Corporate Misconduct – Can businesses be trusted to act ethically

There has been an increasing amount of corporate scandals recently covering anything from poor sales practises to tax evasion. Ethical fund managers have been focusing on this over the last year – asking why business ethics have failed, what this means for the destruction of shareholder value and what remedies are possible. Reasons why include:

Globalisation – need to compete on price rather than service, scale of modern business adds complexity, poor training, targets focused on the wrong metrics, focus on acquisition and growth rather than retention, inadequate regulation, few disincentives to cut corners, cost cutting and low wages and support.

Extent of fines – Banking has the worst reputation with the ‘big five’ banks having been fined £25.4billion in the last 5 years. However it is not just banks, GlaxoSmithKline have been fined $3,000million due to safety and marketing failures (37% of revenue) and Pfizer have been fined $2,300million. In total it has been estimated that $150billion has been wasted through corporate misconduct in the last 5 years which represents 15% of the total global dividends.

The problem for business is not just financial – the fundamental issue is of trust.

Remedies – the ethical fund managers have been calling for better and more concentrated focus on ethics together with tougher penalties. Culture, behaviour and reward need to be more closely aligned where a culture of integrity is driven by the Board. Business urgently needs a ‘no prisoners’ approach to wrongdoing and significant rewiring.

Ecclesiastical have recently produced an excellent briefing paper on this subject which provides more detail – please let us know if you would like more information or a copy of this document.