Ethics in the workplace: why bad business is bad for business

Focusing on just profit and loss makes the business environment worse for all concerned

Business schools inculcate an attitude that there is little more imporant than keeping your profits high and your losses low. Maximising shareholder value is the name of the game, and pesky corporate ethics - and even the law, if you think you can get away with it - must be jettisoned if they get in the way. But this isn't just bad for society; it may harm the very foundation on which economics rest.

Although ethics courses are taught in business schools, a recent Bloomberg op-ed by University of Chicago Business School professor Luigi Zingales points out that they are treated very much as secondary subjects, tought by low-ranking professors, perpetuating the idea "that ethics are only for those students who aren’t smart enough to avoid getting caught."

And it gets worse. The overwhelming push to view everything in cold monetary terms leaks into other courses where it is absolutely inappropriate. Zingales writes of a collegue, Gary Becker, who teaches the economics of crime. Comparing the expected value of success to the cost of punishment multiplied by the chance of being caught results in many crimes looking like quite good uses of your time (although not bank robbery, which, a recent paper in Significance magazine showed, only pays around £12,000 while resulting in jail in around a fifth of attempts). But Becker's students took that descriptive model as prescriptive: "They perceived any failure to commit a high-benefit crime with a low expected cost as a failure to act rationally, almost a proof of stupidity," writes Zingales.

It's not hard to see the direct link between the prevailing attitude at business schools and the recent actions of HSBC, which just admitted in a Senate hearing to transporting $7bn from Mexico to the US, ignoring "red flags that the volume of dollars included proceeds from illegal drug sales in the United States". HSBC clearly took a view of the potential profit and loss that could be made by weakening their adherence to money laundering regulations, and decided that the trade-off was worth it, without taking into account the broader societal reasons why those regulations are a good idea.

But even if they decide that it's not the best idea to act criminally, it's still problematic if we have a class of high-powered business people who think that ethics is for weaklings. Focusing too hard on the black and white difference between illegality and legality erodes all the shades of grey between "things you should do" and "things you shouldn't do". You aren't allowed to use slave labour to build your products in Britain, but is that really the only reason you shouldn't? That line of thinking often results in desperate attempts to prove that things which are undesirable are also unprofitable, leading to arguments that slavery is unprofitable, or BP would make more money if they stopped drilling up oil. Those things may or may not be true, but do we really want to base our prescription of how business should behave on changeable facts? If it suddenly became profitable to own slaves – say we find a really good way of making Battle Royale-style control collars – does that make it OK?

The fact is, the general undercurrent of ethics that we all live our lives by does extend to businesses. Any one of us could, if we wanted, steal from a hundred unattended coats, bags and desks every day, but we don't. Nor do we only keep promises when we have signed contracts, or only tell the truth if there is regulation making us do so. Similarly, many businesses have ample opportunities to, both legally and illegally, increase their profit. You can hold off paying invoices until you are served notice, encourage interns to work for free – or pay to work – and just generally be nasty. And while some don't take them, a growing number do.

A survey from "whistleblower law firm" Labaton Sucharow showed that 24 per cent of senior executives in US and UK finance said they believed "financial services professionals may need to engage in unethical or illegal conduct to be successful". We can safely assume that the number who believe that they need to engage in unethical but not illegal conduct is higher still.

But if you end up with a business system where a large proportion of people are acting unethically, then things slowly fall apart. Everyone starts lawyering up, as "verbal contracts" and "gentlemen's agreements" are replaced with real contracts exhastatively negotiated. What were ethical obligations become legal obligations, and where the legal system can adapt fast enough, it jettisons the parts that are holding it back.

Take, for example, the "charity tax". The idea of using the tax system to reward philanthropy is something which, on the surface, makes sense. But then individuals who believe that they have a moral obligation to pay as little tax take advantage of it, the charities commission is forced to crack down on "fake charities" and eventually, pressure hits the government to remove the exemption.

The same pattern happens time and again. The safe-harbour exemption in copyright law is there to enable sites with user-generated content to exist; but it gets abused to justify wilful piracy, and SOPA is introduced in an attempt to remove it. "Carried interest" allows American investors to not pay full income tax on capital gains, but hedge fund managers abuse it to pay themselves tax free, and the "Buffet rule" is suggested. And the BBA allows banks to self-report their rate of borrowing, until Barclays mis-reports their rates for financial gain and ideas for post-Libor regulation involve billion-dollar mandatory loans.

Bad business is bad for business. In the long run, either they tighten up, or they force the law to do it for them.

J.S. Mill, ethicist and philosopher. Could businesses learn from him? Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty Images/AFP
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Why is the government charging more women for selling sex but turning a blind eye to buyers?

Since 2013, the number of women charged for selling sex gone up while the number of men charged for buying it has gone down.

It’s no surprise that prostitution policy is an area rarely visited by our legislators. It’s politically charged - a place where the need to prevent exploitation seemingly clashes head on with notions of liberal freedom; where there are few simple answers, a disputed evidence base, and no votes.

There’s also little evidence to suggest that MPs are different from the rest of the population - where one-in-ten men have purchased sex. It is little wonder therefore that our report on how the law should change, published in 2014, was the first major cross-party intervention on the subject in twenty years.

Some take the view that by removing all legal constraints, it will make the inherently exploitative trade of prostitution, safer. It’s not just me that questions this approach, though I accept that - equally - there’s no consensus that my preferred measure of criminalising the purchase of sex, while decriminalising the sale, would fundamentally change the scale of the problem.

Where all sides come together, however, is in the desire to see women diverted from the law courts. It is still possible for women (and it still is women; prostitution remains highly genderised) to go to prison for offences related to prostitution. Today, in 2015.

The total number of prosecutions for all prostitution offences in England and Wales has been decreasing since 2010, but not in a uniform fashion. This does not reflect a reduction in the size of the trade, or the violent nature of it.

There were once consistently more prosecutions for kerb crawling, profiting, and control of prostitution. But since 2013, there have been more prosecutions for soliciting or loitering than for profit from prostitution and kerb crawling each year.

In simple terms, offences committed by men with choice, freedom and money in their pocket are having a blind eye turned to them, while women are being targeted - and this trend is accelerating. In the law courts, and in prosecutions, it is the most vulnerable party in the transaction, who is taking the burden of criminality.

Take on-street sex buying as an example. In 2013-14 just 237 prosecutions were brought for kerb crawling, but there were 553 - more than twice as many - for loitering and soliciting.

There is a similar pattern in the 2014/15 figures: 227 charges for kerb crawling reached court, while 456 prosecutions were initiated against those who were selling sex. Just 83 prosecutions for control of prostitution, or ‘pimping’, were brought in that same year.

These are men and women on the same street. It takes a high level of liberal delusion to be convinced that prostitution is caused by a surge of women wishing to sell sex, rather than men who wish to buy it. And yet women who sell sex are the ones being targeted in our law courts, not the men that create the demand in the first place.

This situation even goes against the Crown Prosecution Service’s (CPS) own guidance. They say:

“Prostitution is addressed as sexual exploitation within the overall CPS Violence Against Women strategy because of its gendered nature… At the same time, those who abuse and exploit those involved in prostitution should be rigorously investigated and prosecuted, and enforcement activity focused on those who create the demand for on-street sex, such as kerb crawlers.”

Why then, is this happening? For the same reason it always does - in our criminal justice system stigmatised, poor women are valued less than moneyed, professional men.

My debate in Parliament today raises these issues directly with the government ministers responsible. But to be honest, the prosecution-bias against women in the courts isn’t the problem; merely a symptom of it. This bias will only be tackled when the law reflects the inherent harm of the trade to women, rather than sending the mixed signals of today.

That’s why I welcome the work of the End Demand Alliance, composed of over 40 organisations working to end the demand that fuels sex trafficking and prostitution, advocating the adoption of the Sex Buyer Law throughout the UK.

This would criminalise paying for sex, while decriminalising its sale and providing support and exiting services for those exploited by prostitution. Regardless of these big changes in the law, I don’t see how anyone can support the current state of affairs where there are more prosecutions brought against women than men involved in prostitution.

The authorities are targeting women because they're easier to arrest and prosecute. It goes against their own guidance, common sense and natural justice.
And it needs to stop.

Gavin Shuker is MP for Luton South and chair of the All Party Group on Prostitution and the Global Sex Trade.