MANY people believe that business ethics is an oxymoron – in other words, a contradiction in terms, like “airline food” or “military intelligence”. That said, many of us rush to buy commercial products and services from the very people whose principles we say we distrust. We like their stuff, just not their methods, it seems.

Moreover, many of us work for or supply the very organisations whose ethics we often criticise. And some people reading this would like to have a job with a major company, while others would love their sons and daughters to get a good business position.

Nonetheless, survey after survey of public attitudes to business shows the same outcome. Top business people are trusted little more than poorly ranked politicians and journalists.

Let me provide a real-life example of how this comes about in practice. Recently, I chaired a public meeting in Fife called by the Mossmorran Action Group. More than 200 very concerned residents turned up demanding answers to their concerns about flaring at a neighbouring petrochemical plant operated by ExxonMobil and Shell.

Several hundred people work there, and the operators have invested millions of pounds on the site. Yet by the close of the meeting, the great majority of those present were demanding its closure.

I was impressed by a question from the youngest person there. His name is Mason Smith. Mason is 13 years old and he was representing the Lochgelly Youth Forum. They wanted to know the answer to a simple question: “What happens if the plant blows up?”

On the scale of ethics to economics, there's more than one kind of capitalMason Smith of the Lochgelly Youth Forum

Afterwards, I got a chance to talk to Mason. He said: “You know Mossmorran has been here for my entire lifetime, and my friends and I don’t feel secure. And we also worry about the effects on the health of people who live here. It is no reflection on the people who work there, but as far as the companies are concerned, we don’t altogether trust them.”

I asked him if he felt that his question was answered at the meeting. “Not really,” he said, “I didn’t feel reassured”.

And why should he? Trust can’t be bought. It can’t be sold. It cannot be subcontracted. It can only be earned. And earning trust is not easy. It is a long, hard road. Worse, trust built up painstakingly over many years can be destroyed in an instant.

Business has not earned the trust of Mason and his friends. And they are not alone. Every time a company or organisation missteps, there is a price to pay. Now, not all businesses are troubled by loss of trust. They may not say so openly but some reckon they are too big to fail. Thus, they feel somewhat impervious to public concerns.

This way lies corporate tragedy. Lose trust, lose business, until there is no business left. Look at a list of major corporations in the UK, those listed in the FTSE 100. Compare today’s list with that of 20 years ago. Some of the companies listed then no longer feature.

Some disappeared from the list as victims of technological change, but others simply lost the confidence of customers and investors.

For all organisations, large or small, commercial or otherwise, low trust eventually means higher costs and more spend on public relations, corporate hospitality and community relations. Now, don’t get me wrong. There is absolutely nothing wrong with these activities so long as they are a reflection of corporate values, not a substitute for them.

All major companies today have an ethics code or a statement of business principles. I know this because at one time my company designed such codes for many FTSE companies. And all of these codes enshrine a commitment to moral standards. And these standards are often higher than those required by law.

When the boards of companies agree to these principles they largely do so because they believe in them – at the time. However, time moves on. People move on. The business changes. Along the way, company people forget.

So how can you tell if a business still believes in its stated principles? Actually, it is very simple. When an ethical problem, such as Mossmorran, happens, look to see who turns up to answer concerns. If it is a public relations man or woman, the company has lost the plot. By contrast, if it is the executive who runs the business, then the company is likely still in close touch with its ethical standards.

ECONOMICS and ethics can be seen as a spectrum. Ethics is at one side of the spectrum and economics at the other. Few organisations, or individuals for that matter, can operate on purely ethical lines alone, and few operate on solely economic considerations. Most organisations can be placed somewhere along this spectrum.

So, if a business uses public relations to shield top management from a problem, it occupies a position closer to economics than to ethics. On the other hand, where corporate executives face their critics directly, then the company would be located nearer to ethics.

Some organisations are very much happier closer to economics on the spectrum. Their corporate ethos may be summed up as: “Let’s keep a low profile. Let others take the flack. Least said, soonest mended. Oh, and stick out a press release from time to time explaining how good our community relations are.”

Besides, it can be messy dealing directly with critics. Some folks are difficult to appease and sometimes for very good reasons. It sucks up a lot of senior executive time. And there may be few immediate rewards in taking critics seriously.

So, does it pay to be ethical? And to be seen to embrace the good? If you want to stay in business, the answer is yes. Why? Because there is a thing called “ethical capital”. When the chips are down, it may have more sway than financial capital. Society confers upon organisations “a licence to operate”. Businesses may propose, but society disposes. Poor behaviour can result in increased taxes, loss of planning permission and a myriad of other costs.

In coming to a verdict, society looks at a company’s record on business conduct. This judgment is very little influenced by profit and loss, and it pays no great regard to the business pages. It is about trustworthiness. This is when the company really needs to spend its ethical capital. If it has none or little, it will lose the argument. By contrast, business critics, and particularly environmental groups, have masses of ethical capital to spend.

Here is an example of how this works. Brent Spar was a North Sea oil storage and loading facility operated by Shell. With the completion of a pipeline connection to the oil terminal in 1991 it was considered to be of no further value. Brent Spar became an issue of public concern in 1995, when the British Government announced its support for Shell’s application for its disposal in deep Atlantic waters at a depth of around 1.6 miles (2.5km).

On the scale of ethics to economics, there's more than one kind of capitalGreenpeace activists protest at Brent Spar in 1995

Greenpeace organised a worldwide, high-profile media campaign against this plan, occupying Brent Spar for more than three weeks. In the face of public and political opposition, Shell abandoned its plans to dispose of Brent Spar at sea — while continuing to stand by its claim that this was the safest option, both from an environmental and an industrial health and safety perspective.

Shell is stuffed full of highly qualified engineers, and for most of them it made little sense to run counter to the science. But Shell lost the argument and the platform was towed to a Norwegian location for break-up.

Why did things work out this way? After all, Shell has been around for many, many years and had surmounted a whole host of challenges, including two world wars. The answer, at least in part, is that when Shell needed to call on its ethical capital to spend to counter the Greenpeace view, it discovered it was outmatched. Greenpeace had ethical capital to spare. In short, the people believed Greenpeace.

Let’s look at ethical capital. Can it be bought? Is it for sale? No and no. It’s all about trust. And the best time to grow trust is when it is not needed. The very worst time to try to inculcate trust is in the midst of a crisis. Because no one is listening.

MOVING on to the present day, do you think business is listening to Greta Thunberg or Donald Trump on climate change? Most folks know who Donald Trump is, but who is Greta Thunberg? She is a Swedish activist who, at age 15, began protesting outside the Swedish parliament about the need for immediate action to combat climate change.

Thunberg is known for having initiated the School Strike 4 Climate movement that formed in November 2018. On March 15 this year, an estimated 1.4 million students in 112 countries around the world joined her call in striking and protesting.

Thunberg has been nominated for the Nobel Peace Prize and she has appeared on the cover of Time magazine.

She believes action is needed now. President Trump thinks maybe aye, mostly no. So, they neatly represent the different ends of the ethics/economics spectrum.

In recent weeks, the pressure group Extinction Rebellion has been making its presence felt. They say: “We are facing an unprecedented global emergency. Life on Earth is in crisis: scientists agree we have entered a period of abrupt climate breakdown, and we are in the midst of a mass extinction of our own making.”

So, here’s a question. Who do you believe: Trump or Thunberg and Extinction Rebellion?

Here’s another illustration of how ethics versus economics works. Heard of the Ford Pinto? It’s a classic in business ethics textbooks.

In 1971, the Ford company in the US launched its first subcompact car aimed at the teenage market. Initially it was well-received, with lots of interest and lots of sales. But then people started dying from fairly innocuous rear-end collisions. Too often the petrol tank exploded, causing numerous fatalities and injuries. A law case was brought and it turned out that Ford engineers were fully aware of this design flaw. The company had conducted a cost-benefit analysis and worked out that it was cheaper to settle lawsuits than change the product.

Ethical problems can be persistent. Remember the Exxon Valdez spill that disgorged thousands of gallons of oil into Arctic waters and produced an ecological disaster? Or the Deepwater Horizon platform operated by BP in the Gulf of Mexico that blew up on April 20, 2010? It also resulted in an environmental catastrophe.

What about the guys (and they are mostly men) who preside over such calamities? The good news is that matters are changing. According to the Financial Times, the people at the top of major companies have never been more vulnerable to being fired for poor ethics.

The FT reports: “In 2018, 39% of CEO departures were due to ethical issues, such as fraud, bribery, insider trading, environmental disasters, inflated resumes and sexual indiscretions, while bad financial performance only accounted for 35%.

That’s right: it is now ethics, not financial metrics, that are most likely to cause a top executive to be fired.

Crucially, there is little evidence that executives are behaving less ethically than their predecessors. Rather, the culture is changing. Social media is increasingly powerful. The #MeToo movement and a range of corporate scandals centred around sexual harassment have all led to extra scrutiny of top executive behaviour. Cyber crowd protests are erupting over environmental and social issues too, driving an explosion in values-based shareholder activism.

It will be extremely difficult to put this genie back in the bottle. Top executives need to recognise that the world has changed. Ethics can no longer be delegated to PR or the human resources function – or slapped on to a “feel-good” corporate brochure.”

In today’s inter-connected world, ethics can strike with a vengeance. Just ask all those CEOs who were deemed unethical last year.

My view is that every generation tackles the ethics versus economics argument anew. We are now at the start of a new cycle of debate and, if experience is any guide, it will be a rough ride for all of us.

Watch this space.