Chi’s speech on Business Ethics

The Only Way is EthicsThis is a transcipt of Chi’s speech at The Only Way is Ethics Labour Party Conference fringe event in Manchester on Tuesday 2nd October.

The free event was organised by Labour Left outside of the conference zone. Also speaking on business ethics was Cathy Jamieson MP. Tom Watson MP, Professor Beverly Clack and Margaret Waterhouse also spoke on press ethics. 

 

Business Ethics

 

I am very glad that Labour Left decided firstly to hold these events outside the Conference so you don’t need a conference pass to get here – lowering barriers to entry is what that might be called in business terms – and also to consider the subject of business ethnics – enlarging the Labour Left market might be the appropriate business term.

 

I am well aware that there are some in the party, and in Labour Left, indeed many in my CLP, who believe that both responsible capitalism and business ethics are contradictions in terms and that the job of the Labour Party is not to reform capitalism but to destroy it.

 

Still I hope most would agree with Ed Miliband when he says:

“Responsible capitalism is the right agenda for Britain today because it offers the prospect of forging a fairer economy that works for the majority in an era when there is simply less money around.

 

…. The next Labour government will have to play a more active role in making markets work for working people.”[1]

 

One of the strengths I think of having trained and worked as an engineer, of being an engineer still if the truth be known, is that I do not get off on endless philosophical debates. I am much more interested in what works…

 

…and it seems clear that markets work in enabling choice and distribution of goods.

 

None of my CLP object to Grainger Market, the great food market in the middle of Newcastle which I highly recommend if you are ever in the city.

 

But it is equally clear that pure free markets divorced from any drivers apart from the profit motive do not work. They crash and burn as we have seen.

 

Or as we would have seen if indeed there were any pure free markets anymore. All markets are regulated to some extent these days though Governments of the right will try hard to hide it. You won’t for example find the Tea Party admitting that anti-trust legalisation is as old as the country they claim to champion.

 

As Adam Smith put it in The Wealth of Nations in 1776, that handbook of free market enterprise:

 

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

 

So the need for regulation and responsibility, properly enforced, in business has always been known.

 

But in a mad example of circularity we have some on both left and right uniting in saying that regulation and legislation – whether you believe it is necessary or not – is all there is. There is no such thing as morality, or ethics or responsibility in business. There is the law and there is profit and the only restriction on the latter is the former.

 

We see this in the attitude of Google to taxation for example, when it was found to be cutting its tax bill by $1billion by funnelling profits to subsidiaries with low tax rates:

 

We have an obligation to our shareholders to set up a tax-efficient structure, and our present structure is compliant with the tax rules in all the countries where we operate.[2]

 

They seemed to be saying they were duty bound to avoid tax within the limits of legality.

 

I believe this is fundamentally wrong and I believe it is up to the progressive party to say so.

 

I say that after a career outside of politics lasting 23 years. I know, it makes me feel old too! Six years in the public sector as a regulator of industry followed on seventeen years in the private sector, in business, mainly in the UK, France, the US and Nigeria.

 

Now I grew up in a very socialist and ethical, value driven community. When I was a child Newcastle was possibly the closest thing to a socialist republic we have seen in this country. England that is, not Scotland.

 

My first job was with a North American telecoms company and you might have thought that would be a bit of a culture shock and I would say yes and no.

 

Certainly when I asked the HR manager where to go to join the union she gave me a look which I realise now was one of absolute fear.

 

But at the time when she said they didn’t have any unions, as a naive 21 year old I believed her. I thought maybe unions didn’t exist down south.

 

Now of course I realise she was effectively denying me my right to join a union, and that was unethical, even if not illegal under Thatcher’s Government.

 

But that company operated extremely ethically in many other respects. For example

    1. It avoided doing business in dodgy markets, particularly where bribes were required
      It invested in people with a requirement that everyone no matter what their position should have two weeks of  training and self development every year.
      It gave further days off work for employees to contribute to the community.
      It ensured that performance reviews were self assessments, rather than opportunities to settle grudges.
      Specifically It sought to upskill those whose positions were likely to be made redundant by increasing technology
      It paid people well and empowered them to set their own objectives and determine for themselves if they had met them.
      Its culture emphasised that employment was a two way relationship where the employee investment in the company would be repaid, not only by a salary, but an ongoing share in the success of the company.

 

Some might dispute that these kinds of behaviours are about ethics, and say they are just good long term business practise. In the long run companies need to do all these. I think that is my point. Business ethics is also about promoting long term responsible behaviours.

 

And to say that businesses do not face choices between doing the right thing and not doing the right thing is entirely false.

 

I was on the Executive Board of Anti Apartheid for many years. I saw companies who sought to wring every last penny of profit out of South African business,  and there were those who realised early that racism could no longer be business as usual.

 

So for me it is quite clear that there are values in business. The question though is how does the Labour Party promote the right values in business, just as we seek to promote the right values in society.

 

What do we stand for in business and what does that mean in practise?

 

As Shadow Minister for Innovation and Science I am particularly concerned by this. Innovation is about investment and risk. Many fail. Some succeed and are rewarded. And if the rewards are not shared equitably than innovation may tend to increase inequality. We saw that during the first industrial revolution.

 

One of the areas I am looking at is social entrepreneurship and corporate responsibility.

 

To quote Chuka

Governments must frame the rules of the game in such a way that the businesses which are the most socially valuable and sustainable are also the most profitable.[3]

 

So how do we do that?

 

What can we do about corporate structures to encourage business to contribute more to the communities which support it?

 

How can we move away from an emphasis on short term shareholder value to long term stakeholder value?

 

Well here are a few ideas.

 

Sunlight is the great disinfectant as is often says. We need to help consumers, businesses, the public sector, all those buying in the market to be properly informed about the practises of those they are buying from.

 

Remember that every pound you spend is a political act.

 

So let’s encourage companies to make public the information by which we can judge their business ethics.

 

One  example,  I do not believe that zero hour contracts are ethical as a mainstay of a company’s employment and I would like to know what companies use them.

 

Another  example is the ratings agencies, who proved so very helpful during the financial crash, and now downgrade companies who invest in infrastructure or innovation instead of maximising profits.

 

Is that really good business practise?

 

Another example – is it right to assert, as many companies do, that their primary objective must be to maximise short term shareholder value, even when that is against the interests of long term stakeholders?

 

Because society is one of those stakeholders.  The reason companies can do business, the reason shops filled with expensive products can be left overnight, the reason there is sufficient financial trust for a piece of paper to represent real money in shop tills, the reason there are enough people smart enough to design innovative products like smart phones and, equally important, enough smart people who know how it use them..

 

… the reason for all this is that taxes are raised to pay for police and street lighting and a legal system and education. And people fought for these public services  to be universal.

 

So paying tax is not only ethical, it is long term good business practise.

 

And as a party we need to say it loud and clear.

 

 

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