An 'industry-wide' perspective

By Simon Longstaff

A version of this article was first published: (publication unknown) - May 1992

I thought that it might be interesting to begin with a brief analysis of the results of a recent Morgan Poll published in Time Australia (see below).

The purpose of this poll was to measure the Ethics-Honesty Ratings enjoyed by a selection of professional and occupational groups. Pharmacists maintained their position at the top of the table (a position that they have held since being included in the poll in 1988). The pharmacists were rated by 79% of those surveyed as being most ethical. At the bottom of the list were the car salesmen, with a rating of 3%.

Ethics/honesty ratings (%):

Ethics-Honesty ratings table

	1992
Pharmacists	79 (76 in 1988)
Doctors	67
Dentists	68
School teachers	55
Engineers	56
University lecturers	53
Police	53
Accountants	47
Bank managers	54
Lawyers	41
Company Directors	-
Business executives	21
Stockbrokers	18
TV reporters	-
Insurance brokers	13
State MPs	14
Federal MPs	14
Estate agents	14
Advertising people	11
Union leaders	8
Newspaper journalists	7
Car salesmen	3

Whilst it is sometimes interesting to look at the extremes, the truly significant information lies in the changes in perception that have occurred since the poll was conducted in 1988. The standing of most groups in the top half of the list has improved in the eyes of the community. Dentists have had a slight set back (by 2%) whilst the police have retained their position at 53%. The most spectacular change in the upper centile has occurred in the standing of teachers (an increase of a full 7%).

It is somewhat disturbing to report that only 27% of the groups listed managed to achieve a score of 50% or better. If the poll has any validity, then we must conclude that Australians have a low opinion of the ethics of many who make a vital contribution to the nation's affairs.

It is especially significant that all of those who are perceived to contribute most obviously to the economic prosperity of the country (and those who regulate them!) find themselves polling below the 50% mark.

Before moving on, it may be useful to draw attention to two changes in particular. These are those showing the movement of sentiment regarding bankers and lawyers. Whilst there has been, apparently, some improvement in the position of bankers in the last twelve months (up 4 points), their overall position must give them grounds for concern. However, the truly staggering fall is that of lawyers who lost another 4 points in just the last twelve months (the biggest fall recorded for any group).

The reasons for mentioning all of this are twofold. Firstly, I want to make the rather obvious point that people in the community really do take account of such matters as the perceived ethics and honesty of individuals. The second, and more germane, point is that these assessments are applied to groups and not just to the individuals who gave rise to the assessment in the first place. Thus, all pharmacists benefit from the way in which they are perceived just as all advertising people are harmed.

But this must surely beg a number of questions of which the first is, "does anyone actually suffer harm as the result of a negative assessment?". Answering in the affirmative, it is possible to draw attention to the experience of those individuals who feel considerable chagrin at having their reputation unjustifiably sullied by nothing more than association.

Then again, others recognise the damage that their individual businesses can suffer as a result of people not trusting them to behave ethically. In either case it is fair to say that many people protest against a patently unfair state of affairs in which all are tarred by the same brush. In a similar vein, just as the identification of ethical behaviour can apply on a sectoral basis, so adverse community reaction can be directed against a whole group.

A classic case of this can be seen in the troubles facing the legal profession. As things stand, a number of enquiries have not yet resolved matters in the minds of the community. Concerns about issues such as the cost of justice and whether or not some lawyers are working as 'guns for hire' have led to vigorous calls for reform. In all of this there can be no doubt that public perceptions about lawyers, in general, have helped to stiffen the resolve of those who would force change on the profession. And there can be even less doubt that reform will cause anguish for the whole profession - good and bad alike.

In a similar fashion public perception can have an influence on industry sectors, even to the extent of determining the way in which information is communicated.

St James Ethics Centre recently presented a symposium on truth in business and the professions. On that occasion, the Managing Director of ICI Australia, Dr Michael Deeley had the following to say concerning industrial sector comprising chemical companies:

Right or wrong, chemical companies such as ICI can be viewed in some quarters with fear and distrust. Whether we like it or not, perception is often more important than reality in determining the attitude of the public to the company. So it's particularly important for a chemical company to be open and honest in its dealings with the public in order to overcome the distrust.(ii)

A number of interesting points emerge from Deeley's comments. Dr Deeley recognises that a successful strategy for ICI must include recognition of factors relating to how the community views the chemical industry as a whole. At the same time, that which ICI does will influence the formation of a new set of perceptions. In short, ICI cannot act as if in a vacuum.

The second thing to note from all of this is that Dr Deeley sees the problem of public distrust being addressed by a commitment to a policy of open and honest dealings with the community. In some quarters such a response might be considered to be far too risky. Some would take the view that the correct response is to manage the situation so that perceptions can be altered to suit the company's preferred image.

The problem with a strategy that seeks merely to manage perceptions is that it tends to fail in securing its objective. One of the most influential surveys of attitudes to corporate ethics is that conducted by Hugh Mackay in March 1990. In his report, Mackay draws attention to the fact that Australians are very much aware of the fact that appearances concerning ethics can deceive:

Confusing the whole question of corporate ethics is the belief that corporations are increasingly wanting to appear ethical: "Image is everything" ... Such cynical remarks reflect a growing awareness in the community of the activities of "public relations' and the associated belief that PR is often designed to conceal the truth at least as much to reveal it.(iii)

The import of Hugh Mackay's findings are easily confirmed when one recalls that nearly all of those occupations and professions listed in the Morgan Poll have and subscribe to codes of ethics. Even so, the existence of an AJA Code of Ethics doesn't seem to have had much of an impact on the attitude of the public to the ethics of journalists.

In a similar respect, the Real Estate Institute Code of Ethics does not yet seem to have affected the public standing of real estate agents.

Once again, it is instructive to note that the legal profession has an extensive set of professional rules, some of them relating to etiquette and others relating to ethics. These rules are supplemented by disciplinary procedures which have real 'teeth' if and when applied. On top of all of this is an historical legacy of respect ostensibly bolstered by recent efforts to employ professional advice with the aim of improving the image of the profession. Yet none of this has served to protect the reputation of lawyers.

The reason for this, and other exercises of popular scepticism, must surely lie in the fact that the community is sensitive to the substance of their experience - and not just the image. Once again, Hugh Mackay provides an insight into the techniques employed by people in assessing matters of ethics. He writes:

Because it is so hard for people to make confident judgements about corporate morality on any other criteria, they frequently resort to the proposition that "the only way you can tell how they are is how they treat the people they deal with".(iv)

So, you get comments of this kind made to Hugh Mackay in the course of his research:

The banks are the worst. Service has gone down the drain - you are just a number. What does that tell you about their ethics?

When you take in to account the fact that 80% of complaints to solicitors in 1990 related to unsatisfactory professional conduct such as undue delay, discourtesy, poor communications and so on, it is easy to see why the simple existence of codes and procedures is insufficient protection against developing a corporate reputation for poor ethics.

On the corporate scene it is instructive to consider the plight of Corning Inc, one of the hapless parents of Dow Corning. Since the breast implant scandal erupted there has been a 15% decline in the value of Corning's stock. In this case, as in others, the damage has not been localised. The whole industry suffers potential harm caused by the ripple effect of public concern being expressed throughout those parts of the world where implants are available.

Finally, it is just as well to remember that the effect of seemingly local disturbances can be magnified even further. With an increasingly integrated and interdependent world economy the ethical behaviour of a few can lead to generalisations being made about the standards of a whole nation.

There can be no doubt that as a result of the activities of some notable individuals (no doubt assisted by what Henry Bosch has called "a supporting cast of thousands" ) the reputation of Australia was severely tarnished in international business circles. The fact that the criticisms now seem like an exercise in base hypocrisy doesn't withdraw the sting of jokes in New York like:

What have you got if you have a dozen Aussie businessmen up to their necks in sand? ... Not enough sand!!!

More recently, Steven Berkoff has been warning international film artists to treat Australian film companies with extreme caution:

The word out in the street is 'don't work in Australia or get the money up front' - things you do only if the film company is dodgy. (The Australian Film Industry) is getting a reputation of not having a sense of morality with their business reputations.(v)

A brief summation

I seem to have strayed from my designated territory. So to recap ...

It has been argued that the community is quite prepared to make judgements concerning the honesty and ethics of groups of people according to their profession or occupation.

As Mackay's research shows, ethical judgements about companies are strongly influenced by attitudes to the industries those companies are in. Thus biscuit making or pharmaceutical companies are thought more likely to have higher ethical standards than newspapers or oil companies.(vi)

It has also been implied that a reputation for poor ethics may entail the imposition of a number of costs: enquiries, pressure to change, a loss of trust (and sometimes business), increased regulation and surveillance and so on. If there is anything that might approach the status of being an iron law in the intersection between ethics and economics it is that as the level of trust decreases, so the cost of doing business increases.

These increased costs are borne in a number of guises (tangible and intangible). In a sense no-one gains from a situation where trust is low. The costs are invariably passed on to the community in two forms. Increased taxes are raised to fund enquiries and regulatory frameworks. At the same time prices increase as businesses seek to recover the increased costs of doing business in a highly regulated environment. And those are just the economic costs.

The 'collateral' advantages that flow from a policy of good ethics

It would be easy to draw from all of this a stock of purely negative conclusions. However, it is equally important to stress the positive outcomes which can flow from an intelligent approach to the topic of ethics. Let us not forget the success of the pharmacists!

In this respect it is important to heed the arguments that are made in favour of developing an authentic and visible allegiance to the application of principles derived from 'best practice' in business ethics. This line of argument suggests that good ethics pays off in the long term and on the bottom line.

It is must be understood that such a point of view depends upon management being able (and inclined) to take the long-term point of view. To do this managers will need to adopt the role of stewards. One of the defining characteristics of this orientation is the requirement that managers ensure that at the end of the period of stewardship the enterprise is as strong, if not stronger, as it was at the commencement of the period of tenure. Although a somewhat old-fashioned notion, the idea of stewardship captures the sense of an enterprise having a purpose that goes beyond the aim of satisfying quarterly performance objectives.

None of this is to suggest that financial performance is to be sacrificed to some other goal. Rather, it is to point out that financial performance is more likely to be sustained if management avoids recourse to the sometimes expedient 'quick fix'. The evidence for believing that good ethics is good business is fairly easy to find. Fortune magazine reports that:

Ten years ago James Burke, chief executive of Johnson & Johnson, put together a list of major companies that paid a lot of attention to ethical standards. The market value of the group, which included J&J, Coca-Cola, Gerber, IBM, Deere, Kodak, 3M, Xerox, J.C. Penney, and Pitney Bowes, grew at 11.3% annually from 1950 to 1990. The growth rate for Dow Jones industrials as a whole was 6.2% a year over the same period.(vii)

But to return to a positive accent. In the same speech already referred to, Michael Deeley argued that:

The cumulative effect of openness and honesty over a period of time can develop a corporate and personal reputation for integrity which is an invaluable asset when doing business. This applies in financial reporting, advertising, media relations - indeed in all corporate communications.(viii)

Having recently announced an increase in pre-tax profits of 35% Deeley must feel that his point of view has been vindicated.

Yet there are those who would challenge the what many regard as the myth that "good ethics are good for business". As Justin Welby has pointed out:

The anecdotal evidence of profitable companies that have good ethical practice can be matched by those that do not. One might add facetiously that for an unrivalled return on capital, the Mafia takes some beating.(ix)

However, even Welby is inclined to concede that there are significant costs to be borne as the result of there being a climate of unethical behaviour. One might ask, facetiously, if the incarcerated 'Teflon Don', John Gotti, is really happy with his return on capital?

Whilst Welby's position appears to rely on an argument against placing too much store in the value of business ethics, it actually turns out to be a rejection of crude business ethics in favour of the more intelligent kind that was mentioned above.

A more intelligent approach will realise that the case for good ethics cannot be sold solely on the basis of the rewards that their implementation might bring. If this is all that leads to ethical behaviour, then it will be a fragile force for change. As soon as it becomes profitable to be a rogue so people will feel justified in acting accordingly.

This is, of course, an important argument in favour of ensuring that systems and institutions are structured so as to allow for the effective design and application of incentives which work to recognise and reward the good. In the same way, there should be disincentives to dissuade those who would prey on those of their fellows who give free rein to their virtuous dispositions.

There is a paradox in all of this. Whilst it is almost certain that long term prosperity is enhanced by ethical behaviour, it is not enough for this to be the primary reason for being ethical. Ideally, one is ethical because of a conviction that it is the right thing to do. There is an unfortunate view that regards any link between virtue and reward as being somehow illicit. I want to be so bold as to suggest that this represents 'muddle-headed' thinking.

One really needs to look at the motivation that a person has for performing some action. If it is done because of an authentic commitment to a virtuous course of action, then it is of only secondary relevance that a measure of reward is attached to the performance of that action. A noble deed is noble even if it leads to one's benefit, just as an ignoble deed remains so - even as it impoverishes the perpetrator. It takes a wise person to uncover a person's real motivation. I would never want to confound virtue by denouncing fair reward.

However, Welby really shows a depth of understanding of the issues when he states that:

Good business ethics are not produced by codes, but by a culture that is self-consciously ethical. This cannot be created in a day, and a bad culture may take years to eradicate.(x)

This leads me to consider the role of industry associations in the propagation and reinforcement of ethical behaviour.

A challenge to industry-wide associations

As has been seen, one trait of human nature is to lump together similar but independent entities. Hence the origin of prejudice. Another trait is that which leads individuals to keep abreast of the crowd.

Watching what the other person is doing may be prudent in a competitive environment. But it is also a characteristic of those who do not wish to expose themselves to risk by breaking the mould of peer expectations. Whilst new businesses open and close with alarming frequency, it is fairly rare to see a truly novel type of business emerge. And it is probably fair to say that even amongst established forms of business there are few that are truly 'eccentric'.

If it can be said that industries develop certain characteristics of their own, then it may also be that this function can be utilised in order to foster ethical behaviour. Industry-wide associations tend to persist through time; even if individual players come and go.

If certain norms can be established, then the relative longevity of the association may allow for the development of an appropriate industry-wide ethos. Just as the ethos of a company will often mould its staff, so the ethos of an industry will often mould its members. The business community is becoming more aware of the need to ensure that best practices are adopted. Given the fact that businesses operating in the same sector frequently depend on the use of a common infrastructure, it is entirely reasonable to expect that there will be a concern to do that which is necessary to ensure that the infrastructure is sound. An industry standard of ethics for the conduct of business can play a vital role as part of that infrastructure. It is of course necessary to recognise that the difference in scale between industries and companies is of relevance. However, it is equally important to see the industry/company nexus as part of a continuum - and not as a dividing line.

It is the recognition of this continuum which allows the industry association to do its work. However, no organisation, whatever its size, can bring about a change in ethos by imposing a solution. To the extent that members of an organisation feel that the process of change is an external burden, so they will resist its influence. Likewise, to the extent that individuals feel that the values expressed are in some sense those of another body, so they will feel that they have no responsibility for their implementation.

Part of the benefit which comes from developing a framework of values comes from the process itself. The promotion of sound ethics does depend on there being supportive institutions and systems. However, this should not blind us to the fact that ethics is fundamentally about the relationship between people.

Understanding this allows for the industry association to be seen as a forum in which values can be developed in co-operation. In one sense, this sort of activity ought to be one of the least controversial aspects of a member's involvement. Industry associations bring together groups of people who would normally be engaged in fierce (but fair) competition. Establishing a framework for ethics ought to be one of those tasks where it is easy to see the win-win solutions that can emerge. This is not to underestimate the fact that the negotiation of values can be a deep and taxing concern. Indeed, it would be of little import if treated as an exercise in shallow word play.

Having said this, the collateral benefits for industries which have a framework of ethics can be considerable. For a start, such a framework may be the first step in a process designed to establish a foundation of trust amongst stakeholders. These stakeholders will include: investors who may be attracted by an element of predictability and stability, employees seeking to work in an environment in which their contribution is properly recognised and in which their interests are taken into account (those with good education and skills will almost always choose such an industry because that is the rational choice to make), the community at large which may, through its political influence, hold the key to determining the extent to which government feels compelled to intervene.

Last but not least, the list of stakeholders includes the businesses that make up an industry. For them the collateral benefits flowing from a climate of trust include the capacity to reduce the cost of doing business. Such costs may include those which flow from an excessive reliance on the protection afforded by employing professional advisers. Imagine a time when a person's word was their bond, or when a handshake sealed a deal. Although those days are almost certainly gone for ever (and were disappearing when Shylock had recourse to the courts), one can imagine the comparative savings to be made if even a semblance of that level of trust could be reclaimed.

Needless to say, all of this may seem too good to be true. And, indeed, there are a number of dangers that ought to be avoided. Some of these have already been alluded to. For example, it is clearly counterproductive if ethics are used as a public relations smoke-screen. Sooner or later it is likely to blow up in your face.

Likewise, it is important that the negotiation of values be based on the authentic commitments of members. In this vein, it is essential that principles be open to review in the light of experience. Whilst some principles may be immutable, they do not retain their force by being written in stone. The expression of bold but lifeless principles ends up sounding like hollow platitudes. They do not serve the interests of anybody.

This leads me to what is probably the most significant point. Concern to develop an industry-wide code of ethics can sometimes degenerate into an exercise in developing what are, effectively, restrictive trade practices. It is extremely easy to fall into this seductive trap. Some professions are thought to have fallen. Others are accused of teetering on the edge of the precipice. Industry associations need to be aware of the range of competing interests that ought to be taken into account. This range of interests is more or less co-terminus with those of the various stakeholders.

Whilst clearly it would be wrong for industries to promote their own interests at the expense of all others, this is not to say that self-interest is to be ignored. Another common error is to equate self-interest with greed. Unfortunately, a number of people are prey to this vice. Adam Smith's notion of the 'invisible hand' is usually quoted with varying degrees of approval. The next step taken by most commentators is to assume that Smith was advocating a life motivated by greed alone. What people tend to forget is that Smith was a moral philosopher and that Book Four of The Wealth of Nations includes a statement along lines that the operation of the market should be subject to the laws of justice.

The way to square the circle in all of this is to realise that it can be in one's self interest to do that which is just. To return to an earlier point, it should be remembered that providing one is not primarily motivated by the prospect of reward, then there is nothing wrong in anticipating some of the benefits that might accrue.

Conclusion

There have been a number of occasions in this paper when reference has been made to the need to avoid using ethics as window dressing. This of course must be both a challenge and a temptation during times of economic difficulty and it is almost certain that decisions about such matters come into the purview of members of your Society.

As consumer affairs professionals, you bear the brunt of immediate responsibility for the way in which your companies communicate with consumers, in particular, and with the outside world in general. I imagine that you have a large measure of influence over the way in which each organisation sees itself and is seen by others. And, of course, you have your own professional society which, as with other professional societies, is akin to an industry group.

Given the particular orientation of your Society, it may be useful to make a few comments concerning the place of the consumer in the network of relationships that have been alluded to above. Although discussion of the interests of various stakeholders is a useful way in which to focus attention on a range of sometimes competing demands, the process of selecting categories can mask the fact that people tend to belong to a number of categories at the same time.

To recognise this is to understand that ethical issues are seldom resolved in any neat and elegant fashion. There are times when principles which deserve support on their own can conflict with one another and there are times when mixed duties and allegiances can cause attendant difficulties.

Having said this, the main point to keep in mind is that each and every one of us is a consumer. There are no qualifications for being a consumer and in respect of how we allocate our resources (excepting taxes), we are sovereign. This takes on an added significance when it is realised that all adult consumers are also voters. When these two factors are combined it becomes immediately evident that the consumer has the power to exert extraordinary influence over the fate of industries and governments alike. That this power is so seldom exercised in a conscious fashion is testimony to the fact that such a diverse group finds it difficult to organise along effective and consistent lines.

This is not to say that consumers are unable to be motivated by calls for concerted action. One need only consider the effect of campaigns to have people buy 'dolphin friendly' tuna. Consumers have cast what has been termed their 'ethical purchase votes' and have brought about a change in industry practice. Indeed, the environmental movement may have seen the end of those heady days of prominence in political debate. However, the way in which consumers go about their business has been fundamentally altered all the same. More recently, banks have been trying to deal with a wave of spontaneous resentment against proposals to charge fees for the use of credit cards.

In some cases consumer sentiment can be motivated as the result of a specific campaign designed to achieve such a result (as is the case in advertising). In other cases there will be a change in consumer attitudes brought about as the result of some campaign or movement which has much broader aims.

And finally, there may be an outpouring of sentiment in favour of or against a specific product or proposal. Whilst it is very difficult to predict the course of consumer sentiment, one can be reasonably certain that blatant attempts at manipulation will be unsuccessful. This is as much a result of the fact that people are far better educated and thus equipped to exercise critical judgement about that which comes before them. It is also well to remember that although consumers may be slow to be mobilised, once moving, the direction of sentiment is extremely difficult to check.

That is why it is so important that a Society such as yours be able to assist in the process of ensuring that there is a premium on integrity in the conduct of business. To strive for this is nothing less than to exercise a commitment to processes that will help to restore some of the bases for community trust. The social benefits flowing from this will be considerable. Lest anyone think it far too unrealistic to suppose that such changes can be brought about, let them consider again the abiding change in attitudes brought about by the green movement. At the same time it is equally important to remember the collateral advantages that can be reasonably expected to flow from a commitment to sound ethics in business. Considering all the facts together, it is not unreasonable to assume that good ethics is indeed good business. And even if there is a measure of doubt, what harm can come from behaving as if the proposition is undeniably true?