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Corporate Scandals: Post-Enron, post-Shell, post-WorldCom, post-Parmalat

Post-Enron, post-Shell, post-WorldCom, post-Parmalat, the collective knickers of the business world are in a twist about ethics, and rightly so. Deals are the building blocks of business. Enormous sums are at stake and the money belongs mostly to strangers, not neighbours. Without ethics to define deals and fair dealing, business will not get done.

Introduction by John Donovan:

Dr John Huong (right), the renowned former Shell Production Geologist who blew the whistle internally at Shell in respect of the oil and gas reserves fraud is the author of this article. It was written at a time when he was being sued for defamation by EIGHT Royal Dutch Shell companies in respect of postings made on this website under his name. Shell eventually withdrew the claim and settled a counterclaim brought by Dr Huong for wrongful dismissal.

Reflections on the Essay By Mr Thomas Stewart on Corporate Governance and the morals at workplace environment

By Dr John Huong

Thank you Mr Thomas Stewart for your excellent article on an important subject; it is appended below. I congratulate you for transforming the life of your former work colleague mentioned in your essay; a transformation which also benefited his family. It demonstrates the positive impact a few encouraging words can have on a work colleague (or indeed a family member or a friend). It is a fine example we should all remember.

The article – succinct and crisp as it is, will hopefully help and inspire those who are in power (including companies) to serve well the lives of countless souls entrusted to their stewardship. Natural and/or man-made (business) environments must be made conducive for sustainable development and growth to promote the highest level of spiritual, emotional, social, mental and physical well-being.

With regard to business ethics, Mr Stewart will be aware that the subject of ethical behaviour is normally included within the codes of conduct – business principles – which most major organisations now routinely adopt and promote. They are designed to provide a framework of ethical practices/policies in which the public, investors and company employees, can place their thoughts and trust.

What is not widely known is that such codes have no legal standing whatsoever. Codes of conduct routinely include promises of (a) honesty and openness in all management dealings with employees, suppliers and customers; (b) environmentally friendly policies and (c) respect for employees. However, if, in reality, the company flouts the provisions of its own code, there is NO legal recourse under the code. In other words, under current national and international law, there are no legal grounds to claim that a company acted in breach of its stated business principles, even if the infractions are blatant, widespread and recurring. Like a bet with a bookie, such codes are binding in honour only.

Dishonourable corporate moguls and their henchmen can therefore legally cloak themselves currently in fine words and impressions, uttering and publishing entirely unenforceable promises; a propaganda tool of incalculable value to fool investors, employees and the world at large. We have all witnessed empty global campaigns built around such promises about transparency in Profits, Principles and the triple bottom line. Yet the codes of conduct currently escape all legal and regulatory control. That cannot be morally right! As matters stand, they provide a massive loophole for corporate confidence tricksters.

Surely it is not beyond the skill and wit of government and the legal fraternity to give legal status to codes of conduct, so that companies using them will be much more careful and responsible in making pledges of honesty and transparency; to really say and do what they advertise! I hope the United Nations, the International Labor Organisation and non-governmental organisations will initiate and support the various governments in formulating and implementing some form of protection for all those who works for companies under their jurisdiction.

If the corporate bodies genuinely intend to honour pledges made in codes of conduct, what possible objection could they have to them being given legally binding status?

Codes of conduct go beyond the current basic laws and regulations supposedly protecting the public and employees. They prove how inadequate such current legal provisions are – otherwise businesses and organisation would not feel it necessary to universally use codes of practice at all. Since their use demonstrates the current lack of sufficient legal protection, why not make codes of conduct legally enforceable?

The plain truth is that pervasively dishonoured, unenforceable pledges in corporate codes of practice have brought about the historic scandals quoted in Mr Stewart’s article, which have done enormous and probably lasting damage to corporate credibility. It is painful to see how employees who have worked long and hard were badly treated and the kind of trauma some employees and their families have experienced. I was told that one good employee laid off under the pretext of organisational restructuring had a complete mental and emotional break down while top management received a nice bonus. If the relevant management had worked within their own ethical codes, the scandals and/or unloved actions would never have occurred.

The whole world now turns on international commerce. Customer trust in the market place and employee trust in the integrity of their employers are vital commodities which must surely be cherished, protected and when necessary, enhanced.

Thank you Mr Thomas Stewart again for your essay which have encouraged me to reflect on our health of societies and nations; on this National day for Malaysia – a total of 47 years since Independence!

Financial Times article: Governance: Managers look for the moral dimension: “Post-Enron, post-Shell, post-WorldCom, post-Parmalat”

By Thomas Stewart

Posted 27 August 04

In a theatre lobby at intermission, I spotted a half-familiar face, looking at me with the “is that you?” _expression people wear when they have not seen someone in a long time. He had worked for me 15 years earlier. He had left to accept a job in another city; I had changed employers, too. Since then he had married, had children and made a great success of his new job.

When I congratulated him and facetiously claimed credit for his achievements, he startled me by agreeing. He said: “You told me something that made an enormous difference in my life.” He repeated it – something about how he had strong organising skills – but I could not remember having said it.

Later I reflected on the benign negligence with which I had altered a man’s life. I had not intended to say something important and had not known the effect my comment would have. Doubtless, I then realised, I had on some other occasion unknowingly said or done something to the opposite effect, crushing a hope or steering someone’s career into a brick wall.

Post-Enron, post-Shell, post-WorldCom, post-Parmalat, the collective knickers of the business world are in a twist about ethics, and rightly so. Deals are the building blocks of business. Enormous sums are at stake and the money belongs mostly to strangers, not neighbours. Without ethics to define deals and fair dealing, business will not get done.

Rightly, therefore, regulatory bodies have yanked the chain. Rightly, business schools throughout the world have given more prominence to ethics in their curricula. Rightly, also, once-malfeasant companies such as Tyco have developed impressive safeguards to keep themselves straight. One day this horse will bolt again – greed is a clever animal – but it should not be for want of new locks on the stable doors.

My encounter in the theatre lobby, however, suggests that there is a moral dimension to management as well as an ethical one. By this I mean that managers at all levels of an organisation have an opportunity that is both greater than and different from the obligations of ethics: the opportunity to improve the world. That aspect of management is generally neglected – as forgotten as the comment I had made to my former colleague.

Management has an influence for good or ill. There are no small gestures for a manager and the individuals who work for or with him. Management creates the conditions in which most adults spend half their waking hours. Bad management makes lives miserable. Surveys consistently reveal that the most common reason people leave a job is a poor relationship with their immediate supervisor; “office politics” comes second. Usually those data are interpreted from a corporate perspective: if a company can improve supervisors’ behaviour, employee turnover will fall and productivity rise.

Looked at from another perspective, however, the data measure the unhappiness managers can and do inflict on people who work for them. And just as there is a multiplier effect to the economic benefits of business, so are the costs of mismanagement multiplied as they affect the spouses and children of the people who work for us. Arthur Miller’s Death of a Salesman rises to the level of tragedy precisely because Willy Loman’s plight is a general moral calamity. When his wife cries: “Attention must be paid!” she is speaking to all of us – managers included – as well as to her sons.

How does management’s moral dimension manifest itself? Consider the following:

Workplaces are the most diverse environments we inhabit. According to studies by Cynthia Estlund, a professor of law at Columbia University in New York, Americans are more likely to have a friend of another race at work than in their neighbourhood, social circle, school or church. In all sorts of ways, then, managers play a role in exacerbating or alleviating racial, religious, sexual and cultural intolerance.

Eskom, the state-owned electricity company of South Africa, was once an instrument of the apartheid state. Today it remains an instrument, but the state has changed its tune. The company’s managers helped identify non-white employees with management potential; literacy training was given to an employee population that had before been kept deliberately ignorant; jobs were redefined to eliminate barriers to advancement that had kept non-white people from better-paying work.

It is arguable that managers at Eskom shared some of the blame for apartheid’s evil. Yet the company can now claim part of the credit for the fact that South Africa made it past the 10th anniversary of the end of apartheid with its social contract intact.

Eskom is an extreme case of something that appears on every manager’s agenda: the opportunity to act in ways that include or exclude someone, the chance to invite contributions from “different” people or to dismiss them. When Denny’s, a US restaurant chain that had become a national symbol of workplace racism, transformed itself and became ranked as one of the country’s 50 best companies for minority workers, it showed what could be achieved with this change of attitude. Every week, managers can enhance the dignity of a human being or not.

Management choices are moral choices. Take the conflict that many women face between career and family. Studies show steady progress for the rights and prospects of girls and women. Schoolgirls are less likely than before to be channelled away from mathematics and science courses; young women are admitted to graduate and professional schools at nearly the same rate as men and hired in impressive numbers by prestigious companies. Yet many women on the path to professional success jump off it, or are pushed.

As Anna Fels, a New York psychiatrist, wrote in Harvard Business Review, the time of decision seems to come in a woman’s late twenties, when she reaches important turning points in her career and her family life. This is an agonising choice, with obvious moral implications: for the woman and her partner, how to weigh different kinds of fulfilment; for the company, how much to involve itself in its employees’ personal lives; for society, how to balance quantity of output versus quality of life.

Men, companies and governments can and should make it easier for women to have both a demanding career and a rich home life, but even the most progressive policies will ultimately rely on the quality of the interaction between a woman and her managers in the judgments they make about her work, her standing vis-à-vis her peers and her future.

Judgment of any kind is inherently a moral matter. Judgment is also the job of managers. In hiring, in giving performance reviews, in choosing between two courses of action, we commit acts with moral consequences. How aggressively should a company price its products? How long do we support an employee whose performance hurts the group?

Managers play a significant role in employees’ personal growth. Few of us return to school in adulthood but in the US and Europe about 80 per cent of the working population receives some kind of training from employers each year, according to the American Society for Training and Development. And we get even more – several times more – informal learning and training at work, reports the Education Development Center, a non-profit group based in Newton, Massachusetts. Training is the least of the influences managers have on how people grow and develop. Managers almost every day have the opportunity if they choose to take it to hand out assignments with a person’s development in mind. Often we do this badly. We are remiss in succession planning, haphazard in considering the goals of our subordinates, even afraid of their ambition. If a colleague tries to “steal” a favoured employee, we behave like jealous lovers rather than proud parents. Yet is there any more profoundly moral act than to help another human being become, in Matthew Arnold’s phrase, his best self? Is there any more immoral act than to stand in the way of someone’s growth, even unknowingly?

Management’s moral dimensions are different from its ethical ones. There are rules of ethics, as there are of etiquette. True, the moral dimensions of management do not involve condemning or blessing the conduct of others. They involve, instead, the messy subject of considering how our decisions affect the lives of our colleagues. Unlike leaders, who from horseback summon vast armies to heroic deeds, managers work one-on-one. They do not feel their power and therefore are rarely mindful of it. But every day they have a chance to do something that makes a small part of the world better.

Thomas A. Stewart is the editor of Harvard Business Review

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