The political gamesmanship that has turned the urgent need to raise the US debt limit into a countdown to the first-ever downgrade of America’s credit rating is perhaps the best example of why there is a real need for a higher standard of ethics in business negotiations. The fact that the stewards of ‘the good faith and credit of the US’ seem willing to allow a very preventable catastrophic financial event damage the nation’s economic standing in the world demonstrates how a lack of ethical judgment can ruin the future of both parties involved in a negotiation – even if the final decision is legal.
Congress and the president can legally destroy the credit rating of the US, but that doesn’t make it moral or ethical to do so. It doesn’t make good business sense either, because the political parties, by refusing to compromise on a debt ceiling agreement, may nonetheless collaborate on a decision that could doom any business goals either side has for the nation.
Politics aside, many corporations will ignore ethical considerations when making business decisions due to pressure from intense competition, the quest for higher profits or simple greed. Equally, ‘winning the deal’ sometimes becomes more important for executives than compromising to establish a relationship that could be used to forge multiple deals in the future.
Dealing ethically in business means wanting to establish a reputation for behaving fairly and honestly with competitors and clients. It also means taking into account all stakeholders in the deal – not just the two parties negotiating, but the entire community that may be affected by the long-term consequences. And perhaps most important, ethical business practices mean being prepared to do what’s right, even if it’s not profitable at the moment.
For example, when Johnson & Johnson decided to allow its Belgian subsidiary, Tibotec Pharmaceuticals, to distribute an experimental AIDS drug free to people in poorer nations in 2004, the company lost money by giving the medicine away, but sped up the development time of the drug and improved its humanitarian reputation around the world. Ethically, speeding the development of a drug that could prevent more AIDS deaths was more important than striking a deal to make money in nations where few people could probably afford the drug at the time.
During difficult economic times especially, it may be tempting for businesses to ‘stick it’ to competitors or customers by negotiating rates that take advantage of the situation. Businesses must remember, however, that we live in an increasingly transparent society where the terms of most deals by public companies eventually come to light. Executives need to consider how they will defend their company once their negotiating tactics are exposed.
The consequences of being found to have negotiated in bad faith often take years to overcome. The reputational damage caused can sometimes be irreparable. The marketplace often punishes those whose word cannot be trusted, so increased scrutiny, scepticism from analysts and fewer partners to do ventures with are all possible outcomes of unethical negotiations. We’ve already seen the US dealing with increased scrutiny from ratings agencies, growing scepticism about the strength of the US dollar and US Treasury bonds and a slowdown of international business deals due to the uncertainty surrounding the resolution of the debt ceiling issue.
[Article by Matthew Scott, Corporate Secretary]