Business ethics: Between right and wrong

In the cut and thrust of business deals, dubious decisions and questionable morals are commonplace but can cause serious problems for growing companies, says Michael Jackson.

Imagine you are 48 hours away from doing a deal to sell your business. You’ve completed all due diligence, your key customers have been ‘interviewed’ and all your staff have met the potential acquirers and been offered glittering future prospects. Suddenly, the acquirer rings you up to give you a ‘ten-million dollar haircut’ – the American euphemism for a dramatic cut in price.

You’re not given a proper reason, nothing new has come up to change your company’s valuation and the market conditions are the same, if not better, than before. In other words, it’s clear that your acquirers are trying it on because they know they’ve got you at your most vulnerable time.

Regardless of the outcome, this situation raises the question of what constitutes hard but fair negotiations, as opposed to bad or even immoral business ethics? In my view, this is an example of immoral business ethics, but as reverse caveat emptor applies there is normally nothing you can do. Public companies demand break-up fees but for small private companies this is rarely feasible.

The only thing you can do is hope that a poor reputation in the marketplace affects them in the future. Fortunately, it probably will!

Stealing salesmen

Now, if I cite a different example, that of targeting a competitor’s sales force, most people would say that was fair game. Having said that, it seems less than fair in some industries for companies that have set up training or apprenticeship schemes and end up having their people poached just when they are looking to recoup their investment. That’s probably a good reason why so few companies continue to run such schemes.

Another example of questionable business ethics is where large companies dangle a potentially large contract to a small supplier, deliberately lead them on at middle-management level only to be overruled at board level much later on. This is particularly galling and can cause real damage to small companies who only have limited sales and support resources. Yet I’ve seen it happen time and time again.

Prevention and protection

Up until recently, there has been very little protection for your average business against immoral, as opposed to criminal, business behaviour. This is, however, beginning to change. For instance, banks that have behaved pretty badly in ruthlessly closing businesses down (having encouraged them to expand too much in the first place) are now subject to business banking codes of practice. Larger public companies are now required under the Companies Act to produce a creditor payment policy in their annual report and accounts. This at least spotlights companies who abuse their position to withhold payments to their suppliers for unnecessarily long periods.

The Government is also getting in on the act with its proposed Company Law Reform Bill. The dangerously drafted Section 156 (3) will make directors liable if they do not look after the interest of ‘customers, suppliers, the community and the environment’. It remains to see what ends up on the statutory book but, however it is worded, it’s bound to be highly contentious.

In the US, growing companies have much more protection against bad business ethics than in the UK. For a start, price fixing is a criminal act, not just a financial penalty as it is here. Hungry US attorneys on contingency fees are also a strong disincentive for people taking risks with dubious ethics. But despite all this, I’m afraid that in today’s business environment the good guys still don’t always win.

Lessons to learn

I believe good businessmen and women should always be sceptical when dealing with people with whom they do not have an established relationship. If you were hiring a new employee you would take out a reference – do the same with new suppliers and potential customers. And have a proper set of business terms and stick to them in all but the most unusual circumstances. I have always found that people respect you for this and anyone who whinges about it is probably telling you something about their business practices from the outset.

In essence, pick your business associates with the same care as your close friends – but with a lot less latitude!

>Michael Jackson is chairman of Elderstreet Investments, the leading technology venture capitalist which he founded in 1990. He is also chairman of Sage, the FTSE-100 accounting software group which he has been closely involved for over 20 years, since its unquoted days.

Sara Williams

Sara Williams

Sara Williams was executive chairman of AIM-listed Vitesse Media (the original publisher of, the company she started in 1997. A former investment analyst with Kleinwortt Benson, Sara...

Related Topics