|
Biz Ethics - The Goal Posts Are Shifting |
|
|
|
Written by David Batstone
|
Last month I traveled to Australia and had several occasions to address
sectors of the financial services industry - particularly pension funds,
long-term savings, and life insurance. A keynote at the Investment and
Financial Services Association (IFSA) annual conference offered the biggest
stage.
As I prepared my remarks, it became clear to me that the scope of business
ethics is rapidly changing. The pattern in the financial services industry
suggests how the goal posts of "right behavior" are shifting in most every
other industry. The four stages I identified are not necessarily sequential.
More accurately, all four stages are in play at the same moment.
Last month I traveled to Australia and had several occasions to address sectors of the financial services industry - particularly pension funds, long-term savings, and life insurance. A keynote at the Investment and Financial Services Association (IFSA) annual conference offered the biggest stage.
As I prepared my remarks, it became clear to me that the scope of business ethics is rapidly changing. The pattern in the financial services industry suggests how the goal posts of "right behavior" are shifting in most every other industry. The four stages I identified are not necessarily sequential. More accurately, all four stages are in play at the same moment.
Stage One: Business Ethics as Compliance
Compliance is the most traditional understanding of business ethics. In some sense, you could say that a company's compliance with the law has long been taken for granted. That situation changed with the wave of business scandals that is symbolized by Enron, of course. Increased regulation is always the result when industries fail to uphold responsible business practice.
The Sarbanes-Oxley Act was the most dramatic consequence of the Enron era. Now the CEO and CFO of a firm must sign off on the annual reporting of all material conditions and financial accounting in general. A misrepresentation of financial reporting could lead an executive to a criminal conviction and jail time.
My Chinese friends tell me the Chinese symbol for Crisis can be interpreted as both Danger and Opportunity. I am familiar with many companies who have taken the Sarbanes-Oxley requirement as an opportunity to better assess its operations. I liken it to a faulty golf swing; we know it's not what it could be, and our score suffers somewhat, but we rarely take the time out to get professional help to improve our swing. So the Sarbanes-Oxley can help companies address a "bad swing" that has become a habit in its core operation.
Stage Two: Business Ethics as Transparency
The standard of right behavior has been raised beyond compliance. Stakeholders now demand transparency. Consider the expressions of betrayal that faced Marsh & McLellan following the public disclosure of its business model. The U.S.-based insurance broker was collecting commissions from both sides of its distribution channel - the corporate client it advised on benefit plans and the insurance provider that sold benefit plans. There was nothing illegal about this double dip, but the public clearly saw it as a conflict of interest. Subsequent revelations strongly suggest that Marsh & McLellan abused this privileged position, engaging in price rigging and other forms of inflationary pricing.
The Jewish Talmud teaches us that "we see things as we are; we don't see things as they are." Even if a firm believes it is not doing anything illegal, if the public perceives that the firm is failing to disclose critical business information, then a breach in ethics is presumed.
The public has a clear expectation: Hide nothing. Let your product or service stand on its own two feet.
Stage Three: Business Ethics as Sustainability
The European Union enacts new rules this month that govern investment policy for institutional funds. The purpose of the regulation is to bring uniformity to pensions across Europe and to ensure the long-term security of those funds for citizens. Fund managers have to prove that they have a risk management process in place and are taking appropriate measures to allocate their assets for long-term sustainability.
The EU directive demonstrates an ethical concern for sustainability that the financial services sector must take seriously. Pensioners - now and into the future - depend on long-term savings for their livelihood. Squandering their future for immediate pay-offs would be a serious breach of ethical business practice. The demand for risk mitigation in the financial services sector can be expected globally.
Stakeholders are beginning to take sustainability to new levels. Amnesty International last month announced its Share Power campaign, which seeks to coordinate individuals to voice their concerns to the institutions that hold investments on their behalf. Traditionally, institutional investors would just rubber-stamp company recommendations on the proxy, which almost always oppose resolutions. However, the spate of recent prosecutions of corporate fraud has raised valid concerns whether corporate interests are truly aligned with shareholder interests.
Here's a glimpse of what this might mean: Calpers, the pension fund for California public workers, pressured pharmaceutical company GlaxoSmithKline, in which Calpers had a sizeable investment, to provide its HIV/AIDS drug to poor countries. Glaxo has long resisted this move, but Calpers and other shareholder voices made it reconsider its position. Shareholder activism will be on the rise, and it will expect companies to develop sustainable business practices.
Stage Four: Business Ethics as Customer Engagement
Trust is the key to winning customers and keeping them. I often write columns in this space about how we are moving into an experience economy, and the extent to which trust is an essential ingredient in that shift. Suffice it to say, a financial services firm is in deep trouble if its trustworthiness is in doubt. In a market environment marked by slim margins, where any service or product quickly can become a commodity, treating customers the right way is THE competitive advantage.
Compliance, transparency, sustainability, and customer engagement. It is clear to see that business ethics is no longer a trivial matter that senior managers can philosophize over at the odd moment of retreat. Business ethics is a strategic concern at the core of the business operation.
|
