The ethics crunch?
Former Sunday Times editor Andrew Neil spoke at the event
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Monday, 24, Nov 2008 12:54
Now is as good a time as any to look at the way in which ethics have failed in business – and how they should be reintroduced.
The issue was at the centre of a global business ethics event run by the Chartered Institute Management Accountants (CIMA) last week.
A panel – which included broadcasters Jon Snow and Andrew Neil, together with Dragon's Den dragon James Caan - discussed the issues.
Mr Neil, the Daily Politics host and former Sunday Times editor, said the global financial crisis was caused by a "Faustian pact" over ethics between credit reference agencies and banks seeking profits.
"There was a Faustian pact between banks and rating agencies," Mr Neil said.
"Ethics were put to one side and sent to hell."
He hit out at rating agencies where he claimed they were rating products based on mortgages they did not understand, giving them AAA ratings as they were paid to do.
"The banks knew that and it suited them. As a consequence we almost lost our banking system."
Mr Caan said: "It was the biggest joke in the world. Rating agencies were raising billions on the back of their own ratings."
However, the Dragon's Den star and head of private equity firm Hamilton Bradshaw added the current system meant rating agencies still had to be followed.
"When people say something is a AAA, I put my hands up and say I believe them."
He added it would be impossible to carry out due diligence on every bank, stock or investment.
Nina Barakzai – global privacy officer at consultancy Towers, Perrin, Forster & Crosby – was also on the panel and explained that while reliance on credit reference agencies could be excused for consumers, within the investment community greater scrutiny should have taken place.
The debate turned to where the next crisis could come from and the next solutions.
Glynn Lowth, CIMA global president, said: "Short-termism got us here. It is clear from recent spectacular failures that if we want businesses to last, boardroom rhetoric is not enough.
"Organisations must have explicit, not implicit, commitment to ethical sustainable practices."
The panel also discussed whether the UK was a wimp when bringing people to account.
Mr Neil explained while in the US any wrong doing in the boardroom would heads of companies put in jail – UK authorities did not act in such a way, with cases of price fixing going unpunished.
"Chief executives can't say one thing in public and another in private, that's illegal."
He explained when he questioned Gordon Brown over the problem of price fixing and jailing offenders, the then-chancellor said: "People would not put up with that. It is not something people would be happy to see."
Noreena Hertz, a political economist on the panel, said: "Gordon Brown is heralded as a hero now, but in March the IMF warned the UK had high levels of debt and he completely ignored it.
"The US and UK really embraced extreme capitalism and decoupled from social justice. That is over now but there it is not the only form of capitalism."