Dialogue: A healthy economy best antidote to dubious business

ALASDAIR THOMPSON* argues that because business is built on trust, ethical behaviour is implicit.

Would the establishment of a non-binding code of business ethics ensure higher standards of social responsibility by business? That's the question the Auckland Chamber of Commerce's Michael Barnett seeks to address in responding to charges that his comments over Tasman Pacific/Qantas NZ were an attack on the principles of limited liability and free enterprise.

It's valuable to debate issues such as this, but it would have been helpful if the starting point had not been an attack on the concepts of limited liability and trusts.

When speaking for the chamber on television last week, Mr Barnett said the airline's owners should make good the losses of the company. It seemed to me he had fallen into the trap of wanting to punish the company's rich owners. When the consortium of Tasman Pacific investors bought out Ansett New Zealand, after a prolonged strike by its pilots, the new owners subscribed $36.4 million of capital, and they have lost all that money. In putting it up in the first place, they knew the investment was at risk in a highly competitive environment.

Thankfully, Mr Barnett has since said it was not his "intention to call into question the basic principles of the limited liability system." Business will welcome the clarification, although we have to be forgiven for thinking that was what he had done when he said he wanted the owners of the airline to pay much more to the company's suppliers than they were legally obliged to under the Companies Act.

The chamber's concern for suppliers, subcontractors and employees who have lost money is shared by everyone.

Then in its own newspaper, Auckland Business, the Chamber of Commerce questions the legitimacy of family trusts. This goes too far as well and cannot, like the statements on limited liability, remain unchallenged.

Mr Barnett's article in the Business Herald of April 27 referred to the model business code under development since the chief executives' Apec leaders summit. We support this, as business does in general, but the code will not overcome the fact that occasionally a business director or officer will act unethically, or break the law.

A company director or its officers will sometimes fail to honour their legal obligations and responsibilities.

One such requirement is that a business must not continue trading when its directors should have known it was insolvent. The directors of two recent companies to go into receivership, Hartner and Tasman Pacific/Qantas NZ, may or may not fall into that category.

Also, if the report in last week's Independent is correct that $12 million of the airline's $48.6 million capital remains unpaid in the form of redeemable preference shares, then the airline's shareholders will be called on to meet that commitment.

But would a business code of ethics reduce the occasions when ethical or legal failures occur?

Surely it is a "no-brainer" that business should be conducted ethically in accordance with established commercial principles. The underlying principles for this are centuries old for the very reason they have proven effective in identifying where business owners or directors act contrary to the good of investors and the wider public.

We totally support business always being conducted in an ethical manner. Our Employers & Manufacturers Association, like the Chambers of Commerce and other industry, professional and business associations, is a strong advocate for ethical business. Why? Because we are established to promote business growth, and business growth depends on retaining and building the trust and confidence of customers, suppliers and staff. Trust and confidence are the most valuable assets of any business. An example of the benefits this can generate is the value put on goodwill when a business changes hands.

Part of the association's job is to minimise unethical and illegal business behaviour. To this end, we run courses, seminars and conferences dealing with business compliance and other management issues including ethical business behaviour. But the primary objective of our industry association work is to improve the performance of our economy. We see that as the best way we can of supporting the objective of business, which after all is to make a profit and increase shareholder value, and in the process create more and better job opportunities.

Business has always been an intrinsic part of the "seamless" society in which the public has a right to take an "explicit interest" in any company's performance.

All that has changed recently is that people have become intensely aware that their future depends on the success of the economy as a whole.

* Alasdair Thompson is chief executive of the Employers & Manufacturers Association (Northern).