BUSINESS ETHICS

DEAD AS THE DODO?

Ethics relate to moral principles and rules of conduct, and they call for us to evaluate personal interests against the good of the company or employer and, ultimately, society itself.

Business ethics thus call for moral action within the corporate environment so that the business entity can remain viable and continue to serve its stakeholder and its markets both efficiently and profitably.

At OF&A, our investigations increasingly reveal that business ethics are under threat, that ethics are fast deteriorating and decaying. We observe that competitors are increasingly willing to forget ethical conduct and play an unfair game, which at the end of the day must go against the best interests of the society in which those businesses operate.

And we are not alone in our observations. In a recent Gallup Poll conducted by a well-known South African research company, business executives achieved an honesty rating of only thirty-seven percent, while an investigation of the top fifty-nine companies by Dr Nicholls (Fothergill, M. 1990; Honesty in Business? What's that? Sunday Star, July 1991) found that executives rate honesty as relatively unimportant - an appalling indicator of current business ethics.

Small wonder that there is now a Subculture of Corruption and Dishonesty in the country, in both political and business arenas. It appears that the typical attitude is that if people in government act unethically, then why should we in business act any differently? The answer is clear: If business allows such an attitude to become prevalent, we shall find ourselves in a vicious downward spiral of moral decay and crime.

At OF&A, we believe it is worth sharing some of the example of bad business ethics that we have encountered in our criminal investigations.

Illegal in most countries and certainly unlawful in South Africa since 1973, insider trading is the use of privileged information in such a way as to gain an unfair advantage. If a share is traded heavily just before and announcement of a takeover or merger that could affect the share price, it is a sure sign that people have been using inside information in an attempt to make a quick profit or minimise losses.

Indeed, insider trading is normally associated with the trading of shares and securities on the stock market, though it does occasionally go further. For example, if one director or partner of a business makes personal use of information not yet available to the other directors or partners, it is insider trading.

OF&A have handled a number of cases in which employees and directors acted on privileged information or divulged such information to 'outsiders' so that they could gain personally.

In one instance, the managing director of a listed company noticed that one of his senior directors had started living lavishly and beyond his means shortly after the firm had been taken over by a large conglomerate. We were asked to conduct a discreet investigation into the source of the big spender's funds.

Initially, we found little other than that his wife had recently acquired a large sum of money. Further investigation revealed that the money had come from the sale of shares, which turned out to be shares in the director's own company. He had bought them in his wife's name, we discovered, with borrowed funds while the share price was relatively low.

When the takeover was announce, the share price soared and the director's wife dumped the purchased shares for a massive profit. We determined that the director had indeed obtained information that his company was to be acquired by the conglomerate but believed he could get his wife to buy the shares in her maiden name with nobody becoming any the wiser.

A far more insidious method of gaining privileged and confidential information is through eavesdropping.

While electronic eavesdropping is unlawful in terms of the Prohibition of Monitoring Act, criminal prosecutions are rare because the offence is so hard to prove. However, in one recent case, OF&A proved that a company director was bugging his managing director's telephone and office to establish whether there were any plan to make him redundant. Needless to say, whether he was made redundant or not, he was fired.

If no action is taken in the very near future, South African business ethics will continue to degenerate. Action should include both legislative procedures as well as a change in attitude in businesses and in the media.