Business Ethics in United Kingdom
Jane Collier
Introduction
It may be overly optimistic to proclaim that business ethics in the UK has finally come of age, but during the last decade there have been some encouraging developments and significant ‘‘green shoots.’’ The idea of ethics in business is no longer viewed as an oxymoron. Courses in business ethics proliferate in business schools, in executive education and professional training programs, and in staff development programs. Corporates commit to greater social responsibility, and consultancies devise ways to make that commitment credible. Research centers in universities as well as individual academics under take leading edge research that gets published either in house or in academic journals, and papers on aspects of business ethics are published with increasing frequency in mainline management and professional journals. Conferences that bring together academics and practitioners proliferate, and international links are continually being forged and strengthened.
It is not difficult to identify the contextual factors that contributed to the increasing acceptance of the need for ethics in business. On the legal side, the 1985 Companies Act emphasized the rights of employees, and this was rapidly followed by developments in EU legislation culminating in the Social Charter of 1989. On the political side, the governments of the 1980s pushed back the boundaries of the state, but the consequent culture of greed and scandal led to pressure on companies, already vulnerable in a time of rapid technological and organizational change, to ‘‘clean up their act.’’ And finally, on the business side, corporate difficulties emerging as a consequence of that vulnerability led to the establishment of the Committee on the Financial Aspects of Corporate Governance and the publication of its report in 1992 (Cadbury, 2002). More recently, the Labour government instituted a number of measures designed to protect and reinforce the rights of stakeholders. For instance, the Public Interest Disclosure Act, which came into force in July 1999, lays down the rights of employees and the duties of employers in cases of whistleblowing, and is inter nationally recognized as a benchmark for whistleblowing legislation. The Pensions Act of 1995 outlines the rights of holders of pension plans to information on their future benefits, and the Late Payment of Commercial Debts (Interest) Act 1998 gave small firms with 50 or less employees a statutory right to interest for the late payment of commercial debts.
Issues
A central focus of UK business ethics theory and practice is the notion of corporate social responsibility to stakeholders. In the UK, businesses tend to express their commitment to CSR by listing their values in mission statements rather than by identifying specific social objectives and responsibilities. Internal aspects of CSR, such as employee rights and safety issues, are covered by comprehensive UK and EU legislation, but wider corporate social responsibility and related business behavior in a global context continues to give cause for concern, not least because it is difficult to translate ‘‘values’’ from one culture into another. This concern has been expressed not only by stakeholder groups such as consumers, anti globalization campaigners, and NGOs, but also now by institutional investors. One of the most significant recent UK developments has been the rise of ‘‘socially responsible investment,’’ partly as a consequence of an amendment in 2000 to the Pensions Act (1997) requiring trustees to declare their stance in relation to the social and environmental aspects of their investments, and partly due to investor fears of the effects on reputation of corporate irresponsibility in the global context. Socially responsible investment is a growing trend in the London market: it entails ongoing ‘‘engagement’’ on the part of institutional investors with companies in order to encourage best CSR practice (Collier, 2004). Engagement requires dialogue, but it also imposes an implicit duty on institutional investors to use their vote at AGMs. The Myners Report (2001) (whose provisions have not yet become statutory) makes this requirement explicit. It should be said here that the earlier UK ethical investment movement, although insignificant in market terms, served to raise the question of investor responsibility; however, the new factor in the situation is the pressure that institutional investors can now exert on companies and the ‘‘countervailing power’’ that they possess in consequence. Investors realize that long term shareholder value depends on social and environmental best practice, and in particular on the efficient management of risk arising from normal company operations, which may threaten this.
Media exposure of issues affecting violation of worker rights, child labor, cruelty to animals, or environmental degradation tends to result in short term consumer boycotts and longer term loss of market share. Investor engagement aims to avoid such contingencies.
The other major focus of UK business ethics is corporate governance. The UK differs from the US in that societal responses to challenges tend to take the form of self regulation rather than the introduction of regulatory measures. In order for self regulation of corporate conduct to work, corporate governance structures and the institutions that support them must be sound. Good governance is seen not only as the basis of good business, but also as the springboard from which companies can articulate and put into practice the values which they see as underpinning their approach to CSR. There have been a number of reports since the Cadbury Report that have attempted to refine best practice in governance; the most recent of these have been the Higgs Report (2003) on governance and the Smith Report (2003) on audit committee reform. Both of these will now form the basis of a new Combined Code of Practice that will operate on the basis of ‘‘comply or explain (non compliance).’’ There is some resistance on the part of companies to ‘‘being told’’ what good governance is, just as companies insist that their values rather than external strictures should drive their approach to CSR, but investor activism presents a united front in response to these arguments, and investor coalitions (particularly cross border coalitions) wield a considerable amount of power.
Institutions
There has been a significant growth in organizational and institutional frameworks supporting the development of corporate social responsibility. In terms of networks, the oldest ‘‘voice of responsible business’’ is Business in the Com munity, founded two decades ago, which is a network of 700 member companies operating in 200 countries worldwide committed to continually improving their positive impact on society and sharing best practice. A newer network with a more specific focus is the Ethical Trading Initiative, an alliance of companies, non governmental organizations (NGOs), and trade union organizations committed to working together to identify and promote ethical trade. Members, including multinational companies and national companies sourcing abroad, are committed to the promotion of worker rights and the ending of child labor, forced labor, and sweatshops. Other alliances include Tomorrow’s Company, a networking hub for businesses wishing to explore the future of sustainable success, and the Institute of Business Ethics, which works with companies seeking to build relationships of trust internally and to meet the challenges of external change and complexity. The IBE is per haps best known for its expertise in developing corporate codes of ethics (Webley, 2003).
In terms of reputation effects, it is becoming important for major UK companies to report on their social, ethical, and environmental performance. Many companies do this on the web, and in order to present hard data they use indicators (usually) selected from the Global Reporting Initiative. These measurements are profession ally verified, but in addition an increasing number of companies are using the AA1000 Assurance Standard developed by Account Ability. AA1000 is the world’s first assurance standard developed to ensure the credibility and quality of reporting on social, environmental, and economic performance: it thus audits the quality of the whole report rather than specific indicators. The rise of socially responsible in vestment has also led to a need for indices that reflect CSR components, and in response FTSE has created the FTSE4Good Index Series. In dices have been designed to measure the performance of companies meeting globally recognized corporate responsibility standards and hence to facilitate investor knowledge of corporate behavior where companies are too far away to monitor.
Research
Business ethics research has expanded in line with these developments in the corporate sector. A number of research centers and chairs have been established in universities such as Bath, Cambridge, Brunel, Nottingham, Ashridge, and Warwick. These serve to develop and coordinate project and consultancy activities. Re search clusters also exist in many other universities, and research findings are published in US and UK management and business ethics journals, as well as in the Blackwell journal Business Ethics: A European Review. This journal has now been in existence for 12 years, but it is noticeable that in recent years both the quantity and the quality of the papers has shown marked improvement (as has the number of subscriptions). There has also been an increase in the number of books published in the UK by teachers and researchers. Many of these explore specific areas such as governance or the environment; others are texts for use in the variety of courses now offered (Fisher and Lovell, 2003).
The most active and useful network for academics and practitioners working in the fields of business and corporate social responsibility is the European Business Ethics Network. Founded in 1987, it aims to support and encourage teaching and research throughout Europe, including Central and Eastern Europe. Over time the national networks have become stronger, and the UK network holds a successful annual conference each year. However, collaboration with others in the wider European aca demic and practitioner forum is seen as essential if new best practice initiatives, such as those involving social partnerships, are to be facilitated.
Teaching: The Context
Business ethics teaching in the UK takes place primarily in management schools and departments. Whereas by the first decade of the twentieth century the major schools of management education had been established in both Europe and the US, in the UK the first business schools were only established in the 1960s. University academics saw management studies as lacking disciplinary coherence, and management education as merely vocational. To make matters worse, industry saw little value in creating an academic subject out of what was seen as a set of practical skills (Engwall and Zamagni, 1998). By the mid 1960s the London and Manchester Business Schools had begun to function and their example encouraged universities, polytechnics, and other colleges to develop management degrees and other management qualifications. The next 30 years saw the continual development and customization of MBA programs by colleges and universities, but in general management education in the UK touches a very small proportion of British managers. Reasons for this include the anti intellectualism of management culture, the antipathy of employers, and a general lack of understanding and agreement as to what constitutes effective management education.
Teaching Business Ethics in the UK
During the 1980s there was significant growth in the number of business ethics courses offered by universities and business schools, particularly at the undergraduate level. In 1988 a questionnaire was sent to universities, polytechnics, and col leges of higher education in order to ascertain the nature and extent of UK business ethics teaching provision (Mahoney, 1990). The results indicated that the teaching of business ethics in the UK lagged a long way behind that in the US. Initiatives were disparate and uncoordinated, teaching was done in law and philosophy departments as well as in business departments, little supportive material was available, and two thirds of the respondents indicated that students had very little (if any) interest in the subject. In 2000 the Institute of Business Ethics sponsored an other survey. The questionnaire was circulated to 105 institutions of higher education (five of these were purely postgraduate). The results indicated that while business ethics is taught at about half of the postgraduate and professional institutions, it is often a separate non compulsory module, and is thus not integrated into the mainstream course of study. However, in contrast to the findings of the earlier study, students – particularly at postgraduate level – tend to respond positively in terms of receptivity and willingness to courses offered (Cowton and Cummins, 2003). A further difference is that the subject is now taught almost exclusively in business as opposed to philosophy departments, and teachers are not trained philosophers.
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