Me or Them is the Ethical Test in Crisis

Mahmood Hussain Advocates & Legal Consultancy | View firm profile

It is the moment of truth when our morals and business opportunities are evaluated by ethics, humanity and wellbeing of our businesses. This moment is examined and evaluated by internal and external factor but nonetheless based on and are connected with timely and effectiveness of such decision. In today’s world the real threat to our business continuity and the ability to absorb the business and financial damages caused by COVID 19 is both real life test and real tool of our audit towards the performance of our risk management and the cultural segments embedded in our organization objectives.

The test of our moral and ethical decision at the time of crisis is factually driven and is a dynamic ethical tester in the market base and business worldwide. As Tom Beauchamp and Norman Bowie put it in their book Ethical Theory and Business “when two parties argue about some serious , divisive and contested moral issue people tend to think that some fair and justified compromise may be reached people seldom infer from the mere fact of conflict between beliefs that there is no way to judge one view as correct or better argued or more reasonable than the other ’

In the time of crisis, the decision-making process in our boardrooms or our corner offices is needed to be taken timely and effectively to meet our fiduciary responsibilities available in our governance doctrines and policies but importantly in our deep human moral.

It is often complex and conflicted mechanism when the decision makers are the one whom are entrusted to take on behalf of the organization critical decision that will affect life of others and will impact the stability of their wellbeing. For many of us are simply the recipient to these decisions and we may be the judge and the jury for such decision. But unless we are in the shoes of the decision makers, we may not understand how complex this matter is and what kind of pain or trauma face these individuals whether short time or long time.  I believe this is the moment why the decision makers deserve a high paycheck.

Not to portrait the decision makers as the brave hearts they are also humans, who wants to share this burden with others. Therefore, they want to hear the hard decisions echoed from their financial controllers, HR managers and so to hide their conscience behind financial performance of their companies, projected numbers of loss in the balance sheet and executives advises between floating the company, cut jobs, delay payment, hire experts to find any loop holes in our contractual obligations so to push our creditors away and to find a good and creative way for margin squeeze and create monopoly.

This exercise could be described as advisory or status review but in reality, is the only tool the decision makers uphold to make peace with their conscience. If your business director and you’re not facing this dilemma than my advice that you should not complete this article as it is useless for you.

It is our human nature to present ourselves as symbol of virtue and our actions when taken are been calculated to the best of majority good or as Utilitarian belief of that the action is right if it leads to the best possible balance of good consequences over bad consequences for all parties effected .

But taking a moral and ethical decision is not really walking in a park as it is a combination of both painful facts and heart breaking. As the business ethics go beyond the definition of identifying the moral standards of right or wrong. The issue may be much simple if the test is really about the choice between right and wrong in our business affairs.

The business ethics is in the core challenge to balance between the right choice and the correct one. As business leaders in our companies whether small, medium or large we have to come one day to face our fears and to choose between being right or being correct. This also should not avoid our legal obligations under the public laws as Civil Law operates which may be found different from the Common Law practice. But to choose between being right and being correct is sometimes we have to swallow hard decision even if that touches our interests as employers or directors.

Why is it hard

As business we are surrounded by a complex interaction between different stakeholders when we are asked to take a major decision in the time of crisis. The international pandemic as the COVID 19 is a very good platform to test our organizational culture and the corporate ethical behavior that will maximize the business society protection and minimize the harm for short and long terms to our business. As a natural pandemic our decisions, morals and conscience can easily rapped by force majeure event principles and block any other measures, but business organizations and stability of markets and social Matrix needs more than that.

The legislators gave us different tools to use when the protection needed such as the Force Majeure, impossibility of obligation undertaking, employee’s redundancy, bankruptcy and insolvency. These are different tools available to the decision makers to apply whenever needed to protect the existence of the company. The morality in using these tools is the real test as our decision making platforms are not assimilated from the question that comes from deep of our hearts what is really my moral tool to use when I will apply the company’s risk assessment  and principle of duty ? whom I should really protect and whom should I let go when I face the reality that business will be affected for at least to 2-3 business quarters and my balance sheet and cashflow is not healthy.

As a decision maker we have to balance our decisions between the financial capabilities of our organization and those direct interests that we need to serve. In many times this invites the question who and why we should entertain, and the following are the stakeholders that we should bring to our draft in the time of crisis and here our inner moral challenge starts:

  1. Shareholders Interest;
  2. Decision makers interest;
  3.  Co-workers;
  4.  Suppliers; and
  5.  Creditors

Why it’s hard you may say, and I will simple answer it is our inner conflict of interest that will be in the test and it is not easy. Simply when the legal tools as previously mentioned are available to use, but in using any of these tools the questions come whom I am really protecting.

It is for sure that Shareholders are the course of my existence as  well as the employees therefore the interest of the shareholders is the priority. However, this could be a theoretical approach as any decision has to be tested on the basis of the outcomes of (i) short term floating of the company (ii) middle term re-engineering the basis of the company and (iii) long term prosperity of the company.

The decision-making mechanism cannot only rely on digits and smart charts presented by our financial controllers or the head of business units. The reality the company is a breathing bling and you need to balance both the good performance of the mechanical parts and the emotional parts. The morality here has to be balance for example the layoff of number of employees may be the necessity measure to be adopted but the question who these employees are and why. It is easy to acknowledge the fact of reducing a given number such as 100 employees that may save AED 1,5 million within 6months for small companies and may be greater for medium and large entities is showing positive measure in the cashflow but in the medium term the need to hire a skilled and smart human power will have its negative impact in the re-engineering phase of the company.

Thus, a measure of salary reduction may be more effective to float the company and to keep most of your skilled human resources. The importance of this decision that when is chased to keep our personal gains aside and to treat ourselves as directors equal to our employees. Cutting the job of an office boy with a 200AED salary may not be realistic and to keep the directors wages as they are. The cut of salary to a single mother secretary may not be wise while the company continue to spend towards travel allowances and other similar benefits to the board members or payment of board remuneration. Thus, the decision-making mechanism of those minority empowered in the company have a great impact in our social and cultural behavior of our organization.

Other measures like the unpaid leave could be adopted. But the reality is the unpaid leave means the effected individuals are to find the means of income at that given period. The issue here is how we choose these individuals is by their performance appraisals, family status, the need of the business or combination of some or all. It may be fair in the essence of it but once the directors enter into this discussion the favoritism exercise may be implemented and for those who are in the Board may not differentiate between X and Y and why they have been picked.

SMEs the right to be protected

In time of crisis a major decision is needed, so to balance between the payables, the cash-available saves, possible receivables and the most importantly the stability of the exchange rate in our financial circle.

As company whether you’re a manufacturer, service provider or talent supply -based company your relationship with the supply chain to your core raw material is vital. In many cases the providers of the raw material whether products or services are in small or medium entities spectrum. These entities have less ability to serve the financial needs from the banks and in many cases the cost of borrowing to these entities is much costly than the decision of bankruptcy.  It is than both our moral duty and business stability to take measure which secure the payment to these entities and to delay other who can sustain. This decision is an ethical to protect floating of these small entities so they can keep their employees.

The measures which are taken by most countries and UAE in specific by facing the disruptive moments of COVID19 were fortunately based on the social coherence protection. Tough decisions have been applied such as the timely closure of many business activities such as conferences, exhibitions and any activities that associated with human interaction.  but it is the private sector who are asked to be more involved in this decision and to take a serious measure that may affect their businesses and their planned incomes.

It seems that this decision is fundamental accepted and non-challenging but when the Board or the decision makers have to face that whom they may end to choose in this SMEs platform to be paid or composited is really tricky  especially when part if this payables to the supply chain is also due to a sister company or subsidiary to the payer.

Creditors and the Ping Pong Game

In this article I will not focus on the traditional Creditor as the financial institutions as these creditors have enough power by law and practice to deman their rights and to force payment or to face consiquansis of non-payment.

My focus with the kind of creditors which are not normarly protected by law and believe me these creaditors are in large used in the small and medium sectors. Legally these creditors should not be allowed by law to lend money or atleast not to be able to demand any intrset of that loan. However, these Creditors in many time jump to help their peers in time of investments or time of need . These creditors always treated differently in the time of crisis as arguably they are the least in our creditors skale.

The ethical and moral decision of the borrowers should not treat these creditors as a Ping Pong game with many promises and less actions. In many time these creditors are also in the same level of business and therefore the re-payment of such loan or part of it will help their cashflow as well or atleast we should be honest with them in our payment schedule so they don’t plan themselves based on our empty promises knowing that this loan is not well received legally.

What it is

How we apply our ethical and moral decision in time of crisis is a real representation of our characters and our belief towards our stated culture as we normally post in our websites and corridors.

The responsibilities to make the correct decision and to favour it over the right decision is not a black and white. Moreover, the decision of ignoring our personal conflicted interest to the better of our business community and the protection of our business and social stability of our stakeholders is what should be our compass.

In time of crisis our reflection to the mirror cannot lie and our conscience will be only relaxed when the decision is not manipulated by our personal interests or our eager to be opportunistic in the time of need.

Written by: Mr. Hafidh Thani – Managing Partner

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