Are Profits and Ethics Mutually Exclusive?

According to the media, public perception is that scandalous profits are lining the pockets of the already wealthy, and squeezing the living standards of Joe Public, to the extent that we have heard many an example of the poor and vulnerable making a choice whether to “heat or eat”.

But does this really have to be the case? Are profit and ethics http://www.aat-ethics.org.uk/ mutually exclusive?  The economic downturn has provided the opportunity for us to reflect on this, and I’ve drawn together an eclectic mix of the good, the bad, and the ugly.

The world of consumerism

In the UK, department store John Lewis is arguably the pinnacle of aspiration for all businesses- it’s never knowingly undersold, treats its staff fairly, and adopts a policy whereby the customer is always right.  Back in 2009, the heart of the recession, Andy Street, the Managing Director agreed with his board that they would not compromise on quality or price, notwithstanding the tough trading conditions they found themselves in. Holding on to these two principles, John Lewis defied market expectations and evaluates itself as coming out of the recession stronger than it went in. Whilst not renowned for making serious profit in the good times, John Lewis has demonstrated that it has a sustainable growth strategy, which minimised the impact of the hard times when they hit.

Compare this to the indeed historic, but nonetheless relevant Gerald Ratner, who singlehandedly brought his jewellery business to the brink of collapse in the early nineties, referring to his products as “total crap”, and demonstrating such contempt for his customers, that they voted with their feet. It should come as no surprise that Ratner’s is no longer a name you see on the high street. More recently Starbucks avoided the same fate after ”donating” £5million in corporation tax following a backlash from its customers over its tax strategy.

Energy

Tania Hayes

In a story to rival David and Goliath in the 21^st century, new company OVO Energy has taken on the “big six” energy suppliers in the UK. The big six have been lambasted by the press, the public, charities, and parliament through their tenacious approach to maximising seemingly obscene profits, at the expense of Joe Public, who is increasingly falling into fuel poverty.  The big six regularly speak of “wholesale price rises”, and provide us with brain boggling bills- which I’m sure even the best accounting minds (your good selves) would struggle to comprehend. Stephen Fitzpatrick, Managing Director at OVO Energy has recently pledged to bring annual bills down to under £1,000 based on a 9.5% fall in wholesale gas prices over the winter.  Compare this to SSE, one of the big six, who on the basis of the very same fall gallantly promised to freeze its own prices.  Fitpatrick sums it up well for the consumer by saying “when wholesale prices fall, customers shouldn’t see prices being frozen, they should see them falling”.

Money

Money has got messy.  We blame the banks for the global economic downturn, and annually our moans by the coffee machine turn to the incomprehensibly high banker bonuses they receive, in light of reported profits, or losses, and the fact that we, Joe Public have on more than one occasion, bailed out the banks with our limited public purse.  But hail the new ethical minefield- the world of Wonga, as I’m going to call it.  Pay day loan companies have hit the headlines for exploiting the vulnerable, with extortionate interest rates. But Errol Damelin, Wonga’s founder sees it as a force for good, offering credit to those who need it- those who might be debarred from access to credit by mainstream financial services.

Arguably, the biggest own goal in the money business has to be the Co-operative bank.  Its’ quandary was quantified nicely on 28 March 2014 in The Guardian newspaper, where the question posed to the masses was summed up as “after 20 years, should I stay with the Co-operative Bank, or move to another ethical bank?” The court of public opinion spoke, and opinion is definitely divided.  Brief recap on the co-op situation… Well, it wasn’t helped by its former Chair, Paul Flowers buying illegal drugs from a journalist, after a shambolic performance at the Treasury Select Committee, where he underestimated the bank’s assets by the not insignificant sum of £45bn.  This was of course after a deal to buy branches of Lloyds Bank fell through, with the identification of a £1.5bn black hole in the bank’s finances.  For a bank that trail-blazed with a customer led ethical policy in 1992 (in particular profit sharing amongst members, helping the community and changing the world), Co-op appears to have lost its way, compared to John Lewis above.

What history has shown us is that the success of a business is based on public trust and confidence, a lack of which will be its downfall. Profits and success are not necessarily the same thing. When the public, and individuals in particular can trust an organisation, they will support it, which will inevitably lead to sustained growth.  When the public loses its trust and confidence, it is usually to do with perceived injustice, or a lack of social responsibility on the part of that company.  What is clear from the examples given above, is that Joe Public does not just want to hear companies talk the talk, there is a growing expectation that they will walk the walk too.

Tania Hayes, Head of Conduct and Compliance at the Association of Accounting Technicians