It is evident from recent publications and speeches made by representatives of leading organi- sations on the world stage that, years after the eruption of the final crisis, the business world and the financial sector in particular have a tarnished reputation and that there is still a mountain to climb to address unacceptable business practices. A common call is for “a return to ethics in business”. The US Department of Commerce, the Group of Eight (G8)1– the world’s eight largest industrial market economies – the Organisation for Economic Co-operation and Devel- opment, the FSA and the US Department of Justice all describe the need for an improvement in business ethics – in the absence of self-imposed business ethics based on businesses’ own
“moral” code.
19.5.1 US Department of Commerce
As recognised by the US Department of Commerce, businesses around the world are designing and implementing business ethics programmes to address the legal, ethical, social responsibility and environmental issues they face. The Department considers that by addressing these issues in a systematic way, enterprises can improve their own business performance, expand opportunities for growth and contribute to the development of so- cial capital in their markets. However, the conduct of many businesses must go beyond what has been traditionally expected of them. The Department argues that a fundamental ingredient of any successful market economy is respect
1The G8 consists of Canada, France, Germany, Italy, Japan, Russia, the UK and the USA. The European Commission attends as well.
for basic human values: honesty, trust, fairness, reliability and self-discipline. In addition, these values must become an integral part of business culture and practice for markets to remain free and to work effectively. The Department describes the unattractive alternatives to responsible business conduct as being inefficient markets, costly government regulation, a lack of capital, high transaction costs, limited markets and underdevelopment. A well-written guide is available in which the Department articulates its thinking (US Department of Commerce 2004).
19.5.2 The G8 Summit in Italy Pushes for a Return to “Ethics”
Before and during the G8 Summit held in the city of L’Aquila, Italy, in July 2009, there was general recognition that fundamental weaknesses in the world economic system demanded the adoption of guiding norms and principles and a return to ethics in business. At the G8 summit the Italian presidency announced the creation of a Global Standard aimed at developing a set of common principles and standards for propriety, in- tegrity and transparency in international business and finance. The Global Standard draws on a wide range of instruments, established or under de- velopment, which share a set of common principles. It classifies them into five categories:
corporate governance, market integrity, financial regulation and supervision, tax cooperation, and transparency of macroeconomic policy and data. The Standard will build on initiatives of the Financial Action Task Force on Money Laundering, the Financial Stability Board, the International Monetary Fund, World Bank, OECD and other international organisations.
The OECD in particular supports the creation of a Global Standard and Angel Gurr´ıa, the OECD Secretary-General, has highlighted business integrity and ethics as being of paramount importance to the world economy.
19.5.3 OECD and Its Approach to Business Ethics
In his 2009 address to the European Business Ethics Forum entitled “Busi- ness ethics and OECD principles: What can be done to avoid another crisis?”, Angel Gurr´ıa described the failure of business ethics as a contributor to the global economic crisis. He believes that the crisis provides the opportunity to build the foundations of a new, more ethical and responsible, business culture. For him, business ethics govern the strength and health of the world economy, and one of the main lessons of the financial crisis is that compa- nies and markets cannot rule themselves. The justification is there for all to see. He argues that financial innovation sacrificed business ethics for the sake of extraordinary profit. He advocates regulation by the application of a set of rules:
in a world where some corporations rival the power of states, where the excesses of a handful of banks can paralyse the world economy, it is fundamental to have a solid, transparent and updated set of rules that guarantee that business activities can produce their best fruits, avoiding the excesses of market capitalism.
Gurr´ıa considers these rules necessary to rebuild trust in banks and the market place. Trust is required for banks to generate the key asset to enable them to discharge their fiduciary re- sponsibility. Trust is borne out of transparency, objectivity, reliability, honesty and prudence – all created from a culture of business ethics. The OECD (2011) has produced theGuidelines
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for Multinational Enterprises, which it considers is the sole instrument covering all areas of business ethics. The Guidelineshave been developed multilaterally and agreed by govern- ments. They include general principles but also detailed recommendations such as promoting compliance with laws; protecting consumer interests; respecting human rights; caring about employment; industrial relations; and protecting the environment.
19.5.4 UK Financial Services Authority
In his keynote address to the Mansion House conference in October 2010, the Chief Executive of the UK Financial Services Authority (FSA), Hector Sants, explored the role for regulators in facilitating the right culture within firms.
Sants said that it is crucial to address the role that culture and ethics play in shaping behaviours and judgements. Addressing how regulators and firms can work together, he said: “It is those who manage the financial institutions, who make the judgements, who should be held responsible for them and for restoring the trust between the financial sector and the public. But there is a legitimate role for a regulator in facilitating the right culture.” He said he considered that the starting point was for firms to have a culture which “encourages individuals to make appropriate judgements and deliver the outcomes we are seeking. At all times we want an institution to act with integrity.
The regulator’s focus should therefore be on what an unacceptable culture looks like and what outcomes that drives. It should not be on defining the culture itself.” Focusing on whether it is realistic for regulators to intervene and modify culture, he said that it is important that the regulator focuses on the outcomes that the culture delivers and that it is for a firm to demonstrate that it has a framework for assessing and maintaining that culture. He said: “To be completely clear, a box-ticking approach to regulating culture will not work. The regulator must focus on the actions a firm takes and whether the board has a compelling story to tell about how it ensures it has the right culture; which rings true and is consistent with what the firm does.”
19.5.5 US Department of Justice
In his speech to the White House Intellectual Property Theft Summit in December 2010, Attorney General Eric Holder emphasised the need to do more to protect intellectual property rights. He said that “the same tech- nologies that spur growth in the legitimate economy also allow criminals to misappropriate the creativity of our innovators and entrepreneurs and to operate criminal enterprises that profit by selling imitations of legitimate products. In fact, for every quantum leap we have made technologically or commercially, criminals and often entire international criminal syndi- cates have kept pace. They have developed sophisticated methods for counterfeiting products and trademarks.” Holder highlighted that trafficking in counterfeits is not victimless. For these acts threaten the financial stability of firms that sell legitimate goods, suppress ingenuity and destroy jobs. He said: “today, when the theft of a single trade secret can destroy a burgeoning small business, America’s entrepreneurs and industry leaders are relying on strong Intellec- tual Property enforcement”. However Holder emphasised it was more than just protecting intellectual property. He described how counterfeit goods could directly affect the public’s and public sector employee’s health and safety. He gave examples of lives being put at risk
through counterfeit drugs or medical devices finding their way into medical care, counterfeit components entering industrial or military supply chains, and substitute low-quality materials being used in the manufacture of bullet-proof vests.