Ethics in Business: A take on business ethics in the US

Reading Time: 15 minutes
Firoz1
By Firoz Abdul Hamid

In my series of interviews with market leaders on Ethics in Business, Datuk Nicholas Zefferys provided his insights on how businesses are conducted and on the general role of ethics in business in the US. The interview touches on wide ranging issues from the US lobbying culture to the role of the public sector and watchdog bodies on ethics, as well as the reasons for the financial crash. He also provides his views on the role of religion in leadership and ethics. Datuk Nicholas has also had the privilege of working with the government of Malaysia in various advisory roles. He shares his views on Malaysia, which are also very insightful…

1. Greed or Lack of Governance? – Views on what caused the meltdown in the US economy.

The meltdown was caused by the convergence of multiple interrelated factors feeding on each other over a very long period of time. The common denominator was a ‘herd mentality’ that became the driving force and which blinded the players from fundamental realities and principles in their pursuit of accelerating gains to be made.

At the micro level of the firms, a certain invincibility set in as no one foresaw a downside to their actions. They were continually rewarded with exorbitant profits, salaries and bonuses, which only accelerated their efforts and reaffirmed the correctness of their ways.

Along the way the significance and independence of various departments within the corporation changed. Left to their own devices, the sales department will sell anything to anyone if it increases their bonus or commission. Marketing and the leadership of the firm are the check and balance against a ‘free-wheeling’ sales department. The US crisis was essentially caused by sales organisations running amok. The best interests of the firm, the customers, the community, the country were neglected. The goal was bonus money – no matter what. Complicit were highly paid CEO’s who were compensated for stellar sales results.

It has been reported that in 2011, major US corporations actually paid on average only 12.1 per cent of their earnings in taxes. That same year, 25 major US corporations paid their CEOs more than they paid in corporate income taxes. These outrageously rich rewards give powerful incentive to less scrupulous CEOs to behave outrageously and to relentlessly pump up profits by whatever means necessary.

Some argue that modern day top executives have more of an incentive to ‘loot’ their companies than to invest in their futures. The more they loot – by downsising and outsourcing, by squeezing consumers, by stiffing Uncle Sam at tax time – the fatter the quarterly bottom lines, the greater their personal pay. Meanwhile, typical workers have seen their  pay decline to where it is less today, in real dollars, than they earned 10-12 years ago.

At the macro-level, this scenario was compounded by regulators who ‘looked the other way’ and let it all happen – unchecked and unbridled. A misguided view of free market capitalism and an attitude of ‘if it ain’t broke, don’t fix it’ prevailed.

It was a vicious cycle that escalated beyond anyone’s expectations as demand and speculation fueled increasing housing market prices year after year without abatement. Individuals committed themselves to housing mortgages they could not afford on the expectation that prices would continue to rise. Financial institutions created and sold toxic packages that included bad along with good mortgages as ‘derivatives’. Buyers were misled as they bought these derivatives without hesitation or questioning their value.

No one at the micro nor the macro level raised a flag and those few who tried were ignored! Too much money was being made and the US economy was robustly thriving. Life was good in the financial markets and in the general economy- false as it was!

In one sense, they were all victims of what is called the ‘Abilene Paradox’. This requires an understanding of the context of group dynamics at work as to how decisions are made and, also, the quality of communications at work (or lack of it) in this context. When things go wrong in an organisation, it is often because of what is called ‘mismanaged agreement’ or unchecked agreement. This is an ‘agreement’ that has not been validated by honest and open consensus of all those involved. All the parties act under the assumption that everyone else agrees to what is taking place, when in reality this is not the case.

Consequently, bad behaviour continues unabated based on the false assumption that decisions made are valid and universally accepted. This is the result of the failure of anyone to voice their feelings or reservations about what is going on and, also, there are no opportunities for open discussion. This reluctance to speak out is derived from both a fear of doing so and of being ostracised from the group – in a fear of separation. Anxieties about the risks of open discussion and negative fantasies of what might happen upon doing so lead to mindlessly following the leaderless flock.

As can be seen, many factors were at work – structural, strategic and behavioural – which cumulatively caused the meltdown of the US economy.


2.
Vision of Business? – Has the loss of corporate loyalty to its employees and to its customers contributed to the erosion of humanity in how businesses are run? In the era of technology, how can we redefine loyalty as one of the pretexts to sustainable business?

Employees are increasingly seen as a commodity and employee loyalty has diminished. The average number of jobs held in a lifetime working career in my generation was 5-6 jobs. Today’s generations are in the range of 25-26 jobs in a lifetime. Both the employee and the employer are less bound and/or loyal to their each other than in past years.

Some corporations are even encouraging their employees to work from home through telecommuting as a cost saving measure. This has attendant effects of reducing loyalty of one to the other and also affects the critical threshold needed to share ideas and to innovate.

The growing cost of pensions and medical care for long-term employees are increasingly seen as a drag on corporate sustainability. Temporary and contract workers require neither of these corporate liabilities and, therefore, both are gaining popularity. Similarly there has been a huge growth of outsourcing of the functions of the corporation – in part to avoid these liabilities and, also, in part to remove them from the grasp of the perceived jaws of local unions.

These changes all have cumulative effects on the corporate culture, the rules of the road within that culture, and the level of sensitivity and or obligation held by the corporation to the many varied communities they serve. Some corporations are becoming more insular and profit-focused. It could be argued they are doing so on the premise of becoming more flexible and decentralised in their organisational structures, but this does not preclude the need for standardised governance standards.

One of the most impactive books I was required to read when I obtained my MBA degree in the 1960s was Douglas McGregor’s The Human Side of Enterprise whereby he expounded Theory X and Theory Y styles of management. These are based upon two differing sets of assumptions about human nature and behaviour. This built upon Abraham Maslow’s Hierarchy of Needs which also was mandatory reading.

Theory X represents a negative view of human nature and assumes individuals generally dislike work, are irresponsible, and require close supervision to do their jobs. Theory Y has a positive view of human nature and assumes workers are generally industrious, creative and take personal responsibility for their work and thereby exercise self-control in their jobs.  Theory X managers view themselves as a ‘hammer’ and view the employee as a ’nail’, so to speak. Theory Y managers view themselves as partners in their motivated employees’ success.

Maslow’s work established a hierarchy of needs that people must satisfy to achieve self-actualisation and self-esteem. McGregor built on these needs to define appropriate management styles. The meltdown in the US economy lost sight of the inherent positive traits of managers and employees and, rather, focused on greed motivators that led to the distortions of behaviour that prevailed and which yielded the attendant consequences.

Another phenomenon that has yet to be fully understood is the growing trend for on-line sales or business transactions as opposed to the typical face-to-face transactions of the past. Centuries ago, face-to-face transaction took place between individual craftsmen and their customers. These craftsmen developed customised products for each of their customers and thereby had intimate knowledge of their customers’ needs.

As the centuries progressed, this gave way to mass market assembling or manufacturing operations, whereby only the sales departments had the customers’ contacts and sold products or services coming off an assembly line. Sales department feedback on customer needs was critical and this also gave rise to marketing research on customer motivations as well as needs analysis.

Now people order things from their handphone or other on-line personal devices. There is no intimate customer contact or knowledge whatsoever. This is an entirely new arena and the danger is that loyalty to a now more remote customer is also at greater risk.


3. Lobbying Culture –
What is the US doing to ensure greater ethics and transparency in its public and private sector?

The number of lobbyists operating in Washington D.C. has increased from around 3,000 in the early 1990’s to over 35,000 today. This quite clearly signals that what can’t be won in the marketplace is won in the political arena to gain business favour. Many retired politicians become lucrative lobbyists. Practicing politicians are reliant upon lobbyists for campaign funding. It is an insidious relationship with little in the way of checks and balances.

The field of business ethics began to take shape as a formal area of study and practice in the US in the 1960s with the end of World War II, the Cold War and the questioning of the Vietnam war. The military-industrial complex was being challenged and the civil rights movement was gaining force. Attitudes towards society and towards business began to change. Business ethics emerged as an academic field in the US in the 1970s. Theologians, academics and media pundits expounded on ethics and morality with corporations coming under public attack and criticism.

This led to the notion of social responsibility and the term ‘corporate social responsibility’. Issues of racial and gender discrimination, deforestation and pollution gained new voices. Business schools responded by developing courses in social responsibility on social issues in management. A conceptual pyramid that was developed placed at the base of the pyramid the issues of economic and legal responsibility. Next up the pyramid were the ethical issues and at the top or peak were philanthropic issues. The application of ethics to economic systems, to the institutions of business and especially to corporations took serious hold, and is to this day attempting to drive ‘right’ behaviour in public and private sector ethics.


4. Ethics in Business –
Should businesses concern themselves with ethical issues regarding how they do business or with regard to the products they supply even if there is a high demand for what they offer?

The answer to this should be obvious. Yes! But in practice, unfortunately, it is not always so. Corporate responsibility is the responsibility of the corporate leaders and their employees. It is also the responsibility of corporate boards of directors and shareholders. Boards are required to have compliance officers, risk management committees, audit committees and remuneration committees to assure that ethical standards are met. Board members are required to be trained in these areas. At the small and medium enterprise level, individual ethics and behaviour are critical as there are fewer institutional safeguards.

This has now taken on global perspectives as well. The Standard & Poors’ 500 companies fully derive 40 per cent of their revenue from outside the US. The standards of behaviour by US corporations exhibited in foreign countries are no less than those expected in the US. The ‘Foreign Corrupt Practices Act’ requires all employees operating abroad to annually sign off on accepted standards of behaviour.

It is increasingly obvious in today’s society that the top management of any organisation should balance 3 dimensions of the corporation. These are the economic dimension, the human dimension and the social dimension. Well-led and successful companies audit their performance in these 3 areas. It is all about having a notion of honest stewardship to the many communities within which a business or corporation operates and using this to guide their actions in all realms or communities of practice at various levels from global to country-specific and to local communities.


5. Fair Trade –
Specific industry-related NGOs disillusioned with business practices are pushing for ethical business standards. Can their initiatives be extended to other big businesses such as the financial sector, energy sector and technology sector globally?

Yes – indeed it can and it is. Organisations such as the World Bank, the Organisation for Economic Cooperation and Development, the Institute for Management Development and  many others are working to develop internationally accepted standards towards which all are measured against and rated. A listing of the worlds top 100 companies, NGOs and individuals promoting ethics in business can be found here.

At the local level, better business bureaus, environmental organisations, boards of directors, shareholders, customers and users of services are having their say. The new communications and social media have also opened up new channels for their voices to be heard.


6. Views on Malaysia –
What are your views on how businesses are run in Malaysia from an ethical perspective? What more can Malaysia do in the area of ethics in business?

Like other countries Malaysia is evolving towards ever-higher standards. Transparency International and the National Integrity Institute are helping to pave the way forward.

The dictionary defines ‘capitalism’ as an economic system in which investment in, and ownership of, the means of production, distribution and exchange of wealth is made and maintained chiefly by private individuals or corporations.

The driving forces of change internationally are globalisation, democratisation, capitalism, privatisation, deregulation and liberalisation. Malaysia is not immune to this as it becomes a world partner through international, regional and bi-lateral trade agreements. Malaysia is evolving into a global partner in trade and investment while encouraging more private investment.

The ETP, GTP, NEM, IMP and other master plans point toward the achievement of the country’s Vision 2020 and the desired ‘developed nation status’. Implementation requires both the public and private sectors be mindful of conduct that this is consistent with ethical and moral practices.

The ETP/NEM also envisions further privatisation of government-linked companies as a necessary and healthy trend that precludes a potentially onerous intervention of government control into the business arena yielding attendant economic distortions.

Removal of entrenched corruption or precluding new corruption opportunities is a work in progress. The Malaysian Anti-Corruption Commission, the Auditor General, the Attorney General, the Bar Association, the parliament, key NGOs and boards of directors must each do their job to weed it out. Corruption is intolerable at any level and firm leadership is key to its eradication.


7. Role of Government –
What is the role of the public sector and government leadership in strengthening ethics in business? What are the roles of global institutions like the World Bank, International Monetary Fund and others in strengthening ethics? Is there much debate globally in this area at all?

The role of the government is absolutely critical both as the leader and the regulator. Ultimately – it is all about establishing a civil society. While corporations should be good citizens and an honourable, ethical member of the community, the government needs to set the tone and environment through its policies, practices and procedures.

A critical success factor for governments to behave this way requires rigorous enforcement, education and training, and acceptance of international institutional guidance and standards to do so – coupled with measurements in place to rank the progress being made.

A very important date in Malaysia was April 23, 2004, when Prime Minister Abdullah Ahmad Badawi launched the National Integrity Plan, which aims to create an ethical Malaysian society. He also launched the Malaysian Institute of Integrity (MII) to monitor the implementation of the plan. Among its chief aspirations is to reduce corruption and the abuses of power.

The long-term purpose of the plan was to meet one of the objectives of the Vision 2020, which is to form a society with strong moral and ethical values and citizens with strong religious and spiritual values and a noble character.

Another important milestone was the establishment of the Malaysian Anti Corruption Commission (MACC), which began operation in January 2009 upon enactment of the MACC Act 2009. The MACC replaced the Anti-Corruption Agency and was modeled after the very successful Independent Commission in Hong Kong. One of the outstanding issues recently brought forward by the MACC is a request to have prosecutorial powers to carry out its mission.

Both the MACC and the MII need the continued full support of the public and the government to be successful and also the on-going efforts of the Attorney General’s and the Auditor Generals offices as outlined in their mission. It is these efforts that require the full energies and support of the government if the deep cynicism of the general public and NGOs regarding corruption and unethical behavior in Malaysia are to be overcome.

Of promising note is that the Auditor-General’s report will now be tabled 3 times a year instead of annually under the second phase of the Government Transformation Programme. This will allow quicker public access to the report and expedite investigations into corruption, fraud and misconduct.

A very important role is also fulfilled by the Attorney General of Malaysia who is the principal legal adviser to the government. The Attorney General is also the highest ranking public prosecutor in the country. The powers with regards to prosecution are contained in Article 145(3) of the federal constitution.


8. Legislative Ethics –
Can ethics be regulated? Can it be legislated? How can this be done effectively at the business and the national level of any country?

Yes it can be and it must be. This is not a perfect world.

At the minimum, wrong-doing needs to be surfaced, investigated, tried and punished where found culpable. This requires legislation, regulation, investigative authority, courts, training and education at all levels – in both the public and private sectors. It requires top leadership and legislative support, prioritisation and an informed public.

A promising step on the part of the private sector is its stepping up to the plate and signing on to the integrity pledge. On the legislative side the passage of the Whistle Blower Protection Act is also a very important milestone.

In the final analysis it requires the commitment of all the stakeholders and the coordination and communication of their efforts towards the achievement of the Vision 2020.

These are critical steps forward if Malaysia is to achieve developed country status and is to become a democratic and civil society. It takes commitment, action and political will.


9. Leadership –
How do you train leaders to be ethical?

Training or ethical behaviour comes from one’s personal efforts, the communities within which one engages, one’s parents and the cultural environment. Every community of which we are a part has certain rules, principles and standards.

When you are born your nature normally is that you are compassionate and open. However, we are not born with knowledge. Knowledge is acquired as the child within us learns from many sources and grows into adulthood. In your youth we are subject to many influences, but a person can accomplish nothing without training and education. Parents have a teaching role, for example, when those influences are negative and they have to teach the correct way forward when their children take the wrong path. Otherwise, the child will lose what he or she has been endowed with in nature and will go against reason. Unable to control ensuing selfishness, this can turn into evil.

When in adulthood, they take on political, societal and business or corporate roles and even become corporate chiefs, they are influenced by the people around them. However, the weight of these influences can matter little if they are viewed within the context of ultimately ‘getting what I want.’

Management guru Peter Drucker says the proof of the sincerity and seriousness of a manager is “uncompromising emphasis on integrity of character. It is character through which leadership is exercised; it is character that sets the example and is imitated.”

I am reminded of a young Malaysian who was hired years ago onto a major Malaysian government-linked company to manage contracts with suppliers. He was found out to be demanding 15 per cent of the contract value for himself. When this came up, he was fired. I subsequently asked him, “Why did you do this? I had such high hopes for you in the future of the company.”  

His reply was, “They all do it at the top of companies here in Malaysia. Why can’t I do the same?”

I was shaken by the response. But it shows the importance of leadership and the impact on young people’s aspirations and values.

Peter Drucker says “the people with whom a person works, and especially subordinates, know in a few weeks whether  he or she has integrity or not. They may forgive a person for a great deal: incompetence, ignorance, insecurity or bad manners. But they will not forgive a lack of integrity in that person. Nor will they forgive higher management for choosing him.”

He goes on, “No one should ever be appointed to a senior position unless top management is willing to have his or her character serve as the model for subordinates.”

It was the many failures of leadership in various sectors in the US in the 1980-1990s that raised the public consciousness. This ultimately led to the ethics in business movement and public concern for corporate social responsibility.

10. Religion – Does one have to be religious or spiritually guided to be ethical? What is it that drives one to be ethical in their transactions with fellow human beings at all levels? What ensures ethical sustainability in someone’s character?

Religion and/or one’s spirituality plays a definite role in shaping one’s character but is not the only driver of ethical behaviour. The great religions of the world with their respective creeds, cults and codes reveal to us diverse ways of dealing with life; i.e. resisting temptations of doing harm and embracing opportunities of doing good onto others. They espouse a notion of ‘stewardship’.  Sacred or ancient texts have guided people’s actions in all realms, including business, for centuries, and still do.

In 1993, the Parliament of the World’s Religions adopted a Declaration of Global Ethic that condemned “the abuses of the Earth’s ecosystems,” poverty, hunger and the economic disparities that threaten many families with ruin. Sustainability is also an ethical issue.

Philosophers also define human society as being based on cooperation and trust. At its foundation is the pursuit of justice and farness versus personal gain. Principles taught by Confucious are based upon magnanimity, righteousness, the right path and rectitude. A person with these virtues understands what is right. A person without these virtues understands only what is profitable.

We are all subject to negative temptations which require eternal vigilance and mindfulness to be able to assess the correct path forward. We are often placed in a position where we must know to ask, “Does the end justify the means?” Everyone has to contribute to the common good. To not do so can be described in one word: Selfish.

We all need to approach life in positive ways and to stay informed and to stay relevant. Life is essentially a long journey with many ‘stations’ along the way. These stations are places where we realise our dreams or expectations as we prepare for the next station in life. Sooner or later we learn that there is no one true station in life – no one place to arrive at once and for all. This station could be graduation, a promotion, amassing great wealth, a work of art, retirement etc.

We soon realise it is not the stations in life or our dreams that matter as much as the quality of the journey we have undertaken. The joy of life is the trip, and a big part of the joy derives from how we have conducted ourselves in the journey. Those who have done so with honesty, compassion, gratitude and with a strong sense of ethics will know the true and genuine joy of the trip well earned and not through ill-begotten means at the expense of others left in the gutter along the way.

 

Datuk Nicholas ZefferysDatuk Nicholas S. Zefferys is the Past President of the American Malaysian Chamber of Commerce. He has a 50-year multinational career and has worked in Malaysia and ASEAN countries for 20 years. He was appointed to the National Economic Advisory Council by the Prime Minister of Malaysia, Dato’ Sri Najib Tun Razak, to develop the New Economic Model to help move Malaysia further towards Vision 2020. He was also appointed by previous Prime Minister Abdullah Ahmad Badawi to PEMUDAH (Special Task Force to Facilitate Business) to improve the government delivery system. He has authored and contributed to articles, books and other publications and is a frequent lecturer at universities, institutions and conferences both locally and globally.

 

See other posts from our articles series on Ethics in Business:

Ethics in Business: Perception of sleepwalking

Ethics in Business: Facing medical ethics head on in Malaysia

Ethics in Business: Moving Islamic finance from conference rooms to humanity

Ethics in Business: Walking the ethical track in Malaysia a perspective

Ethics in Business: Soul of ethics in the new Dubai

Ethics in Business: A conversation with Professor Tariq Ramadan

Ethics in Business: Where is the education for narcissistic leaders

Ethics in Business. With whom does the heartbeat of a nation lie, Part 1

Ethics in Business: With whom does the heartbeat of a nation lie, Part 2

Ethics in Business: Are we aware of the Iagos in our midst?

Ethics in Business: Fair trade or fair game, who benefits really

Ethics in business: What moves the conscience when mortality is at stake

Please: CSR is not Ethics in Business

Panel discussion: Medical ethics (plus video)

(Firoz Abdul Hamid is an Inside Investor contributor. The opinions expressed are her own.)

 

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Reading Time: 15 minutes

By Firoz Abdul Hamid

In my series of interviews with market leaders on Ethics in Business, Datuk Nicholas Zefferys provided his insights on how businesses are conducted and on the general role of ethics in business in the US. The interview touches on wide ranging issues from the US lobbying culture to the role of the public sector and watchdog bodies on ethics, as well as the reasons for the financial crash. He also provides his views on the role of religion in leadership and ethics. Datuk Nicholas has also had the privilege of working with the government of Malaysia in various advisory roles. He shares his views on Malaysia, which are also very insightful…

Reading Time: 15 minutes

Firoz1
By Firoz Abdul Hamid

In my series of interviews with market leaders on Ethics in Business, Datuk Nicholas Zefferys provided his insights on how businesses are conducted and on the general role of ethics in business in the US. The interview touches on wide ranging issues from the US lobbying culture to the role of the public sector and watchdog bodies on ethics, as well as the reasons for the financial crash. He also provides his views on the role of religion in leadership and ethics. Datuk Nicholas has also had the privilege of working with the government of Malaysia in various advisory roles. He shares his views on Malaysia, which are also very insightful…

1. Greed or Lack of Governance? – Views on what caused the meltdown in the US economy.

The meltdown was caused by the convergence of multiple interrelated factors feeding on each other over a very long period of time. The common denominator was a ‘herd mentality’ that became the driving force and which blinded the players from fundamental realities and principles in their pursuit of accelerating gains to be made.

At the micro level of the firms, a certain invincibility set in as no one foresaw a downside to their actions. They were continually rewarded with exorbitant profits, salaries and bonuses, which only accelerated their efforts and reaffirmed the correctness of their ways.

Along the way the significance and independence of various departments within the corporation changed. Left to their own devices, the sales department will sell anything to anyone if it increases their bonus or commission. Marketing and the leadership of the firm are the check and balance against a ‘free-wheeling’ sales department. The US crisis was essentially caused by sales organisations running amok. The best interests of the firm, the customers, the community, the country were neglected. The goal was bonus money – no matter what. Complicit were highly paid CEO’s who were compensated for stellar sales results.

It has been reported that in 2011, major US corporations actually paid on average only 12.1 per cent of their earnings in taxes. That same year, 25 major US corporations paid their CEOs more than they paid in corporate income taxes. These outrageously rich rewards give powerful incentive to less scrupulous CEOs to behave outrageously and to relentlessly pump up profits by whatever means necessary.

Some argue that modern day top executives have more of an incentive to ‘loot’ their companies than to invest in their futures. The more they loot – by downsising and outsourcing, by squeezing consumers, by stiffing Uncle Sam at tax time – the fatter the quarterly bottom lines, the greater their personal pay. Meanwhile, typical workers have seen their  pay decline to where it is less today, in real dollars, than they earned 10-12 years ago.

At the macro-level, this scenario was compounded by regulators who ‘looked the other way’ and let it all happen – unchecked and unbridled. A misguided view of free market capitalism and an attitude of ‘if it ain’t broke, don’t fix it’ prevailed.

It was a vicious cycle that escalated beyond anyone’s expectations as demand and speculation fueled increasing housing market prices year after year without abatement. Individuals committed themselves to housing mortgages they could not afford on the expectation that prices would continue to rise. Financial institutions created and sold toxic packages that included bad along with good mortgages as ‘derivatives’. Buyers were misled as they bought these derivatives without hesitation or questioning their value.

No one at the micro nor the macro level raised a flag and those few who tried were ignored! Too much money was being made and the US economy was robustly thriving. Life was good in the financial markets and in the general economy- false as it was!

In one sense, they were all victims of what is called the ‘Abilene Paradox’. This requires an understanding of the context of group dynamics at work as to how decisions are made and, also, the quality of communications at work (or lack of it) in this context. When things go wrong in an organisation, it is often because of what is called ‘mismanaged agreement’ or unchecked agreement. This is an ‘agreement’ that has not been validated by honest and open consensus of all those involved. All the parties act under the assumption that everyone else agrees to what is taking place, when in reality this is not the case.

Consequently, bad behaviour continues unabated based on the false assumption that decisions made are valid and universally accepted. This is the result of the failure of anyone to voice their feelings or reservations about what is going on and, also, there are no opportunities for open discussion. This reluctance to speak out is derived from both a fear of doing so and of being ostracised from the group – in a fear of separation. Anxieties about the risks of open discussion and negative fantasies of what might happen upon doing so lead to mindlessly following the leaderless flock.

As can be seen, many factors were at work – structural, strategic and behavioural – which cumulatively caused the meltdown of the US economy.


2.
Vision of Business? – Has the loss of corporate loyalty to its employees and to its customers contributed to the erosion of humanity in how businesses are run? In the era of technology, how can we redefine loyalty as one of the pretexts to sustainable business?

Employees are increasingly seen as a commodity and employee loyalty has diminished. The average number of jobs held in a lifetime working career in my generation was 5-6 jobs. Today’s generations are in the range of 25-26 jobs in a lifetime. Both the employee and the employer are less bound and/or loyal to their each other than in past years.

Some corporations are even encouraging their employees to work from home through telecommuting as a cost saving measure. This has attendant effects of reducing loyalty of one to the other and also affects the critical threshold needed to share ideas and to innovate.

The growing cost of pensions and medical care for long-term employees are increasingly seen as a drag on corporate sustainability. Temporary and contract workers require neither of these corporate liabilities and, therefore, both are gaining popularity. Similarly there has been a huge growth of outsourcing of the functions of the corporation – in part to avoid these liabilities and, also, in part to remove them from the grasp of the perceived jaws of local unions.

These changes all have cumulative effects on the corporate culture, the rules of the road within that culture, and the level of sensitivity and or obligation held by the corporation to the many varied communities they serve. Some corporations are becoming more insular and profit-focused. It could be argued they are doing so on the premise of becoming more flexible and decentralised in their organisational structures, but this does not preclude the need for standardised governance standards.

One of the most impactive books I was required to read when I obtained my MBA degree in the 1960s was Douglas McGregor’s The Human Side of Enterprise whereby he expounded Theory X and Theory Y styles of management. These are based upon two differing sets of assumptions about human nature and behaviour. This built upon Abraham Maslow’s Hierarchy of Needs which also was mandatory reading.

Theory X represents a negative view of human nature and assumes individuals generally dislike work, are irresponsible, and require close supervision to do their jobs. Theory Y has a positive view of human nature and assumes workers are generally industrious, creative and take personal responsibility for their work and thereby exercise self-control in their jobs.  Theory X managers view themselves as a ‘hammer’ and view the employee as a ’nail’, so to speak. Theory Y managers view themselves as partners in their motivated employees’ success.

Maslow’s work established a hierarchy of needs that people must satisfy to achieve self-actualisation and self-esteem. McGregor built on these needs to define appropriate management styles. The meltdown in the US economy lost sight of the inherent positive traits of managers and employees and, rather, focused on greed motivators that led to the distortions of behaviour that prevailed and which yielded the attendant consequences.

Another phenomenon that has yet to be fully understood is the growing trend for on-line sales or business transactions as opposed to the typical face-to-face transactions of the past. Centuries ago, face-to-face transaction took place between individual craftsmen and their customers. These craftsmen developed customised products for each of their customers and thereby had intimate knowledge of their customers’ needs.

As the centuries progressed, this gave way to mass market assembling or manufacturing operations, whereby only the sales departments had the customers’ contacts and sold products or services coming off an assembly line. Sales department feedback on customer needs was critical and this also gave rise to marketing research on customer motivations as well as needs analysis.

Now people order things from their handphone or other on-line personal devices. There is no intimate customer contact or knowledge whatsoever. This is an entirely new arena and the danger is that loyalty to a now more remote customer is also at greater risk.


3. Lobbying Culture –
What is the US doing to ensure greater ethics and transparency in its public and private sector?

The number of lobbyists operating in Washington D.C. has increased from around 3,000 in the early 1990’s to over 35,000 today. This quite clearly signals that what can’t be won in the marketplace is won in the political arena to gain business favour. Many retired politicians become lucrative lobbyists. Practicing politicians are reliant upon lobbyists for campaign funding. It is an insidious relationship with little in the way of checks and balances.

The field of business ethics began to take shape as a formal area of study and practice in the US in the 1960s with the end of World War II, the Cold War and the questioning of the Vietnam war. The military-industrial complex was being challenged and the civil rights movement was gaining force. Attitudes towards society and towards business began to change. Business ethics emerged as an academic field in the US in the 1970s. Theologians, academics and media pundits expounded on ethics and morality with corporations coming under public attack and criticism.

This led to the notion of social responsibility and the term ‘corporate social responsibility’. Issues of racial and gender discrimination, deforestation and pollution gained new voices. Business schools responded by developing courses in social responsibility on social issues in management. A conceptual pyramid that was developed placed at the base of the pyramid the issues of economic and legal responsibility. Next up the pyramid were the ethical issues and at the top or peak were philanthropic issues. The application of ethics to economic systems, to the institutions of business and especially to corporations took serious hold, and is to this day attempting to drive ‘right’ behaviour in public and private sector ethics.


4. Ethics in Business –
Should businesses concern themselves with ethical issues regarding how they do business or with regard to the products they supply even if there is a high demand for what they offer?

The answer to this should be obvious. Yes! But in practice, unfortunately, it is not always so. Corporate responsibility is the responsibility of the corporate leaders and their employees. It is also the responsibility of corporate boards of directors and shareholders. Boards are required to have compliance officers, risk management committees, audit committees and remuneration committees to assure that ethical standards are met. Board members are required to be trained in these areas. At the small and medium enterprise level, individual ethics and behaviour are critical as there are fewer institutional safeguards.

This has now taken on global perspectives as well. The Standard & Poors’ 500 companies fully derive 40 per cent of their revenue from outside the US. The standards of behaviour by US corporations exhibited in foreign countries are no less than those expected in the US. The ‘Foreign Corrupt Practices Act’ requires all employees operating abroad to annually sign off on accepted standards of behaviour.

It is increasingly obvious in today’s society that the top management of any organisation should balance 3 dimensions of the corporation. These are the economic dimension, the human dimension and the social dimension. Well-led and successful companies audit their performance in these 3 areas. It is all about having a notion of honest stewardship to the many communities within which a business or corporation operates and using this to guide their actions in all realms or communities of practice at various levels from global to country-specific and to local communities.


5. Fair Trade –
Specific industry-related NGOs disillusioned with business practices are pushing for ethical business standards. Can their initiatives be extended to other big businesses such as the financial sector, energy sector and technology sector globally?

Yes – indeed it can and it is. Organisations such as the World Bank, the Organisation for Economic Cooperation and Development, the Institute for Management Development and  many others are working to develop internationally accepted standards towards which all are measured against and rated. A listing of the worlds top 100 companies, NGOs and individuals promoting ethics in business can be found here.

At the local level, better business bureaus, environmental organisations, boards of directors, shareholders, customers and users of services are having their say. The new communications and social media have also opened up new channels for their voices to be heard.


6. Views on Malaysia –
What are your views on how businesses are run in Malaysia from an ethical perspective? What more can Malaysia do in the area of ethics in business?

Like other countries Malaysia is evolving towards ever-higher standards. Transparency International and the National Integrity Institute are helping to pave the way forward.

The dictionary defines ‘capitalism’ as an economic system in which investment in, and ownership of, the means of production, distribution and exchange of wealth is made and maintained chiefly by private individuals or corporations.

The driving forces of change internationally are globalisation, democratisation, capitalism, privatisation, deregulation and liberalisation. Malaysia is not immune to this as it becomes a world partner through international, regional and bi-lateral trade agreements. Malaysia is evolving into a global partner in trade and investment while encouraging more private investment.

The ETP, GTP, NEM, IMP and other master plans point toward the achievement of the country’s Vision 2020 and the desired ‘developed nation status’. Implementation requires both the public and private sectors be mindful of conduct that this is consistent with ethical and moral practices.

The ETP/NEM also envisions further privatisation of government-linked companies as a necessary and healthy trend that precludes a potentially onerous intervention of government control into the business arena yielding attendant economic distortions.

Removal of entrenched corruption or precluding new corruption opportunities is a work in progress. The Malaysian Anti-Corruption Commission, the Auditor General, the Attorney General, the Bar Association, the parliament, key NGOs and boards of directors must each do their job to weed it out. Corruption is intolerable at any level and firm leadership is key to its eradication.


7. Role of Government –
What is the role of the public sector and government leadership in strengthening ethics in business? What are the roles of global institutions like the World Bank, International Monetary Fund and others in strengthening ethics? Is there much debate globally in this area at all?

The role of the government is absolutely critical both as the leader and the regulator. Ultimately – it is all about establishing a civil society. While corporations should be good citizens and an honourable, ethical member of the community, the government needs to set the tone and environment through its policies, practices and procedures.

A critical success factor for governments to behave this way requires rigorous enforcement, education and training, and acceptance of international institutional guidance and standards to do so – coupled with measurements in place to rank the progress being made.

A very important date in Malaysia was April 23, 2004, when Prime Minister Abdullah Ahmad Badawi launched the National Integrity Plan, which aims to create an ethical Malaysian society. He also launched the Malaysian Institute of Integrity (MII) to monitor the implementation of the plan. Among its chief aspirations is to reduce corruption and the abuses of power.

The long-term purpose of the plan was to meet one of the objectives of the Vision 2020, which is to form a society with strong moral and ethical values and citizens with strong religious and spiritual values and a noble character.

Another important milestone was the establishment of the Malaysian Anti Corruption Commission (MACC), which began operation in January 2009 upon enactment of the MACC Act 2009. The MACC replaced the Anti-Corruption Agency and was modeled after the very successful Independent Commission in Hong Kong. One of the outstanding issues recently brought forward by the MACC is a request to have prosecutorial powers to carry out its mission.

Both the MACC and the MII need the continued full support of the public and the government to be successful and also the on-going efforts of the Attorney General’s and the Auditor Generals offices as outlined in their mission. It is these efforts that require the full energies and support of the government if the deep cynicism of the general public and NGOs regarding corruption and unethical behavior in Malaysia are to be overcome.

Of promising note is that the Auditor-General’s report will now be tabled 3 times a year instead of annually under the second phase of the Government Transformation Programme. This will allow quicker public access to the report and expedite investigations into corruption, fraud and misconduct.

A very important role is also fulfilled by the Attorney General of Malaysia who is the principal legal adviser to the government. The Attorney General is also the highest ranking public prosecutor in the country. The powers with regards to prosecution are contained in Article 145(3) of the federal constitution.


8. Legislative Ethics –
Can ethics be regulated? Can it be legislated? How can this be done effectively at the business and the national level of any country?

Yes it can be and it must be. This is not a perfect world.

At the minimum, wrong-doing needs to be surfaced, investigated, tried and punished where found culpable. This requires legislation, regulation, investigative authority, courts, training and education at all levels – in both the public and private sectors. It requires top leadership and legislative support, prioritisation and an informed public.

A promising step on the part of the private sector is its stepping up to the plate and signing on to the integrity pledge. On the legislative side the passage of the Whistle Blower Protection Act is also a very important milestone.

In the final analysis it requires the commitment of all the stakeholders and the coordination and communication of their efforts towards the achievement of the Vision 2020.

These are critical steps forward if Malaysia is to achieve developed country status and is to become a democratic and civil society. It takes commitment, action and political will.


9. Leadership –
How do you train leaders to be ethical?

Training or ethical behaviour comes from one’s personal efforts, the communities within which one engages, one’s parents and the cultural environment. Every community of which we are a part has certain rules, principles and standards.

When you are born your nature normally is that you are compassionate and open. However, we are not born with knowledge. Knowledge is acquired as the child within us learns from many sources and grows into adulthood. In your youth we are subject to many influences, but a person can accomplish nothing without training and education. Parents have a teaching role, for example, when those influences are negative and they have to teach the correct way forward when their children take the wrong path. Otherwise, the child will lose what he or she has been endowed with in nature and will go against reason. Unable to control ensuing selfishness, this can turn into evil.

When in adulthood, they take on political, societal and business or corporate roles and even become corporate chiefs, they are influenced by the people around them. However, the weight of these influences can matter little if they are viewed within the context of ultimately ‘getting what I want.’

Management guru Peter Drucker says the proof of the sincerity and seriousness of a manager is “uncompromising emphasis on integrity of character. It is character through which leadership is exercised; it is character that sets the example and is imitated.”

I am reminded of a young Malaysian who was hired years ago onto a major Malaysian government-linked company to manage contracts with suppliers. He was found out to be demanding 15 per cent of the contract value for himself. When this came up, he was fired. I subsequently asked him, “Why did you do this? I had such high hopes for you in the future of the company.”  

His reply was, “They all do it at the top of companies here in Malaysia. Why can’t I do the same?”

I was shaken by the response. But it shows the importance of leadership and the impact on young people’s aspirations and values.

Peter Drucker says “the people with whom a person works, and especially subordinates, know in a few weeks whether  he or she has integrity or not. They may forgive a person for a great deal: incompetence, ignorance, insecurity or bad manners. But they will not forgive a lack of integrity in that person. Nor will they forgive higher management for choosing him.”

He goes on, “No one should ever be appointed to a senior position unless top management is willing to have his or her character serve as the model for subordinates.”

It was the many failures of leadership in various sectors in the US in the 1980-1990s that raised the public consciousness. This ultimately led to the ethics in business movement and public concern for corporate social responsibility.

10. Religion – Does one have to be religious or spiritually guided to be ethical? What is it that drives one to be ethical in their transactions with fellow human beings at all levels? What ensures ethical sustainability in someone’s character?

Religion and/or one’s spirituality plays a definite role in shaping one’s character but is not the only driver of ethical behaviour. The great religions of the world with their respective creeds, cults and codes reveal to us diverse ways of dealing with life; i.e. resisting temptations of doing harm and embracing opportunities of doing good onto others. They espouse a notion of ‘stewardship’.  Sacred or ancient texts have guided people’s actions in all realms, including business, for centuries, and still do.

In 1993, the Parliament of the World’s Religions adopted a Declaration of Global Ethic that condemned “the abuses of the Earth’s ecosystems,” poverty, hunger and the economic disparities that threaten many families with ruin. Sustainability is also an ethical issue.

Philosophers also define human society as being based on cooperation and trust. At its foundation is the pursuit of justice and farness versus personal gain. Principles taught by Confucious are based upon magnanimity, righteousness, the right path and rectitude. A person with these virtues understands what is right. A person without these virtues understands only what is profitable.

We are all subject to negative temptations which require eternal vigilance and mindfulness to be able to assess the correct path forward. We are often placed in a position where we must know to ask, “Does the end justify the means?” Everyone has to contribute to the common good. To not do so can be described in one word: Selfish.

We all need to approach life in positive ways and to stay informed and to stay relevant. Life is essentially a long journey with many ‘stations’ along the way. These stations are places where we realise our dreams or expectations as we prepare for the next station in life. Sooner or later we learn that there is no one true station in life – no one place to arrive at once and for all. This station could be graduation, a promotion, amassing great wealth, a work of art, retirement etc.

We soon realise it is not the stations in life or our dreams that matter as much as the quality of the journey we have undertaken. The joy of life is the trip, and a big part of the joy derives from how we have conducted ourselves in the journey. Those who have done so with honesty, compassion, gratitude and with a strong sense of ethics will know the true and genuine joy of the trip well earned and not through ill-begotten means at the expense of others left in the gutter along the way.

 

Datuk Nicholas ZefferysDatuk Nicholas S. Zefferys is the Past President of the American Malaysian Chamber of Commerce. He has a 50-year multinational career and has worked in Malaysia and ASEAN countries for 20 years. He was appointed to the National Economic Advisory Council by the Prime Minister of Malaysia, Dato’ Sri Najib Tun Razak, to develop the New Economic Model to help move Malaysia further towards Vision 2020. He was also appointed by previous Prime Minister Abdullah Ahmad Badawi to PEMUDAH (Special Task Force to Facilitate Business) to improve the government delivery system. He has authored and contributed to articles, books and other publications and is a frequent lecturer at universities, institutions and conferences both locally and globally.

 

See other posts from our articles series on Ethics in Business:

Ethics in Business: Perception of sleepwalking

Ethics in Business: Facing medical ethics head on in Malaysia

Ethics in Business: Moving Islamic finance from conference rooms to humanity

Ethics in Business: Walking the ethical track in Malaysia a perspective

Ethics in Business: Soul of ethics in the new Dubai

Ethics in Business: A conversation with Professor Tariq Ramadan

Ethics in Business: Where is the education for narcissistic leaders

Ethics in Business. With whom does the heartbeat of a nation lie, Part 1

Ethics in Business: With whom does the heartbeat of a nation lie, Part 2

Ethics in Business: Are we aware of the Iagos in our midst?

Ethics in Business: Fair trade or fair game, who benefits really

Ethics in business: What moves the conscience when mortality is at stake

Please: CSR is not Ethics in Business

Panel discussion: Medical ethics (plus video)

(Firoz Abdul Hamid is an Inside Investor contributor. The opinions expressed are her own.)

 

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