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Family ethics

Family businesses shouldn’t think they are more ethical because of their adherence to stewardship and long-term planning.

Should businesses be ethical beyond what is required by the law of the land? Does ethics make good business sense? It’s probably true to say that neither of these weighty questions are top of the agenda as boardrooms sit down to sign off budgets for 2013, or otherwise. But now is the time they should be.

No doubt many board members would probably be sympathetic to what the great free-market economist Milton Friedman said on business and ethics more than 30 years ago. “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

But, does that mean ethics shouldn’t be up for discussion in boardrooms? After all, Friedman made the remark in the 1980s – a long time ago in terms of the evolution of corporate best practices. Arguably, if BP had given a bit more thought to ethics and not short-term profits it could have avoided all the problems – environmental and business – of the Deepwater Horizon fiasco in the Gulf of Mexico.

Also, if banks like Merrill Lynch, UBS and the now defunct Bear Stearns had considered ethics a bit more before packaging up subprime mortgages in the US in complicated financial structures they might have avoided the problems that led to their near collapse. We might even have been able to avoid the worst financial crisis since the Great Depression.

Corporate history in the last 15 years shows that many businesses have got the message. Some have signed up to adhere to stricter assessments of their corporate governance, environment and labour practices. The publicly listed ones doing this more systematically have been included in things like the Dow Jones Sustainability Index. Of course, how much these businesses actually follow best practice environmental management and labour relations is always open to interpretation. BP was on the index before the Gulf of Mexico incident in 2010 – it was removed swiftly afterwards.

Family businesses – listed or private – might argue they are better placed to follow a more ethical approach to running their businesses. They might say following best practices in stewardship and long-term planning inevitably means they are likely to consider things like labour practices and the environment more than their non-family counterparts.

There might be some truth in this but there has yet to be a study, at least one seen by FB, backing this up. Also, despite some obvious shortfalls of sustainability indices, there are few family-controlled businesses on them. So in reality maybe they need to do more.

Of course, following an ethical approach to business is easier when profits are flowing nicely and economies are running smoothly. And that’s something not all businesses have been experiencing in recent years. But profit and economic uncertainty cannot provide a credible excuse as we enter the second decade of the 21st century. Ethics aren’t just for Christmas: they are for life.

So when boardrooms sign off their final budgets for 2013 they might take a moment to ponder the ethics question – you never know, it might make a big difference to the bottom line in the year ahead.

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