John Ralph's Address to ERBEI Forum 28 October 1999

John Ralph

What’s legal? What’s ethical?

What can we get away with? How do you measure up?

John Ralph

I am pleased to be invited to participate in this forum to discuss ethical behaviour in relation to business. Unfortunately, it seems that the starting proposition for many is that there is an inherent conflict between carrying on business activities and behaving ethically, and as Michael said, it is pretty much in the limelight at the moment.

Now I would not pretend that all people engaged in business behave ethically at all times, but then nor would I expect that others engaged in other activities always acted in an ethical manner. Unfortunately, we do not have perfection on this Earth. But inevitably the focus, particularly on the media, is on the more sensational aspects of news in their competition for ratings and for entertaining their readers and viewers. So it’s not unusual for the controversial, the notorious, the infamous and the titillating to dominate our newspapers and television, whether it’s business or any other aspect of life. So while in no way diminishing the culpability of those who maybe behave badly, it is important to maintain perspective and be aware that usually, the minority is being portrayed not the majority.

A good point from which to start in addressing the question of ethics is to define the term. It is derived from the Greek ethos, which means "character" and as Aristotle said 2040 years ago, "ethics begins with a good upbringing". How one behaves in business is therefore likely to be consistent with the way one behaves in the other aspects of one’s life. It will be determined by the person’s character, training, integrity, conscience and sense of responsibility. It is most unlikely that a person will act one way in business and differently in other aspects of their lives. Now if we come to define success in business, I’ve done some research and came across a view expressed by Robert Solomon in his book entitled "Ethics and Excellence", and to which I think many could subscribe (and I believe I would), and that is that business is a human enterprise. To be good in business is to be a good human being. One can make money without virtue of course but success requires much more – a good and decent life, friends and respect, love and a little admiration. Achieving real success in business does, as Robert Solomon point out, mean more than making money. It goes to the heart of how a business person behaves and the satisfaction that comes from the other aspects that Solomon describes. Judging success in terms of making money, if that’s the only measure, it’s a very superficial measure. If one judges success in those terms then it is likely to be shallow and ultimately an unsatisfying kind of success. In fact to describe such a situation as success is, I believe, a contradiction in terms.

It might seem to some that setting out to act ethically in business is really naïve and not recognising the real world. Some might even see it as giving a competitor who choses to behave similarly an advantage in what is perceived as a ‘dog-eat-dog’ world. This is not so if you want to be in business for the long-haul. Think for a moment of those of whom you read as being meteoric successes in the early 1980s and where they are today. Some might be living in relative luxury in Majorca or in other parts of the world, but are they really perceived as having achieved success? Do you think that these people feel that they have achieved success compared with where they were 10 years ago and where they might be today?

Elizabeth Valance, who has written extensively on ethics and business, has said that "the aim of business is a commercial aim. Business exists to provide goods and services in order to make profits. If it is not making profits, its very existence will soon be in question. However in seeking to provide the conditions of profit-making, business will of course ignore staff, customer and community interests at their peril." In other words, if you don’t react with integrity towards your people, your customers and the community, you are not likely to enjoy the kind of reputation that will keep good people in your employ or keep customers coming back for your products or services. To quote the vice Chairman of an advertising agency, "the only sustainable competitive advantage any business has is its reputation." We value or reputations as individuals, recognising that it takes a lifetime to build but once lost is mighty difficult to regain. I believe the same applies to companies. I think that there is only one sustainable competitive advantage for a business and that is in the kind of people who make up the organisation.

Although a cliché it is never the less true that the strength of an organisation is in the quality and the capability of its people. You cannot expect to keep good people if they do not feel comfortable in the culture of the organisation, and as somebody else has said, "good corporate culture is defined first of all by its ethics." If the corporate culture is not based on an ethos that encourages ethical behaviour and a basic level of trust among people in the organisation, then it will not attract or hold people who value these attributes. A corporate culture that places a high value on integrity, fairness and respect provides an environment with is positive and constructive for the individual, as well as for the organisation.

Behaving ethically means going beyond what the law requires, and I’d like to read to you a couple of paragraphs from a memorandum which I wrote to corporate staff several years ago when distributing an update of the companies Corporate Conduct Code:

"The Code emphasises the commitment of the CRA group to ensuring that its companies and business units operate at the higher standards, not only observing the laws of the country in which they operate but also in observing ethical business practices. As senior executives responsible for our business affairs, corporate staff must develop an awareness in our employees for the need to comply with the laws of the countries in which we operate and to adhere to the ethical standards set out in the code of business conduct for the CRA group. Carrying on business in different countries with varying standards of business practices may cause difficult problems because our decisions or practices are subject to what is generally regarded as accepted business practices in a particular country. Nevertheless, if there is conflict between the code of business conduct and that "accepted practice", CRA managers must recognise that the long-term interests of the group are best served by adopting business practices which are above reproach, even when they may appear to be disadvantages in the short-term."

There is one point in that quote that I would like to emphasise, and that is that it is self-defeating to sacrifice the long-term for some short-term advantage. Once standards are comprised, one is on a slippery-slide from which it is very difficult to recover. So it is always better not to put your foot on the slippery path in the first place. Being ethical means acting with integrity, which in turn means telling the truth, avoiding shady and illicit dealings, refusing to take and give bribes, and so on. It means being true to oneself. It also means not putting temptation in the way of others. The story is told in the Lunch-Time collections of Tom Stuart how Abraham Lincoln once threw a man out of his office, angrily turning down a substantial bribe. "Every man has his price," Lincoln explained, "and he was getting close to mine".

One point that is often raised in discussing ethics relates to the retrenchment of large numbers of employees, some of whom may have been with their employer for a long time. Does this represent ethical behaviour? It certainly can be difficult for those who are retrenched and it is no easy matter either for the person who has to handle the face-to-face communication with those being retrenched. But the alternative of not facing up to maintaining competitiveness in the competitive market ultimately means jeopardising the employment of the total workforce. As Elizabeth Valance has said, to avoid a decision to retrench employees in these circumstances would be "not ethical but cowardly". What is important is how such decisions are implemented. Actions must be seen to be just and fair, having regard to the dignity of the person as well as to the financial arrangements. And this is where the test of ethical behaviour comes in. A lot of what is written and said on the side of business when discussing business and ethics can tend to be offensive, and I guess I’m as guilty as most. When Solomon and Hanson stated in their book "It’s Good Business", many critics of business are trained in the rhetoric of ethics that most business people aren’t.

One of the same authors made another statement which is important to grasp. Business ethics is too often conceived as a set of impositions, and constraints – obstacles to business behaviour – rather than the motivating force of that behaviour. This is a statement well worth thinking about because it holds the key to the part that ethics plays in any company wishing to achieve long-term success.

As I said earlier, unless an organisation is able to develop and sustain a culture that respects the dignity of individuals and acts responsibly and fairly towards its employees, its customers and the community, it will not attain its potential and in fact jeopardises its very survival. Clearly this kind of culture will no be developed unless the ethos of the organisation is based on justice and fairness, with strong respect for ethical behaviour and an expectation of this behaviour from the leadership of the organisation. When I was retiring as Chief Executive of CRA in a farewell speech, the warm feeling of satisfaction I derived from the changes in the relationships we had been able to engender within the organisation in reshaping the group structure. We set out to retain and reinforce the positive features of the ethos that characterised the company while changing other practices and policies that derogated from the group’s performance. We recognised that to be successful in an increasingly competitive world we will face as we move into the next century (and we’re getting very close), we had to be able to tap the potential of all those who worked in the organisation. This was not possible unless we could make some fundamental changes to the way people related to one another within the structure of the organisation. We had to move from the adversarial approach and the out-dated command and control hierarchical structures that gave negative messages and negative feedback. This meant building a level of trust which had to be earned, the four fundamental changes could be made which lead to mutually beneficial outcomes. What is fascinating to think about and rewarding to witness is the win-win situations which develop. What is also relevant, and very relevant to tonight’s discussion is that ethical situations very much underlie the changes that have led in these circumstances, for employee and employer alike. For both there were financial rewards but the more rewarding to witness was the lift in self-esteem and the greater job satisfaction that people derived when they were allowed greater involvement and shown greater trust. What often gets in the way of making these changes is the mistake and belief that we are always dealing with a zero-sum gain. Very often this does not have to be a zero-sum gain but it can be if unnecessary rigidities prevent mutually beneficial outcomes being achieved.

The point that I will like to leave with you tonight is that I believe that ethical behaviour is not only consistent with good business but is essential for any business that wants to long-term success and wants to attract quality people to work for it. Without such people and without a reputation for supplying quality goods and services, the future of a business is problematical at least. Ethical behaviour is consequently the foundation of long-term success in business.

Thank you.