Corporate Ethics enters the political arena

Labour leader Ed Miliband makes a distinction between “Good” and “Predator” companies.

Journalist Will Hutton:

“Here is a leader of the Labour party proclaiming he is pro-capitalist and pro-business - but condemning the capitalism we have. He wants a better capitalism informed by a sense of responsibility and a commitment to productive enterprise. At its core there should be the principle of something for something. Successive British governments have not distinguished between good and bad capitalism in informing how they regulate, tax and procure goods and services. Miliband would, he declared, be drawing a sharp distinction between the "producer" and the "predator" and "asset-stripper".

Business minister Vince Cable slams Banks as corrupt and morally bankrupt

After a week in which a computer glitch at Royal Bank of Scotland left millions of customers unable to pay bills or move money; rate fixing allegations engulfed Barclays; and the Financial Services Authority reached a settlement with banks over the mis-selling of interest rate hedging products to small business customers, Mr Cable said that we were "faced with a moral quagmire of almost biblical proportions". But....his proposals for change seem not to match the magnitude of the problems he describes.

GlaxoSmithKline fined $3bn after bribing doctors to increase drugs sales

The pharmaceutical group GlaxoSmithKline has been fined $3bn (£1.9bn) after admitting bribing doctors and encouraging the prescription of unsuitable antidepressants to children. Glaxo is also expected to admit failing to report safety problems with the diabetes drug Avandia in a district court in Boston on Thursday.

The company encouraged sales reps in the US to mis-sell three drugs to doctors and lavished hospitality and kickbacks on those who agreed to write extra prescriptions, including trips to resorts in Bermuda, Jamaica and California.

The company admitted corporate misconduct over the antidepressants Paxil and Wellbutrin and asthma drug Advair.

Psychiatrists and their partners were flown to five-star hotels, on all-expenses-paid trips where speakers, paid up to $2,500 to attend, gave presentations on the drugs. They could enjoy diving, golf, fishing and other extra activities arranged by the company.

GSK also paid for articles on its drugs to appear in medical journals and "independent" doctors were hired by the company to promote the treatments, according to court documents.


Responding to Miliband's proposals, business leaders speak out to defend corporations

Commenting on Ed Miliband's speech at the 2011 Labour conference, Miles Templeman, Director General of the Institute of Directors, said:
“We would like to know how Ed Miliband plans to identify and reward 'good' companies over 'bad' ones. In practice, we think he would find this neither straightforward nor desirable. He should have more faith in customers and investors to decide. In the modern business place price is not the sole determining factor affecting people's buying and investment decisions. Consumers and investors are better equipped and better informed than ever to impose discipline on firms than any government. Instead of proposing that the state makes choices that are likely to be simplistic and wrong he would be wiser to find ways of boosting competition so that the customer remains king”.

John Longworth, director-general of the British Chambers of Commerce, said: "Talk of 'good' versus 'bad' companies misses the point. All businesses that create wealth, pay their taxes and comply with the law are good companies."

Mr Miliband was also criticised by the Blairite wing of New Labour.
Predictably, Lord Digby Jones, ex head of the Confederation of British Industry said the speech was a "kick in the teeth" for firms.


New Labour leader Ed Miliband recently made a distinction between "Good" and "Exploitative" businesses raised a predictable storm of protest from the right wing politicians, the media, the financial markets and some on the Blairite wing of the Labour Party.

Are the critics right?

First, some ground rules: What is a "good" company?

There is a plethora of international research that defines good enterprises and shows how their behaviour leads to long term high achievement. From a wide range of evidence the characteristics of sustainable high achievers are internationally constant:

Compared with these criteria, there are many good companies in the UK - but too few of them are to be found amongst banks and large corporates that are quoted on the stock market.
There is a phalanx of excellent and highly ethical companies - amongst them retail superstar John Lewis Partnership, bank and retail organisation Co-operative Group, many family companies, mutually owned organisations and locally-based organisations with their roots in the community.

The evidence: Big companies and the finance industries

Big Business has lost its moral compass

Let us first take a step back and examine what has happened over the last 30 years to the environment for finance and big business. This period was notable for the remarkably small ideological gaps between the New Labour Party created by Tony Blair, and the Conservatives of Margaret Thatcher. Both were dedicated to the proposition that free markets were the best way of ensuring prosperity and dismantled many of the governance structures of the post-war period.
So New Labour befriended the banks, large corporations and the very rich, and, with the strong support of Conservative politicians, let the finance industries rip.
Then came the collapse of the banking system caused by lax regulation, consumerism, rampant greed and the deterioration of moral Values in the face of a Tsunami of money. In the process, most of the theories behind free markets have been conclusively shown to be fatally flawed.
This global disaster was the culmination of a period when many governments retreated before the pressures of free-marketers dedicated to the proposition that unfettered competition in unregulated markets would be good for all in society. The results have been terrible for all but a tiny minority of the super-rich.

Here are a few examples of the results of letting the market decide, and consumers act as the arbiters of behaviour.

Let's start with the finance sector:

A big early scandal following financial market liberalisation in the 1980's, was mis-selling of personal pensions. Millions were misled into swapping secure pensions for risky personal plans. The industry was forced by a Labour government; eventually and unwillingly, to compensate millions of people.
Then the swindling and misinformation turned into a torrent. Here are just a few examples.
The Bank of Credit and Commerce International was wound up for money laundering and a litany of financial crimes; with huge losses to small investors. Just in case anybody might suppose that is past history and things have changed, Lloyds Bank has recently been forced to make a £3.2 billion provision against mis-selling Payment Protection Insurance. Other banks will also have to pay £ hundreds of millions for the same scam, despite their attempts to evade responsibility.
Small business customers have been warned about complex and risky interest rate insurance schemes. These have proved to be a disaster for many small businesses, revealing corrupt mis-selling by the banks.
Precipice bonds robbed naïve investors of millions. Hidden bank charges have been a constant source of scandal. During the great credit boom, banks and other lenders induced millions to take on unaffordable credit for housing and consumption.
The investment industry is also riddled with swindles - insider trading is has been rife in certain quarters, stock market analysts in the US ripped off millions of smaller investors with misinformation - and most recently UK institutional investors have been accused of rigging their charges so high that customers such as pension schemes are being denied anything like the returns they should receive. The unwillingness of institutional investors to support technology businesses and long term lending has hollowed out the once-great technology industries.
Lest readers are suffering from an excess of bad news; there are a few "good" banks, like the UK Co-operative Bank, many Credit Unions and some recently founded retail banks.
But the influence of these is massively offset by the credit crunch and collapse of the global banking industry on the back of grossly irresponsible lending and speculation, leading to the monstrous enrichment of the culprits and untold misery for hundreds of millions.
And very recently, the investment banking industry has been revealed to be riddled with greed and corruption to a degree that is likely to shock the most hardened free-market politician.

Non-financial corporations

Surely large corporations with millions of customers and subject to investment market scrutiny provide better examples of "good" behaviour?

It would take too much space to chronicle the history of "bad" behaviour by non-financial corporations, but here are a few pertinent examples:

To return to the attacks on Mr Miliband

The main arguments seem to be that a combination of informed consumer pressure, investor scrutiny and legal threats will keep companies honest and competently managed. The criticism is couched in tones of outraged virtue - Mr Miliband's comments are "unfair" and "anti-business". “Shareholder” pressures are proposed by some to be the answer to corporate excesses.

Much of this outrage is deliberately disingenuous:

But the point that seems to have been totally ignored by the critics is morality.

Much of the behaviour chronicled in this article is not actually illegal. This includes much tax avoidance and most consumer misinformation. But surely Society as a whole ought to expect high levels of morality from the large corporations that have such an influence on our wellbeing?

So power to your elbow, Mr Miliband; Would that more politicians had the courage to take on the mighty battalions of corporate self-interest!

Rather than being anti-business, it seems that Mr Miliband is actually spelling out the truth - there are many, many bad enterprises that rip off their customers, damage communities, undermine the economy, exploit their staff and harm the environment. To claim that unregulated free markets and customers will discipline finance and industry is total self-interested moonshine. The general public and the economy as a whole can only benefit from a radical change in standards of corporate behaviour. And sadly, industry leaders seem not to realise or accept their responsibilities.
Mr. Miliband's next task should be to spell out in more detail what he means by ethical corporate behaviour so that the electorate fully understands what acceptable standards are. He and other politicians must do this because it is quite clear that companies and their representative institutions will not.
The future of Democracy depends on it.

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