The Social Implications of Business Ethics (P3 &
M2)
Social implications refer to those actions of business that have an effect on society as a
whole. These issues relate to a number of areas of activity at Tesco.
The areas of activity that I will look at are:
Ethics in Financial Activity
Bribery
Bribery is the act of promising, giving, receiving, or agreeing to receive money or some other
item of value with the corrupt aim of influencing a public official in the discharge of his official
duties. This is a form of corruption. When money has been offered or promised in exchange
for a corrupt act, the official involved need not actually accomplish that act for the offense of
bribery to be complete. The crime is typically punishable as a felony. It is the straightforward
use of financial muscle to gain an unfair advantage over others.
Examples of bribery are:
o Gaining planning permission by paying money to a planning official or local
councillor.
o Gaining a contract by giving cash to a key decision maker
An article posted by the Financial Times says that Tesco was dragged into a Turkish bribery
case. An entrepreneur, who Tesco paid $13m for a prime site near Istanbul, is accused of
bribing a leading politician of the governing AKP party with $1m to push through an
ambitious planning application. Although, Tesco is not accused of any wrongdoing in the
case, Tesco is somehow responsible for the unethical behaviour of one of their employees.
Tesco eventually paid about $13m for the land, almost $5m more than first agreed. This
gave Mr Karasu’s consortium a profit of almost $10m within two years of buying the land –
with the support of Tesco – for $3.5m.
Executive pay
Executive pay is composed of the financial compensation and other non-financial awards
received by an executive from their firm for their service to the organization. It is typically a
mixture of salary, bonuses, shares or call options on the company stock, benefits, and
perquisites, ideally configured to take into account government regulations, tax law, the
desires of the organization and the executive, and rewards for performance.
This tells shareholders exactly what their top executives are earning. Executive
compensation is a very important issue for investors to consider when making decisions. An
improperly compensated executive can cost shareholders money and can produce an
executive who lacks the incentive to increase profits and boost the share price.
Tesco faced a backlash from shareholders over rewards for top executives and low pay for
staff at its annual shareholder meeting on Friday, despite reporting better than expected
trading. More than 18% of shareholders failed to back Tesco’s remuneration report, which
details the £4.13m paid to new chief executive Dave Lewis for just six months’ work at Tesco
last year, and a £1.2m pay-out to his predecessor, Phil Clarke, who oversaw diving sales
and profits. The company is also facing an investigation by the Serious Fraud Office into an
accounting scandal that developed on Clarke’s watch.
1
, Lobbying
Lobbying is a type of corruption. It is the act of attempting to influence the actions, policies,
or decisions of officials, most often legislators or members of regulatory agencies. It
usually involves direct, face-to-face contact, is done by many types of people, associations
and organized groups, including individuals in the private sector, corporations, fellow
legislators or government officials, or advocacy groups. Individuals and non-profit
organisations can also lobby as an act of volunteering or as a small part of their normal job.
The ethics and morals involved with lobbying are complicated.
For example, Tesco directors facing questions about lobbying the government over a dirty
chicken report. According to the article, the former head of the Food Standards Agency
(FSA) has been fighting a decade-long campaign to get supermarkets and the poultry
industry to clean up their meat. A Guardian investigation into industry hygiene lapses earlier
this year revealed that the majority of fresh supermarket chicken remains contaminated with
the potentially lethal food poisoning bug campylobacter. Six in ten chickens were
contaminated in anonymised FSA tests results released after a delay in August. The industry
is now poised to receive the results of further tests covering peak season for the bug, due to
be published on Thursday. These are likely to show even higher rates of contamination and
will identify individual supermarkets and their scores. After the report, Tesco made a
statement in which they said that they are “committed to the reduction of the industry-wide
issue of campylobacter in poultry. We work in close collaboration with our suppliers, other
retailers and relevant food and health authorities to address the issue at all stages of the
supply chain.”
Insider trading
Insider trading is the buying or selling of a publicly traded company's stock by someone who
has non-public, material information about that stock. Insider trading can be illegal or legal
depending on when the insider makes the trade. It is illegal when the material information is
still non-public. This makes a company's directors and high-level executives’ insiders.
Insiders are legally permitted to buy and sell shares of the firm and any subsidiaries that
employ them. However, these transactions must be properly registered with the Securities
and Exchange Commission (SEC) and are done with advance filings. You can find details of
this type of insider trading on the SEC's EDGAR database. For example, when a Tesco
takeover bid is imminent, shares are rapidly bought up then sold at a big profit. Insider
trading is, in theory, detected by the Securities and Exchange Commission (SEC) in the US,
and by the Securities and Investment Board (SIB) in the UK. Neither agency has any legal
powers other than public disclosure. Nor can they bring prosecutions themselves.
According to Mirror, Tesco boss banked £200,000 from share sale – just days before profit
warning. The announcement that festive business was the worst for 20 years saw shares
tumble 16%, wiping almost £5 billion off the company’s value.
But that did not concern Noel “Bob” Robbins, Tesco’s chief UK operating officer, who sold
50,000 shares at 404.5p each on January 4. That was just three days before the end of the
period covered by the grim trading statement and eight days before shares plunged to
323.4p. City regulations ban directors from trading shares in their company if they have
insider information – price-sensitive facts not publicly known.
Simon Wong, of watchdog Governance for Owners, said: “It doesn’t look very good,
especially when you are head of UK operations which is where most of Tesco’s troubles lie.”
But a Tesco spokesman insisted Mr Robbins had complied with the rules. "Bob Robbins sold
less than 5% of his substantial shareholding in Tesco for necessary family expenditure. The
sale, which was not made within a close period, was approved in the usual way.
2
M2)
Social implications refer to those actions of business that have an effect on society as a
whole. These issues relate to a number of areas of activity at Tesco.
The areas of activity that I will look at are:
Ethics in Financial Activity
Bribery
Bribery is the act of promising, giving, receiving, or agreeing to receive money or some other
item of value with the corrupt aim of influencing a public official in the discharge of his official
duties. This is a form of corruption. When money has been offered or promised in exchange
for a corrupt act, the official involved need not actually accomplish that act for the offense of
bribery to be complete. The crime is typically punishable as a felony. It is the straightforward
use of financial muscle to gain an unfair advantage over others.
Examples of bribery are:
o Gaining planning permission by paying money to a planning official or local
councillor.
o Gaining a contract by giving cash to a key decision maker
An article posted by the Financial Times says that Tesco was dragged into a Turkish bribery
case. An entrepreneur, who Tesco paid $13m for a prime site near Istanbul, is accused of
bribing a leading politician of the governing AKP party with $1m to push through an
ambitious planning application. Although, Tesco is not accused of any wrongdoing in the
case, Tesco is somehow responsible for the unethical behaviour of one of their employees.
Tesco eventually paid about $13m for the land, almost $5m more than first agreed. This
gave Mr Karasu’s consortium a profit of almost $10m within two years of buying the land –
with the support of Tesco – for $3.5m.
Executive pay
Executive pay is composed of the financial compensation and other non-financial awards
received by an executive from their firm for their service to the organization. It is typically a
mixture of salary, bonuses, shares or call options on the company stock, benefits, and
perquisites, ideally configured to take into account government regulations, tax law, the
desires of the organization and the executive, and rewards for performance.
This tells shareholders exactly what their top executives are earning. Executive
compensation is a very important issue for investors to consider when making decisions. An
improperly compensated executive can cost shareholders money and can produce an
executive who lacks the incentive to increase profits and boost the share price.
Tesco faced a backlash from shareholders over rewards for top executives and low pay for
staff at its annual shareholder meeting on Friday, despite reporting better than expected
trading. More than 18% of shareholders failed to back Tesco’s remuneration report, which
details the £4.13m paid to new chief executive Dave Lewis for just six months’ work at Tesco
last year, and a £1.2m pay-out to his predecessor, Phil Clarke, who oversaw diving sales
and profits. The company is also facing an investigation by the Serious Fraud Office into an
accounting scandal that developed on Clarke’s watch.
1
, Lobbying
Lobbying is a type of corruption. It is the act of attempting to influence the actions, policies,
or decisions of officials, most often legislators or members of regulatory agencies. It
usually involves direct, face-to-face contact, is done by many types of people, associations
and organized groups, including individuals in the private sector, corporations, fellow
legislators or government officials, or advocacy groups. Individuals and non-profit
organisations can also lobby as an act of volunteering or as a small part of their normal job.
The ethics and morals involved with lobbying are complicated.
For example, Tesco directors facing questions about lobbying the government over a dirty
chicken report. According to the article, the former head of the Food Standards Agency
(FSA) has been fighting a decade-long campaign to get supermarkets and the poultry
industry to clean up their meat. A Guardian investigation into industry hygiene lapses earlier
this year revealed that the majority of fresh supermarket chicken remains contaminated with
the potentially lethal food poisoning bug campylobacter. Six in ten chickens were
contaminated in anonymised FSA tests results released after a delay in August. The industry
is now poised to receive the results of further tests covering peak season for the bug, due to
be published on Thursday. These are likely to show even higher rates of contamination and
will identify individual supermarkets and their scores. After the report, Tesco made a
statement in which they said that they are “committed to the reduction of the industry-wide
issue of campylobacter in poultry. We work in close collaboration with our suppliers, other
retailers and relevant food and health authorities to address the issue at all stages of the
supply chain.”
Insider trading
Insider trading is the buying or selling of a publicly traded company's stock by someone who
has non-public, material information about that stock. Insider trading can be illegal or legal
depending on when the insider makes the trade. It is illegal when the material information is
still non-public. This makes a company's directors and high-level executives’ insiders.
Insiders are legally permitted to buy and sell shares of the firm and any subsidiaries that
employ them. However, these transactions must be properly registered with the Securities
and Exchange Commission (SEC) and are done with advance filings. You can find details of
this type of insider trading on the SEC's EDGAR database. For example, when a Tesco
takeover bid is imminent, shares are rapidly bought up then sold at a big profit. Insider
trading is, in theory, detected by the Securities and Exchange Commission (SEC) in the US,
and by the Securities and Investment Board (SIB) in the UK. Neither agency has any legal
powers other than public disclosure. Nor can they bring prosecutions themselves.
According to Mirror, Tesco boss banked £200,000 from share sale – just days before profit
warning. The announcement that festive business was the worst for 20 years saw shares
tumble 16%, wiping almost £5 billion off the company’s value.
But that did not concern Noel “Bob” Robbins, Tesco’s chief UK operating officer, who sold
50,000 shares at 404.5p each on January 4. That was just three days before the end of the
period covered by the grim trading statement and eight days before shares plunged to
323.4p. City regulations ban directors from trading shares in their company if they have
insider information – price-sensitive facts not publicly known.
Simon Wong, of watchdog Governance for Owners, said: “It doesn’t look very good,
especially when you are head of UK operations which is where most of Tesco’s troubles lie.”
But a Tesco spokesman insisted Mr Robbins had complied with the rules. "Bob Robbins sold
less than 5% of his substantial shareholding in Tesco for necessary family expenditure. The
sale, which was not made within a close period, was approved in the usual way.
2
