Ethics man takes on the fat cats

Nineties consumers won't stand for the greedy ploys of Eighties managers, says Jack O'Sullivan

Related Topics
This week we saw the Eighties confronted head-on by the Nineties. There were the National Grid's top executives enriching themselves shamelessly, avoiding tax by transferring hundreds of thousands of pounds' worth of shares to their wives. Like true Eighties men, they could not understand what all the fuss was about, as they went about the business of making as much money as fast as they could. The free market was operating, so all was well as far as they were concerned. And the Prime Minister was right behind them, justifying their greed.

Meanwhile, the rest of us looked on angrily, fed up with a bunch of characters who did not seem to know the difference between right and wrong. The issue was not whether the tax wheeze was legal. What mattered was that it failed to pass the Nineties test. It was not fair. So the executives should not have behaved in the way they did.

The row demonstrated the great cultural gulf that has opened up between most people and those who run industry and the Government. Suddenly, those who sit in the Cabinet and in boardrooms are looking like yesterday's men and women. They do not understand how much Britain has changed. People now want more than the simplistic liberal economics that those who forged the Eighties revolution proclaim. They are not hostile to capitalism, but demand that business should also operate according to certain additional ethical standards. They want integrity and high-mindedness. Companies must not only be profitable. They should also be good.

The new morality has been growing for many years among consumers. It dates back to the student boycotts of Barclays because of the bank's links with apartheid, campaigns against Nestle over baby milk formula and the legal battle for compensation in thalidomide cases. Now, according to recent research by the Cooperative Wholesale Society, three out of five consumers say they are prepared to boycott firms or stores over their ethical standards. A survey of 1,000 heads of households in the United States found that 75 per cent actively blacked certain products.

Institutional shareholders also expect more of the people who run the companies that they own. Next week, at the annual meeting of British Gas, shareholders will debate a motion condemning the huge pay rises awarded to Cedric Brown, the company's chief executive. The motion is sponsored by Pirc, a corporate governance consultancy that advises on ethical investment. Anne Simpson, Pirc's joint managing director, argues: "We believe that the integrity of the board rests on its ability to lead by example. If you see directors taking long lunches and walking off with corporate umbrellas, we don't see how they can hold the respect of the employees."

Launched in 1986, Pirc now has clients worth more than pounds 70bn. But instead of telling investors to get out of certain distasteful companies, it encourages them to buy shares and change the company's policies. This new type of activism is taking place at a time when shareholders are flexing their muscles across all of British industry. It is no longer rare for an AGM to dissolve into acrimony and bitter exchanges.

There are good commercial reasons why shareholders should become concerned when their executives fail to practise high ethical standards. Downsizing and delayering have severely undermined the staff loyalty that acted like a glue keeping organisations together. Yet companies need their staff to be honest as never before. This is because companies are typically devolving decision-making down to the lowest possible level in an effort to hold down costs. The collapse of Baring's bank was a good example of the heavy price paid when those with delegated powers could not be trusted to behave properly.

If companies cannot offer job security, the only way that they can weld together a structure is by being clear about their values and maintaining a high standard of corporate ethics. The example for the rest of the company must come from the top. Any suspicion about senior management, any rumour that they have their hands in the till, will destroy the fabric of the company. Thus, British Gas shareholders became worried about the Cedric Brown pay rises when they realised that complaints to the Gas Consumers' Council had risen sharply. Employees, facing the sack and, in some cases, pay cuts have, not surprisingly, been giving less than their best after Mr Brown's generous award. Why make the effort to fix an old granny's boiler late on Christmas Eve when your boss seems interested only in lining his own pockets?

All these factors are part of a broader change in society. In the face of increasing fragmentation and individualism, people seem to crave a holistic, ethical approach to life. Given that it is more and more difficult to build longstanding relationships, people need to know that they can have confidence in the people they encounter. Trust and reliability are becoming valuable commodities in a fast-moving world. And once a reputation for trustworthiness is lost, it is difficult to restore. Politicians involved in sleaze are appreciating this reality, and business is also slowly coming to recognise the problem.

We are experiencing "the move from expediency to integrity", according to John Drummond, managing director of Integrity Works, a business ethic consultancy firm. "Every time we debate ethics in companies, it is almost impossible to bring discussion to a tidy close," he says. "People have so many things that they are concerned about. Raising the subject of the company's values is like presenting someone parched and dying of thirst with an oasis. You can't take philosophy out of business, yet in so many companies it is neglected and there is no forum for discussion."

The company of the future will be "high trust, low cost", says Mr Drummond. Those companies where there is plenty of trust will not require as much bureaucratic control as their competitors and will therefore enjoy a competitive advantage.

Such ideas do, however, seem to have been lost on those who run the National Grid and many of Britain's formerly nationalised industries. In these areas of industry, disenchantment has grown most rapidly because we are accustomed to thinking of the utilities as being public property. We are, in many ways, still right to think this way. Most of the shares are owned by us, via the savings we have invested in institutional pension funds.

John Major's problem is that he seems unable to empathise with the new collectivism the public feels. As a battle-hardened privatiser, he seems to suffer from a psychological block. He has failed to understand that disillusioned members of the public want morality, not taxpayers' money, injected into industry. Ideologically, the Labour Party has no problem in reconciling private industry with publicly determined ethics. If the Prime Minister - and those at the top of British business - cannot change quickly, others will seize the new agenda.

React Now

  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

SThree: Trainee Recruitment Consultant - Dublin

£13676.46 - £16411.61 per annum + OTE: SThree: SThree Trainee Recruitment Cons...

Ashdown Group: Marketing or Business Graduate Opportunity - Norwich - £22,000

£18000 - £22000 per annum + training: Ashdown Group: Business and Marketing Gr...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + Commission: SThree: Are you great at building rela...

Ashdown Group: Database Analyst - Birmingham - £22,000 plus benefits

£20000 - £22000 per annum + excellent benefits: Ashdown Group: Application Sup...

Day In a Page

Read Next
Labour leader Ed Miliband unveils Labour's pledges carved into a stone plinth in Hastings  

Election 2015: Smash the two-party system! Smash the voting system!

Armando Iannucci
Tactical voting is a necessary evil of the current first-past-the-post system, where voters vote against what they do not want rather than in favour of what they do  

Election 2015: Voting tactically has become more fraught in new political order

Michael Ashcroft
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before