Dialogue: Business must face up to social demands

Auckland Chamber of Commerce chief executive MICHAEL BARNETT answers critics.

Is there a need for business to put its ethical or social responsibility house in better order?

This is not a new question, but in today's fast-paced, interconnected world, business is more and more being challenged to be socially responsible.

I first raised the question in a 1998 address to the annual conference of the Chambers of Commerce, where I put it this way: whenever it appears that business is putting its interest, or the interest of the owners, ahead of what people generally believe the business should be doing, business as a whole gets labelled as not socially responsible or failing to conduct itself ethically.

The Hartner Group collapse leaving unsecured creditors reportedly owed more than $20 million and the Qantas NZ failure are recent examples where the integrity of business in terms of the management of its perceived social responsibility has come under attack.

How justified are these attacks? And what can business organisations like the chamber do to respond to them? Is it enough for responsible organisations such as the chamber to simply dismiss them out of hand?

Should the business community simply reject the public's concerns over corporate ethics and responsibility, or should we air the issues involved, be ready to learn lessons from them and not be afraid to ask tough questions?

For instance, are business ethics falling, is social responsibility being ignored, or have society standards in today's global economy simply shifted?

As the world economy has undergone huge transformation in the past 20 years, these questions strike me as reasonable to ask but ones not answered easily.

They are questions that Auckland's business leaders have been challenged to examine before now, and I am doing no more than that today.

* The eminent British commentator Sir Norman Barry, when delivering the Sir Ronald Trotter lecture in 1997, spelled out the issue for business owners and director-shareholders ... Because of their alleged privileged position, business enterprises are expected to go beyond the constraints of normal morality and to act positively for the public good, even if it should be very costly to them to do so. The pursuit of profit has to be legitimised by external moral criteria.

* The Apec CEO leaders summit conference in Auckland in 1999 debated the issue of business responsibility in today's global economy and agreed to develop a model code on business conduct for widespread uptake by business organisations. The model is still under development, but among practical outcomes that New Zealand business leaders are pushing is a better match between what businesses do in practice and what people believe business should be doing.

In the case of Qantas NZ, is there a better way to protect stakeholders such as the suppliers, who, in good faith and without the information available to management and owners about the company's trading situation, kept the business alive for a period of time?

Is there a better way to match what the business has done and what people believe it should have done? Or, has the conduct of the company been the best it could have been in the circumstances, and the best that the public could expect? We need to have the debate.

It was not my intention to call into question the basic principles of the limited liability system on which the whole successful capitalist, corporate Western world system is based.

What I am raising is the question of whether there is some social or ethical responsibility on company shareholder-directors and their managers to take better account of the interests of all stakeholders.

It is ludicrous for the Business Herald to headline that Michael Barnett ought to know better. The comments I made have been interpreted as an attack on the foundations of capitalism, which normally I would see as a joke.

There is no stronger advocate for strengthening capitalism than the chamber, and personally I have been at the forefront of pushing for and enhancing the deregulated, market-led model that we currently enjoy.

More seriously, I made no attack on, and made no mention of, the limited liability company as the basis of our free enterprise system, and I am not proposing some form of regulation to retrospectively increase the obligations of investors. Claims that I have raised such matters should be withdrawn and corrected with regard to the issues that I have actually raised.

Going down the limited liability company route raises the new (and as yet largely untested) director responsibilities in relation to the Companies Act, which is another matter entirely and for another place.

It is highly irresponsible of the Employers Association to have raised this, especially when it acknowledges I did not raise this aspect. Of course I did not, so why did itraise the matter in its attack on me?

On the contrary, the exact opposite is the case. Anyone familiar with the Apec CEO leaders debate on this issue and the concerns raised by people like Sir Norman Barry and other business leaders around the world, including the International Chamber of Commerce, knows that at the heart of the challenge for businesses to give greater consideration to meeting their social and ethical responsibilities is that, if they don't, then governments will surely force them to do so!

I conclude, then, by putting my comments on Qantas NZ and other recent business collapses in context of remarks I have made since the mid-1990s, when the challenge to business to debate these issues first began gathering a head of steam.

Traditionally, when we look at the centuries-old issue of business trust and integrity, we have considered three main dimensions.

First, the policies and practices of the business, and how they are applied. Second, the values and standards reflected in how the business owners and staff behave. And third, the ethics of the interaction between the business and its customers, suppliers, civil authorities and regulators.

Now there is a fourth dimension: the changing social attitudes and expectations of business among people who are not directly involved.

People everywhere see themselves more and more as part of a seamless society which has an explicit interest in the operations of a company.

The result is that although the business must be efficient, responsible and honest for long-term success, these attributes may not be enough.

It is no longer just what a business does that matters, but the way it does it - it must act positively for the public good even if it should be very costly.

We in the business community must debate this further - urgently.