Three laws of business: Reputation, Reputation, and Reputation...
:-).
Cheers,
Bob Hettinga
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Date: Wed, 24 Sep 1997 15:53:21 -0400
Subject: Ethics in the Free Market
From: "CIPE-Announce"
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Summary of Mr. Kanaga's Speech in Bucharest - May 1997
"Ethical Conduct is The Basic Need of a Free Market Economy"
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For all of those countries emerging from a period of totalitarian control
of business, a valuable part of the lesson on the move to free market
economies is the discovery that "free markets" do not mean that "freedom
for anything goes."
Governments can promote market reform, privatize government-controlled
business, and institute positive private investment regulations, but
those steps alone are insufficient to achieve sustained growth and spur
inflow of foreign private investment.
The keys in my opinion are to establish high ethical standards of conduct
for business and to create an atmosphere of trust and confidence among all
members of the business community.
Those two factors have been the foundation for success in those areas of
the world that I have observed in over forty years of experience in the
private sector of the business community.
History proves this point. The countries with the highest ethical
standards have attracted the most investment, while those with the lowest
standards and with widespread corruption have received the least.
In the latter environment, all members of society are losers. Business
loses as the public perceives profits as ill-gotten gain, while lack of
trust between business executives creates suspicion in the simplest
transaction. Government and the democratic process also lose as the
public's faith in institutions and the rule of law is further eroded every
time the disclosure of bribe or other scandal erupts. Most importantly,
ordinary people lose as the promise of democracy and the wealth that
initiative could create fail to materialize.
Strong ethics are essential to businesses. The entire free-market system
is built on trust. Every time a contract is signed or a consumer
purchases a product, an extension of good faith is made. If a
businessman breaks his word or knowingly sells a faulty product or
service, that extension of trust is broken. In looking back on my years
in business, my days were filled with verbal assurances, rarely written
contracts, that individuals would do what he and she they would do. And
there was trust that it would be so. Human beings do fail in this
process but the cost effectiveness of doing business this way is clear.
The US stock market provides a good example of the critical role that
trust plays. It is by far the largest stock market in the world. Why?
It achieved this stature because investors put their money at the
disposal of distant managers with the confidence that they can be
trusted and that they will wisely invest the funds entrusted to them.
To be sure, there have been situations where that confidence was
misplace; such failures resulted in a strong push to develop corporate
codes of conduct. But those failures have been minor blips in the total
picture or people would not continue to invest in that stock market.
Corporate codes of conduct, however, will only be worth the paper on
which they are written if the leadership ignores them. If the leaders of
the business community don't live up to the twin principles of honesty
and integrity, those that work with those individuals will not.
This is an essential ingredient within a single company. In order to make
its code of conduct an effective tool, the company's leadership has to
live up to it. If by his or her own demeanor the chief executive
communicates that the code is unimportant, everyone in the organization
will think the same. By contrast, the whole atmosphere in an organization
changes overnight when management makes it clear that it expects strict
adherence to its code of conduct.
Another important point to keep in mind is that codes of conduct that work
in one country will not necessarily work in another. Reforming
governments must set their own standards in accordance with their
country's business practices, rules and regulations.
However, in my view, there is a golden opportunity in the countries of
Eastern and Central Europe to achieve strong progress if they stand tall,
and deal honorably with one another and trust one another. It is
encouraging that reforming governments, such as we heard earlier in this
meeting from Romania's leadership, are recognizing this critical factor.
Earlier this year, its president and prime minister affirmed on the public
record that eliminating government corruption and setting high standards
of conduct are key priorities.
If there isn't a fundamental trust between people, they will try to
substitute excessive documentation for that lack of trust. It has been
my experience here in Eastern Europe and in Russia and the Ukraine that
in the 1980s and before people assembled massive files on the simplest
matters to protect themselves. The result was not only a delay in
execution of transactions but a terrible waste of time and money.
The government cannot legislate integrity and honesty. The leadership in
the business community, entrepreneurs and corporate managers alike, must
demonstrate those qualities every day to make them the business norm.
Each individual business executive-and the organization to which he or she
belongs - must lead by example. And government must clearly indicate that
it will not tolerate corruption within its own ranks or within the
business community.
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William S. Kanaga is the Chairman of the Center for International Private
Enterprise and former Chairman of Arthur Young.
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ABOUT THE CENTER FOR INTERNATIONAL PRIVATE ENTERPRISE
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The Center for International Private Enterprise (CIPE) was established in
1983 as an affiliate of the US Chamber of Commerce in Washington, DC. Its
mission is to promote private enterprise and market-oriented economic
reform around the globe by matching funds with a variety of local
institutions in emerging democracies, including think tanks, business
associations, educational institutions, and media training programs -- the
building blocks of democratic society. Over 400 projects in more than 70
countries have been sponsored by CIPE since its inception. CIPE is
supported by the National Endowment for Democracy, the US Agency for
International Development and private sources.
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-----------------
Robert Hettinga (rah@shipwright.com), Philodox
e$, 44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
The e$ Home Page: http://www.shipwright.com/
