical standards for business appears the logical way forward and is probably the approach favoured by most firms and professional bodies.

But as business becomes more international the danger of some woolly, ill-defined code is heightened. An ethical system only works if we all know and understand (even if we don?t always obey) the basic ground rules.

The argument against detailed ethical rules has always been two-fold: first, that it would end up with a so-called ‘cookbook’ approach giving detailed rules that no-one but lawyers would read; secondly, that a game of cat and mouse would develop where those who are bound by the rules are constantly seeking loopholes to wriggle through, while the ethical standard-setter plays catch-up.

Those arguments may work well in a national setting but they lose all their force when applied to an international scene. There is no ‘one size fits all’ ethical approach that can be applied globally. We have seen recently that there is much on which different parts of the world still fundamentally disagree.

As for the game of cat and mouse, all types of business may be more exposed by only having a framework approach to business ethics. This leaves them open to accusations of breaches where they genuinely believed they were acting in the right. Such misunderstandings can not only lead to loss of corporate reputation but can also expose businesses to the threat of economic damage through product boycott or legal action. Business ethics is too important to be left solely to business people.

Business does have an economic and moral duty to act responsibly in the interest of the wider community in which it operates. But it also has a duty to provide the best return possible to those shareholders.

Ethical guidelines come under strain as business become more competitive, especially in a time of economic turbulence. The context and the restraints in which it pursues those profits need to be clearly defined by external agencies. The corporation does not have a responsibility to act as judge and jury determining questions of its own ethics.

As business develops in the 21st century, government agencies need to adopt a blended approach to the question of ethical policies. While there may be a place for a generalised ethical approach to encourage cross-border understanding, it needs to be reinforced with detailed rules that answers the history and culture of the local situation.

Peter Williams is a freelance writer

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