Panama Papers: Fairness, Confidence, and Business Ethics

The “Panama Papers,” also known as the “Mossack Fonseca Revelations,” offer the global economy much needed transparency into one of the world’s 80 plus tax havens.  Hiding between 20 and 30 trillion dollars, tax havens like Panama hide sums worth up to nearly half of the annual Gross Global Production.  Although those named in the 11.5 million document leak are not necessarily guilty of criminal behavior, their wealth adds to a significant amount of “black money,” which assuredly helps distort the capitalist mechanisms and functionality of the world’s economies.  Just as important, such secretive practices reinforce a sense of economic injustice and lack of confidence in the economy.
 
Initial reactions to the Panama Papers have less to do with criminal wrongdoing and more to do with ethical wrongdoing.  Coupled with persistent economic inequality, a lack of honesty when it comes to the practices of the wealthy fosters suspicions that economic policies are engineered to favor the already wealthy.  California’s 15 dollars an hour minimum wage, for example, represents frustrations with the failure of capitalism to provide for the needs of poorer Americans, yet perverse disincentives of higher wages, which could result in higher federal taxes for minimum wage earners and fewer hours, highlight the futile struggle of average workers in a world where the rich keep getting richer.
 

These latest revelations compound growing outrage over economic policies that favor unethical and unfair practices like so-called “corporate inversions.”  The US Treasury has announced two rules designed to eliminate the profitability of this tax dogging practice, which supports perceptions that economy has been rigged.  No longer can U.S. subsidiaries of inverted companies take a loan from their foreign parent companies and use interest payments as tax deductions to reduce their US tax liability.  US companies must also own less than 60% of the combined company’s stock, excluding any acquisitions of US companies within three years to derive any tax benefits.  
 
Under the capitalist mindset, the use of shell corporations and business inversions is simply good economic sense for the wealthy, but economics is not the only dimension of such decisions.  Proof of over 215, 000 companies and over 14,000 individual Mossack Fonseca clients ,including 140 political figures, detailing their use of secret offshore accounts hits a nerve among the many who see globalization as an excuse for the wealthy to profit at the expense of domestic industries and average workers.  The practices used by the affluent to hide their wealth may or may not be “illegal,” but that does not make them right.  This is where business ethics comes into play.
 
Although the need for ethics may appear to be a moral issue wrapped in subjective reasoning, ethics are actually a major concern for any businesses viewed as an enduring entity designed to last.  Ethics provide direction to businesses of all sizes by defining limits and standards on how they treat other businesses, employees, and consumers.  Ethics are long-term considerations that impact the short and long-term success of a company, its industry, and the community it operates within.  Consequently, ethics represent an attempt to address factors, which cannot be fully measured or understood, to ensure success now and in the future.
 
One of the main reasons to implement business ethics is to protect businesses from the actions of their employees. When employees interact with clients, other employees, or new employers, a business must guard against any perceivable damage an employee could cause.  By scripting responses to consumers and the Public, limiting workplace relationships, or instituting nondisclosure agreements, employers are attempting to control long-term costs as well as sculpt the business culture within the firm and beyond.  Ethics policies may require employees to follow certain procedures, such as the previously mentioned examples, but ethical considerations go beyond employee behavior and perceived costs.
 
A firm lacking ethics can only build an “ethics” policy through a superficial attempt to ensure legal penalties exist for employees who violate company policy, but ethics go beyond punitive action. A company, which treats its employees poorly, rips off consumers, ignores regulation, dodges taxes, and/or undercuts other firms with unhealthy competition, is going to teach employees to behave unethically. This means business ethics extend beyond employee relations to include how a firm treats its competitors across its entire industry as well as the quality and cost of products and services the firm provides its consumers; this includes hidden or displaced costs.
 
Furthermore, it is the executive managers who set the tone and direction of a company's operations. As business leaders, they are also the ones to shape the ethical culture of their firms while business leaders across an entire industry maintain standards for ethical conduct. It is important to recognize that businesses do not simply act on company interests; they act on the interests of their management teams. This makes it essential for observers of industry to recognize a firm will not solely act on its perceived interests, but rather, its interests and the interests of its leaders as perceived by the business leaders. 
 
As a consequence, leaders of business define what ethics and other values mean for their industries, companies, and subordinates.  Under the guise of unfettered competition, business leaders can easily define ethics in terms that ensure they benefit the most. This creates a serious ethics deficient when leaders fail to consider all the ethical implications of their decisions and behavior.  Regarding professional ethics as an attempt to address all unrealized and long-term costs to a firm and industry resulting from the inappropriate behavior of all employees is, therefore, necessary.
 
Unfortunately, business leaders will often view ethics between professionals at their level as a pledge not to undermine the profitability of the company, yet fail to recognize how unhealthy internal competition hurts long-term viability.  For subordinates, business leaders may look at how the behavior of these employees can harm a company then address these issues with punitive "ethics" policies versus instilling an ethics culture for these professionals to learn.  In reality, both groups need to have their behavior mitigated by a strong sense of professional ethics.
  
As such, every employee is responsible for instilling a strong culture of ethics in their workplace. While the business leadership must guarantee the proper atmosphere exists and lead by example, especially in the face of temptation, the only way of ensuring values are properly ingrained in a firm's culture is by creating an environment that addresses ethical violations when they arise. This starts by understanding why ethics are necessary, identifying ethical considerations, building an ethical culture, and correcting ethical violations when they occur, whether at the lowest tier of employment or the highest level of management.
  
As a society, the damaging effects of unethical corporate actions last for generations and undermine healthy competition for all businesses in a given industry. Nation-states require strong industries to provide for the interests of their citizens and other vital national interests beyond commerce. The problem is that unethical practices do not simply destroy the firms engaging in them; these firms eliminate unethical competitors and undermine ethical practices across entire industries.  Moreover, ethics are needed to protect everyone from the harmful practices of wealthy businesses and individuals