DO SPIN-DOCTORS NEED ETHICS OR RATHER THEIR CLIENTS?

1. DO SPIN-DOCTORS NEED ETHICS OR RATHER THEIR CLIENTS? Hong Kong, 21 March 2002 Gordian Gaeta Council Member, Chairman Ethics Committee Institute of Management Consultants Hong Kong

2. AGENDA • A Framework for Thinking about Ethics in Business • The Treatment of Ethics by Professional Institutions Globally • Practicalities of Ethics in Professional Services and PR in a local context

3. THE ROAD MAP • Are business ethics an oxymoron and is there really a problem or just a fashion to protect underachievers? • Why do or should I care if I behave ethically and why do others bother to behave right - after all, we must win in the market place? • Just for the sake of curiosity, what is the conceptual basis and what have other organizations defined as their code of ethics or role models? • What more then many generalities do relevant codes of ethics include and how do they perform in practice? And for real: in Asia, in Hong Kong - how to augment Confucian values? • What practical applications of ethics in public relations are relevant and important - what should I take away from today for me or the firm?

4. The Formal Side Benchmarks, rules, guidelines, regulations A Framework for Thought ... FROM PROFESIONALISM TO FORMALITIES Professionalism Competence Integrity

5. Universal, broad-based, compelling Community, narrow-based, voluntary Codified, contestable, democratic Commercial & Other Laws Codes of Conduct Specificity Ethical Standards Fuzzy, elective, organic Morals & Culture Source A Framework for Thought ... CATEGORIES OF FORMALITIES Professionalism Competence Integrity

6. A Framework for Thought ... MORALS & CULTURE ARE EXOGENEOUS Morals Any externally propagated behavioral demands (heteronomy). All morals can be understood as an expression of communal life for the purpose of disciplining individual desires. Over time, such habits adopt the character of a moral norm. (Reininger) Culture Neither natural or artificial, neither genetically transmitted nor rationally designed. It is a tradition of learned rules of conduct which have never been invented and whose functions the acting individuals usually do not understand (Hayek)

7. A Framework for Thought ... ETHICS ARE AUTONOMOUS OR INTERNAL Ethics Autonomous behavior and choices of individuals in an uncharted or conflicting environment to adopt or fail to respect a system of well understood obligations, rights, habits or customs Business Ethics A system of (behavioral) principles (specific to our industry) that help us determine right from wrong, good from bad in daily (business) life or when facing conflicts of interest (in discharging our professional responsibilities) (Advertising Federation of Australia)

8. A Framework for Thought ... AND ETHICS = DILEMMAS Ethical questions always involve a dilemma or a conflict of interest as they are autonomous choices of individuals and not externally propagated, democratic rules such as morals Dilemmas or conflicts of interest are situations in which a person, such as a public official, an employee or a professional has a private or personal interest sufficient to appear to influence the objective exercise of his or her official duties (McDonald, Centre for Applied Ethics)

9. A Framework for Thought ... THESE DILEMMAS AFFECT BUSINESSES AND PROFESSIONALS ‘Todays transactional society is guided by calculations and self interest…’ ‘A market economy does not constitute a community, especially when it operates on a global scale…’ ‘Being employed by (or managing a) corporation is not the same than belonging to a community…’ ‘People do not behave as if they were governed by categorical imperatives (Kant, do as you would like done on yourself)…’ (George Soros)

10. A Framework for Thought ... CREATING A REAL-LIFE PROBLEM • 48% of American workers admit to doing something wrong or illegal on the job • cutting corners (16%) • covering up incidents (14%) • abusing or lying about sick days (11%) • lying to or deceiving customers (9%) • 56% say they have considered it • Between 25-60% of employees surveyed admit to having seen unethical behavior • Only 11% of financial services managers who witnessed unethical behavior reported their concerns

11. A Framework for Thought ... RESULTING IN A NEW MANAGEMENT DISCIPLINE • Business Ethics have become a recognized management discipline with dozens of specialized institutes at universities, consulting firms, global initiatives and government support, awards etc • Multiple journals and magazines specializing in business ethics have emerged, dozens of books are published annually • The vast majority (90%+) of the US top 500 companies have a code of ethics or conduct • 78% of the FTSE 350 companies have a code of conduct or ethics • Databases with some 1000 codes of ethics and conduct are are available for research • Innumerable public guides exist for drafting codes of ethics, managing and organizing ethical companies • Regular research on process, benefits and experience with ethics codes and cases is available on the web

12. A Framework for Thought ... AS A CONSEQUENCE, ETHIC THEMES HAVE BECOME CLEAR • Gifts and entertainment, inducements • Competitive practices and new business development • Political contributions • Advertising and public relations • Confidentiality and data integrity • Duty of care and competence • Integrity and fidelity to obligations, accountability • Conflict of interest and objectivity • Billings, expenses and corporate assets • Attitude towards regulations • (Inter-personal relations, human concerns)

13. A Framework for Thought ... BUT ETHICS MAY DEPEND ON THE ENVIRONMENT (relativism) Social order principle Collective ASIA Market order principle EUROPE Socialistic Capitalistic US Individualistic

14. A Framework for Thought ... YET ALL NEED TO MAKE A PROFIT • - There seem two ways of looking at profits from ethics (Conference Board study) depending on the dominant culture of the environment: • 64% of all US codes are dominated by self-interest (profit) • 60% of European codes are dominated by values (community based) • - Either way, the evidence on a positive link is mounting • in 64% of study cases, profits and ethics are positively linked (academic study) • formal initiatives alleviate the pressure lower ethical standards for companies in trouble (academic study) • employees whose boss does not set or impose ethical standards also feel the pressure to compromise (National Business Ethics Survey, 2000) • 80% of employees would recommend to potential recruits or to clients a company with high ethical standards • - An integrated, accepted and well understood ethics code supports the goals of an organization in both ways: profit making and value codification (Wharton) But cause-effect, cost-benefit and short-long term trade offs remain hazy

15. A Framework for Thought ... WHY BOTHER TO SET OR ABIDE BY ETHICAL STANDARDS? • There are two main and one subsidiary reason or lines of arguments: • Theoretical ones: game theory (prisoners dilemma, chicken) that ultimately the good always wins (also systems theory, Darwinism, Chinese & Confucian Doctrine of the Mean, ‘Integrated Social Contract Theory’ from Dunfee/Donaldson, Wharton ) • Self-interest: globalization, internationalization, new technologies and the emergence of a largely unregulated world: cyberspace • The practical cost of non compliance with reasonable ethical standards or conversely the rewards of doing good, eg • Prudential fraud: US$1.8B fines • Daiwa trading loss concealment: huge fines and loss of US license • Salomon Brothers bond auction: US$0.5B fines • Kidder Peabody insider trading: loss of viability

16. The Treatment of Ethics ... THE CONCEPTUAL APPROACH TO ETHICS IN BUSINESS (1) • First, the North American high moral ground reasons for having a code of ethics (Life Skills Coaches Association): • to define accepted/acceptable behavior • to promote high standards of practice • to provide a benchmark for members to use self evaluation • to establish a framework for professional behavior and responsibilities • as a vehicle for occupational identity • as a mark of occupational maturity

17. The Treatment of Ethics ... THE CONCEPTUAL APPROACH TO ETHICS IN BUSINESS (2) • Five approaches to choosing ethical standards (Holland, Wharton): • follow local practice • follow home country practice • follow the firm’s own standards • follow international practices • follow major global and specific local practices

18. The Treatment of Ethics ... THE CONCEPTUAL APPROACH TO ETHICS IN BUSINESS (3) • Three categories of codified statements and action (Donaldson, Wharton) seem to dominate in the US: • code and compliance programs regulating the behavior of employees and driven by self interest • identity and values programs that express what the corporation stands for • social outreach in form of social accounting and competence based social contributions to society

19. Practicalities ... BUT PRACTICALITIES LAG ... • A review of a wide range of codes of ethics or similar statements reveals a sad truth: • A lot of ‘feel good jargon’ addressed at all constituencies • Repetition of obvious behavioral yet unenforceable standards • Commitment to abide by the laws • Focus on the human side • Avoidance of tough issues • Lack of guidance through enumeration of higher principles • General goals without any issue addressed

20. Practicalities ... A PARTICULAR FINE EXAMPLE ... • To promote good will between the motorist and the industry • To have a sense of personal obligation to each individual customer • To perform high quality repair services at a fair and just price • To employ the best skilled personnel obtainable • To use only proven merchandise of high quality distributed by reputable firms • To itemize all parts and adjustments in the price charged for services rendered • To retain all parts replaced for customer inspection, if so requested • To uphold high standards of our profession and always seek to correct any and all abuses within the automotive industry • To uphold the integrity of our members • To refrain from advertising which is false or misleading or likely to confuse or deceive customer • (Automotive Service Council of California)

21. Practicalities ... BUT SOME MADE A GOOD START • Employees and their immediate family members cannot accept money, loans, expensive gifts or entertainment and travel perks from any person or organization that does business with Western Extralite • Employees and their immediate family members cannot personally benefit from any business transactions involving Western Extralite • Pricing and business arrangements with one vendor cannot be shared with other vendors

22. Practicalities ... IN PARTICULAR ... If we have the choice between making a profit or doing the right thing, we do not have a choice, we will do the right thing (Texas Instruments Leadership)

23. Practicalities ... CLOSER TO HOME ...TheSociety Of American Business And Economic Writers 1. Recognize the trust, confidence and responsibility placed in him or her by his publication's readers and do nothing to abuse this obligation. To this end, a clear cut delineation between advertising and editorial matters should be maintained at all times. 2. Avoid any practice which might compromise or appear to compromise his objectivity or fairness. He or she should not let any personal investments influence what he or she writes. On some occasions, it may be desirable for him or her to disclose his investment positions to a superior. 3. Avoid active trading and other short-term profit-seeking opportunities. Active participation in the markets which such activities require is not compatible with the role of the business and financial journalist as disinterested trustee of the public interest. 4. Not take advantage in his personal investing of any inside information and be sure any relevant information he or she may have is widely disseminated before he buys or sells.

24. Practicalities ... The Society Of American Business And Economic Writers (2) 5. Make every effort to insure the confidentiality of information held for publication to keep such information from finding its way to those who might use it for gain before it becomes available to the public. 6. Accept no gift, special treatment or any other, thing of more than token value given in the course of his professional activities. In addition, he or she will accept no out-of-town travel paid for by anyone other than his or her employer for the ostensible purpose of covering or back grounding news. Free-lance writing opportunities and honoraria for speeches should be carefully examined to assure that they are not in fact disguised gratuities. Food and refreshments of ordinary value may be accepted where necessary during the normal course of business. 7. Encourage the observance of these minimum standards by all business writers. Source: Illinois Institute of Technology, Center for the Study of Ethics in Professions)

25. Practicalities ... A HONG KONG MODEL: IMCHK • Standards of service • Qualification, scope, client interest, confidentiality, poaching • Independence • Independence judgement & disclosure, client conflicts & reservations, withdrawal option, no inducements, full impact disclosure • Responsibility • Copyright observance, staff competence, accuracy and relevance, billings

26. Practicalities ... GLOBAL PUBLIC RELATIONS ASSOCIATIONS • Public Relations Consultants Association • International Public Relations Association • International Association of Business Communicators • Public Relations Society of America • International Communications Consultancy Organisation

27. Practicalities ... COMMON THEMES IDENTIFIED • No inducements, gifts, perks • No securities dealings or personal benefits • No competitive conflicts, fair competition • Disclosure of all potential conflicts • Objectivity, integrity and truthfulness to all involved • Advocacy role but fairness, credit to sources • Non discrimination and sensitivity to cultural values • Expertise and independence • Confidentiality all-round

28. Practicalities ... CONCLUSIONS • Cartesian logic, systemic analyses, good management theory and Confucian teachings concur that there is nothing to be gained (but possibly high risk for short term benefit) in violating communal standards of morals (externally set rules) or ethics (autonomous behavioral choices) • In a professional setting, in particular public relations, dilemmas occur frequently arguing for the general and corporate benefit of a code of ethics - if nothing else to guide staff and differentiate positively in the market • But, there is no value in re-codifying the law, established practice or codes of conduct and term them ethics of the company or individual - we should tackle the key fuzzy issues of integrity in the widest sense by a standard • Codes of ethics however, only work if they are carried by the leadership and the team, entrenched in the firm and its overall behavior and supported by an organization to monitor, review and reward exceptional behavior

29. Practicalities ... ETHICS ARE WITHIN OUR NATURE • Chinese philosophy at large (up to 1400 AD) and Confucianism essentially propagate very similar rules and behavior - it already differentiates societies • It works to behave right in most natural and artificial systems - even if a few bad ones get away with murder by taking risks • So we have role models, a process and arguments - why not provide them to our staff, colleagues, leaders and most of all clients • Getting organized is simple - the critical themes are clear - the general direction in our hearts and minds - Good luck!