Discuss about the Corporate Responsibilities, Ethics and Governance.
In Australia, ethical business conduct implies whether the business transactions is conducted ethically and honestly or whether it is ensuring respect for privacy and individuality as well as honest and direct communication. An ethical business practice not only enhances the reputation of the company in the society but also strengthens and builds confidence of the stakeholders in the company. The primary issues that are to be discussed in this report are related to unethical business practices like trade secrets, conflict of interests and breach of privacy that not only affects social standing of the organizations but also impacts adversely on the stakeholders of the company.
In the context of corporate law, the concept of trade secret refers to any secret commercial information that places one business at an advantageous position over the other business. Confidential information refers to any information that is considered as confidential and business secrets are considered as subsets of confidential information. A confidential agreement is necessary to ensure confidential information is not disclosed and is kept as business secret without using it for other unauthorized purpose.
In Searle Australia Pty Ltd v Public Interest Advocacy Centre [1992] FCA 241, the court defined the concept and mentioned the three essential elements associated with the concept of ‘trade secret’. It includes any formula for the products or information about its customers in each case such information is a secret, which if procured, may be benefiting for the rival companies.
The Australian catering company Spotless Group Holdings is an Australian listed company that provides Integrated Facility Services in New Zealand and Australia through a number of in-house brands.
In a legal claim brought against the Australian catering company, Spotless Group against one of its former employee for misusing of confidential information, which amounted to disclosure of the company’s trade secret, was decided in favor of the company. This case demonstrates the difficulty that organizations face while recovering damages for misappropriation of trade secrets to prevent any further misconduct.
In this case, Mr. Reynolds was employed at Spotless and during his employment he was seeking for new job opportunities in Blanco Catering, which was a rival catering company. Mr. Reynolds acquired an interest in the rival company and disclosed confidential information of Spotless including supplier and customer information, sensitive financial data and proprietary financial models (Spotless, 2018). Additionally, he even provided details about the bidding that Spotless was working for Adelaide Zoo project to the rival company, which ultimately won the contract. However, since court found it difficult to assess the exact damage amount, it only awarded 1/10th of the amount claimed by the company for the lost profits from the Adelaide project.
Under the Corporations Act 2001 (Cth), directors must avoid any conduct that gives rise to conflict of interest. Under sections [180-183] of the Act, the directors must discharge their responsibilities diligently and in good faith. They must not take undue advantage of their position to cause damage to the company and neither misuse confidential information of the company for personal gains or benefits of third party, causing damage to the company.
The Washington H Soul Pattinson and Company Limited (Soul Pattinson) and Brickworks Limited (Brickworks) were ASX listed companies that held substantial cross holdings.
Perpetual Investment Management Limited acquired an interest in both the companies in 1980. Since 2011 onwards, Perpetual presented five different to the Soul Pattinson and Brickworks which were developed to loosen the cross-shareholding and open their Boards as it was considered to be undermining the value of both the organizations.
The companies rejected all the proposals and Perpetual claimed that both the boards of the company were put in conflict of interest as they had shareholdings within the organization and were directors of both the organizations. This prevented both the boards from acting in the best interest of the company, which resulted in oppressive affairs that prejudiced Perpetual unfairly. The Court held that the directors of both the company were diligent while acting in the best interests of the company.
The Privacy Act 1988 (Cth) regulates the business corporations as well as the federal government agencies in dealing with personal information using the 13 Australian Privacy Principles (APPs) stipulated within the statute. An APP entity includes an organization, which is obligated to safeguard confidential information related individuals which includes, clients, employees and customers of any organization.
Telstra Corporation Ltd is an Australian telecommunications and media company that operates and builds telecommunication networks and other entertainment products and services like internet access, pay television, mobile, etc.
During an investigation conducted by the Federal Privacy Commissioner, it was found that the company committed a breach of the Privacy Act by causing exposure of online data of approximately 15,775 Telstra customers as it failed to ensure safety of the information of its customers. Due to such breach, private data of the customers, which includes telephone numbers, business and home addresses, could be easily found through Google searches.
In this case, the company failed to undertake reasonable steps to ensure security of personal information that was held by the company amounting to a contravention of the National privacy Principles [NPP] as was stated in the investigation report of Office of the Australian Information Commissioner (OAIC).
Business ethical theories may be deontological that concentrates on action or decision itself while other theories are teleological which primarily deal with consequence or outcome. According to Deontological or Kantian ethical theory, people are perceived as moral actors who are capable of making decisions by applying universal principle, which is termed as ‘categorical imperative’. Ferrell and Fraedrich (2015) states that an act is considered either right or wrong and even if a arising act leads to good results, the act shall be considered as wrong. The essential element of categorical imperative is that while making any decision, one must determine whether any rational person would have applied such decision universally.
Thus, Bowie (2017) points out that this principle establishes an ethical rule of universal reciprocity, thus placing every person in the position where he or she is obligated to others. The Kantian theory states that a decision is determined as ethical if it is right irrespective of the outcome that may result from such act or decision. Further, one person cannot use another person for his own benefit and interests.
Further, the other ethical theory or approach that can be related to the above case studies is the theory of utilitarianism. This theory is known as the consequential or teleological theory that is used to make any ethical justification. This theory emphasizes on the morality of an act, which is determined by the good or bad consequences that results from such act and assesses such consequences in terms of social utility or benefit (Mill, 2016). It upholds the principle that an action is morally proper if its results in greatest amount of good for the greatest number of people who are affected by such action. In other words, a decision or a conduct is said to be ethical if it brings about social good, that is, good for the society, altogether.
In the case studies, the issues pertaining to conflict of interest, privacy or misappropriation of trade secrets not only breaches statutory provisions of Corporations Act 2001 (Cth) but also amounts to unethical business conduct. In order to determine whether such three significant issues amounts to unethical conduct, the deontological or Kantian ethical theory and utilitarianism theory may be applied to the individual circumstances.
In the context of the above case scenario, it can be argued that trade secrets in the contemporary era is fundamental for a business to perform smoothly and successfully as the disclosure of confidential information of one business may be beneficial to the rival company resulting in loss of the company whose information has been disclosed. Allhoff et al., (2016) states that a claim for misappropriation of trade secret arises when confidential information of a company is disclosed through improper means amounting to breach of confidential relationship and unethical conduct. In this case, disclosure of trade secret of Spotless Group to Blanco Catering Group was misappropriation of trade secret.
The misappropriation of trade secret committed by Reynolds amounts to an unethical business conduct that can be analyzed in the light of both Kantian and utilitarianism theory. As per the Kantian theory, misappropriation of trade secrets is a wrongful act which if determined based on the concept of categorical imperative, it can be said that no rational person would have acted in the same way. This is because Reynold being an employee of Spotless Group owes an obligation towards the company so long he is employed within the company. Further, the Kantian theory states that one person cannot use another person for his own benefit and interests. In this case, Reynold has used his company Spotless causing its loss of the zoo project only to obtain job opportunity in the rival company, Blanca Catering.
As per the utilitarianism theory, it evaluates the consequences of a conduct in terms of social good. In other words, any act that achieves greatest happiness for the greatest number of people is considered ethical. Therefore, disclosure of trade secret to rival company without authorization for own benefit is unethical business practice.
In case of the issue related to conflict of interests, it refers to a situation where a professional gives more priority to personal gains instead of professional interests. It is a fact that in any workplace, a professional will have both professional and personal interests that are said to be in potential conflict with each other. This implies a situation where the professional aims at achieving personal benefit instead of the benefit of the company, which includes society as one of its stakeholders (Mill, 2016). In other words, it fails to achieve social good. Hence, it amounts to unethical conduct as per the utilitarianism theory. Under such circumstances, from the Brickworks case, it can be inferred that in case of doubt regarding the competency of the directors to act in the best interest of the company, the director must not be involved in the decision–making process of the concerned matter.
As per the Kantian theory, the conduct that results in conflict of interest is perceived as wrong as any rational person would not have taken any decision giving more preference to personal gains than interests of the company, particularly, when such obligation is a statutory obligation. Further, persons breaching the duty to avoid conflict of interest are using the company for his personal use, thus, amounting to unethical conduct (Ferrell & Fraedrich, 2015).
In the third case study, the issue related to privacy also amounts to unethical conduct under both the Kantian theory and Utilitarianism theory. As per the utilitarianism theory, good is more important than being right and ethical decision can be made to determine greatest useful goodness for the greatest number of people (Donaldson & Walsh, 2015). In regards to the privacy issues in corporate sector, information related to the organization including clients or employee related information, sensitive data are to be kept confidential to achieve confidence of the clients or employees and that the company derives benefits from such information. Telstra failed to ensure such protection of the information of its clients and employees, resulting in unethical business conduct.
This establishes the element ‘good’ where maintaining confidentiality will ensure success of the company achieving happiness of its employees as well as clients but breaching the same would amount to unethical business practice (Donaldson & Walsh, 2015). As per the Kantian theory, breaching of privacy would amount to wrongful conduct which will inevitably lead to bad consequences and even if achieves good consequence, it will still amount to an unethical conduct where the infringer will disclose the confidential information for its personal gain or purpose.
Conclusion
From the above discussion, it can be inferred that unethical business conduct not only affects the business but also has an adverse impact on the community and society within which the business operations are carried out. It is a fact that the society is dependent on the corporations largely as a source of goods and services, source of employment and environment conservation to a considerable extent. Therefore, if these unethical business practices are not addressed and it persists to misuse the ethical values, it is very likely that it will affect the social standing of the company as well as have an adverse impact on the community altogether.
References
Allhoff, F., Vaidya, A., Ciulla, J. B., Martin, C. W., & Solomon, R. C. (Eds.). (2016). Business in Ethical Focus: An Anthology. Environment, 225, 231.
Bowie, N. E. (2017). Business ethics: A Kantian perspective. Cambridge University Press.
Corporations Act 2001 (Cth)
Donaldson, T., & Walsh, J. P. (2015). Toward a theory of business. Research in Organizational Behavior, 35, 181-207.
Ferrell, O. C., & Fraedrich, J. (2015). Business ethics: Ethical decision making & cases. Nelson Education.
Ferrell, O. C., & Fraedrich, J. (2015). Business ethics: Ethical decision making & cases. Nelson Education.
Hoffman, W. M., Frederick, R. E., & Schwartz, M. S. (Eds.). (2014). Business ethics: Readings and cases in corporate morality. John Wiley & Sons.
Mill, J. S. (2016). Utilitarianism. In Seven Masterpieces of Philosophy (pp. 337-383). Routledge.
Privacy Act 1988 (Cth)
RBC Investor Services Australia Nominees Pty Limited v Brickworks Limited [2017] FCA 756
Searle Australia Pty Ltd v Public Interest Advocacy Centre [1992] FCA 241
Spotless. (2018). Catering and Hospitality | Spotless. [online] Available at: https://www.spotless.com/services/catering-hospitality/ [Accessed 27 Apr. 2018].
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