By Frank Holder
Scandals. Fines. Show trials. These days, just doing business can appear almost criminal. While government-imposed regulation can soothe the public’s ire, it can also create burdensome costs and competitive disadvantages. To survive, businesses must perform reputational due diligence and create self-policing organizational cultures.
The increased incidence of and reporting on global fraud and corruption in business has given rise to two dangerous myths about the cause and cure of business amorality. The first is the growing public perception that greed is the foundation of all business. In the quest for profit, so the argument goes, companies inevitably will make unethical decisions that serve the bottom line at the expense of society. The proof for this proposition includes everything from layoffs to financial fraud. These, among other unpopular business actions, fuel the public’s belief that the phrase business integrity is an oxymoron.
Herein lies the first misunderstanding. The public doesn’t differentiate between business practices that clearly are unethical and those that are simply unpopular. For example, although layoffs can have a significant and often negative impact on people’s lives, such actions aren’t unscrupulous. Closing a factory or cutting back on unprofitable activities often is necessary for a business to survive or thrive. Fraud and corruption, on the other hand, undeniably are wrong. If companies fail to stamp out these practices, the public will clamor for — and likely get — more stringent levels of regulation that ultimately can constrain a business’ ability to compete.
The second myth is expressed in an idealized vision of globalization — increasing global connectedness eventually will foster a pervasive global standard of business conduct. For example, the immense complexity of efforts such as harmonizing U.S. Generally Accepted Accounting Principles with International Financial Reporting Standards is considered an unavoidable step along the way toward a global standard. In addition, emerging markets are grappling with stronger local anti-corruption legislation and are conducting aggressive enforcement actions. However, arriving at a universal standard likely is wishful thinking. All the world’s cultures may never want to or even be able to adopt a universal business ethic. For instance, the giving of an expensive gift to an executive of a company to win its business may be forbidden in New York but is considered a de rigueur gesture of civility and commitment in Shanghai. The roots of this difference go further than regulations and legalities. This business practice reaches deep into culture, and, while laws can be altered easily, long-held cultural norms are famously resistant to change.
But a more potent force for improving business conduct lies in the fact that fraud and corruption can permanently damage a company’s reputation — or even destroy it. And the harm affects all related businesses, tarring them with the same brush. Wall Street, for instance, has become almost synonymous with unfettered greed, and although the damage that
perception has wrought may be hard to quantify, it would be willfully blind to deny the existence of such defamation. Customer trust is important to businesses, especially to those in the financial sector. Without trust, doubt surely enters the minds of potential clients and investors. To increase public confidence in business integrity, companies need to identify and eradicate the fruits of greed: fraud and corruption.
To enhance confidence, businesses should rely less on the hard power of investigations and punishments and boost soft power initiatives that foster transparent self-policing that can lead to the restoration of public trust. If this is not done, companies may face the untenable combination of public disapprobation and potentially profit-choking regulatory demands.