Event review: Breakfast Debate - 'Is ethics killing business?'

11 February 2014

Event review: Breakfast Debate - 'Is ethics killing business?'

Professor Ginny Gibson, Henley Business School’s Deputy Dean, opened the formalities by introducing the panel: Professor Theodore Roosevelt Malloch, from The Roosevelt Group and Yale University; Dr Carola Hillenbrand, representing the John Madejski Centre for Reputation, Henley Business School; Alan MacPherson, a specialist in Global Tax Strategy, Risk & Operations at Deloitte; and Simon Culhane, from the Chartered Institute for Securities & Investment.

Professor Ginny Gibson, Henley Business School’s Deputy Dean, opened the formalities by introducing the panel:

• Professor Theodore Roosevelt Malloch, from The Roosevelt Group and Yale University

• Dr Carola Hillenbrand, representing the John Madejski Centre for Reputation, Henley Business School

• Alan MacPherson, a specialist in Global Tax Strategy, Risk & Operations at Deloitte

• Simon Culhane, from the Chartered Institute for Securities & Investment

Simon Culhane began by defining ethics and, in particular, integrity, as honesty, openness, fairness and trust. He observed that there has been a real sea-change in the ethics of the finance sector in recent years, led by the introduction of the Financial Conduct Authority (FCA), which has made culture and trust two of the hottest of hot topics, although he believes that it may take five to seven years before the banks have fully integrated this into all their operations.

Alan MacPherson focused on the need for transparency, citing tax fairness as a big issue, and particularly highlighting the need for government to clearly explain the intricacies of how they plan  to generate the right amount of tax, especially at a time when there is so much competition between governments globally. He also posed the question, ‘What are the morals of tax?’

Dr Hillenbrand asserted that there are some cases of unethical behaviour that have been successful, but typically only in the short term and only for certain people. Generally the question should be, ‘Is business killing ethics?’ Research at Henley’s Centre for Reputation shows that people are always looking to make sense of what is happening in the world around them and take cues from what they perceive to right/wrong behaviours (called observational learning). Dr Hillenbrand cited a recent study run in conjunction with HM Revenue & Customs, which suggested that when big companies and high-profile, wealthy individuals are seen to be avoiding tax, others will follow.

Professor Malloch was unequivocal in his response, stating categorically that ‘business is killing ethics!’, and lamenting the fact that – in his opinion – ‘we have lost the word “virtue” from our vocabulary’, and we are increasingly succumbing to the seven deadly sins (wrath, greed, sloth, pride, lust, envy, and gluttony). Professor Malloch suggested that the issue is as much about personal as corporate ethics, and raised the question of whether business schools could themselves be partly responsible.

‘Enterprise risk management is a performance-enhancing drug,’ he added, ‘and ethics has become mere compliance. But there is a way back, and trust is now becoming a boardroom agenda item.’

Q&A

The audience was then invited to submit questions to the panel.

The first came from Lior Jassur, Head of EMEA Credit Research at HSBC, who asked about the morality behind corporation tax.

Responses from the panel included:

‘Evasion is clearly unacceptable, but avoidance is still an interesting debate.’

‘Morals come from the individuals not the organisations. Companies have a duty to maximise their return on investment and companies’ tax payments have become a brand differentiator.’

‘Transparency is key, but the mass of legislation makes it difficult, especially now that so many companies operate internationally and have to adhere to different laws in each territory.’

‘We have to keep it in context; corporation tax represents around a quarter of the revenue collected from income tax, and less than half received from VAT. The main reason most people are so adamant that companies such as Starbucks, Amazon and so on are seen to be paying their way is because we are all in austerity mode. It’s no different to when someone pushes in front of us in a queue – we feel it’s simply unfair, and our perception of ‘fairness’ changes with time, and with our own relative circumstances. Notably, ‘fairness’ is now starting to be written into a lot of the banking codes.’

‘Companies who do pay ‘the right amount of tax’ are perceived to be a part of their society, and there is no doubt that this affects companies’ reputations, and companies who have a higher profile are more susceptible than others to this scrutiny.’

A question was put by a representative of the ICMA (International Capital Markets Association) Centre: ‘Do consultancies like Deloitte have a responsibility to act ethically on behalf of their clients?’

Predictably, the response from Deloitte’s Alan MacPherson was emphatic: ‘Yes, of course. Damaging the reputation of one of their clients would definitely not be in their interests.’

Paul Kitchener, a consultant operating in the third sector, asked about land tax, and whether the panel believed this could be imposed in the foreseeable future.

Alan MacPherson felt it was ‘unlikely’, adding that he believed that the tax focus would remain linked to income for the time being.

Philip Worley, Inward Investment Strategy and Policy Assistant Director, UK Trade and Investment, raised the question of how helpful (or otherwise) media coverage is of issues relating to business ethics.

Dr Hillenbrand sought to provide a balanced response, saying that ‘there’s good and bad journalism,’ but warning that ‘irresponsible journalism leads to lack of trust, which goes some way to explain why audiences turn to people like themselves, inevitably leading to a rise in the strength of social media, which may or may not prove to be a more balanced or reliable view, depending on whose voice is being heard!’

Professor Malloch added that ‘24-hour media coverage and the impact of social media can sink reputations very quickly.’

Simon Culhane responded by wondering whether ‘media sets, or reflects, reality and opinion’ and suggested that ‘the media spotlight tends to encourage shorttermism’, adding that, in his opinion, ‘governments and media want something different from companies – companies are more likely to provide the government with the information it wants.’

The role of non-executive directors was raised, prompting the panel to agree that ‘their role is much more as the conscience of the company, more than in driving profit’, but adding the cautionary question of ‘Who is training non-execs in ethical issues?’

Ted Muxworthy, Partner, Muxworthy LLP, asked the panel for their views on his assertion that: ‘Our regulatory framework is based around nation states and is not able to deal effectively in a globalised environment. Business is operating globally with a primarily self-serving objective. A new global regulatory regime is required.’

Simon Culhane broadly agreed that this might well be needed for the banking sector, but Alan MacPherson pointed out that ‘We can have Western regulation in the United States and Europe to reduce bribery and corruption, but more than half the world’s oil companies are Middle Eastern or Chinese owned, with their own cultures.’

Dr Hillenbrand expanded the point: ‘The Chinese are very keen to learn about Western culture, and in particular about governance issues; foreign business leaders do not always nderstand the rules and regulations applied to corporate gifts, for example. But it could be argued that the real cultural divide is between business culture and personal ethics, and the balance we have in our lives between our various needs and desires.’

Professor Malloch added that ‘more global governance is needed, and wiser businesses are looking into cultural literacy in order to close the gap.’

The next question sought the panel’s view on whether there is a difference in culture between different generations, and ‘will the youth save us?!’

Professor Malloch suggested that ‘younger employees are definitely driving ethics’, and this was backed up by Simon Culhane, who suggested that this had usually been the case, historically.

Alan MacPherson felt that ‘businesses have to keep up with the zeitgeist’, and Dr Hillenbrand suggested that ‘in order to change behaviour, people need to be exposed to different experiences’, and cited the recent Henley Business School visits to South Africa as a good example.

Peter Neville Lewis, Founder and Lead Consultant at Principled Consulting, posed the question: ‘Company values are usually skimpy, but do they translate? What are the value objectives?’

Professor Malloch replied that he believed there is empirical evidence that ‘good’ companies do better, showing at least a 20% improvement in performance, and Dr Hillenbrand added that this is being reinforced by new moves to reward executives for not only what they achieve but also how they deliver it.

Alan MacPherson said that ‘leadership has to come from the top – and if executives live it, it will become part of the culture and DNA of the organisation.’

A cautionary note was sounded by Simon Culhane, however, who cited the example that ‘pension trustees have a duty to pensioners, and when offered the choice, they will choose the highest monetary value in favour of the most ethically sound option.’

A question from Rod Macrae, Managing Director, Macrae Media and Communication, asked: ‘How can you develop people who can make money and be ethical?’

Dr Hillenbrand suggested that the two are not mutually exclusive, and gave the example of an organisation that has been commercially successful without sacrificing its ethical values.

The panel also agreed that we need to look at deeper motivation, beyond the traditional Maslow hierarchy of needs, and explore what the need to promote community means to us. In that context, Dr Hillenbrand cited ‘Drive’ theory by Nohria and Lawrence as a balanced way of understanding human needs and their sustainable and healthy fulfilment.

The final question of the morning probed the panel on which organisations they felt were particularly good – or bad – examples of those with high ethical values.

Simon Culhane most admired John Lewis, adding that ‘they do also act like a proper business’, and also praised Rolls-Royce, Diageo and Unilever. At the bottom end, he listed Bank of Ireland, First Group and Best Western as needing to improve, adding that ‘despite everything, even the bank’s recruitment is very strong.’

Alan MacPherson proudly held up Deloitte as the UK’s biggest graduate recruiter outside the public sector, recalling that he has regularly heard candidates say they admire its values. In contrast, he cited Arthur Andersen as a bad example, while conceding that one or two individuals created that situation.

Dr Hillenbrand suggested that a mark of a truly ethical brand is the goodwill it generates, which means outsiders want you to succeed, and she held up Marks & Spencer as an example of this.

Professor Malloch offered Enron, Lehman Brothers and Madoff Securities as especially bad examples of companies with poor ethical records.

Professor Gibson closed the debate, emphasising the need for all organisations to see the long-term benefits of adopting an ethical approach, against the potential short-term gains from a more commercial standpoint.

Please note that panel responses, even when shown as direct quotes, may have been summarised from the verbatim transcripts.

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