Trust is a vital part of good business

Trust – that is the main theme at the Davos Forum next week, so it must be important. Many of the more thoughtful people who run large companies have been shaken by the decline in the reputation of the business community and of course the lapses in the ethical behaviour of both commercial companies and the investment banks that have led to this decline. As a result, expect companies to go through the motions at least – and I think a bit more than that – to see that they behave more honourably in future.

We should all welcome that. But from the perspective of smaller businesses there is a danger that new initiatives will be high-falutin mission statements rather than anything that changes the way they actually behave. Kenneth Lay, former chairman of Enron, was a prominent speaker on business ethics before his company bit the dust.

But if words are often a substitute for action, they do at least give a lever and this is something smaller businesses can use: "you said this and now you are doing that". Even giant companies are frightened of adverse publicity: no one likes being branded as a bully.

There are two particular ways in which large firms bully small: purchasing and payment. The purchasing issue has been brought to the fore by the bidding war that has broken out for control of Safeway. The supermarkets are, with Marks & Spencer, among the most aggressive in using their bargaining position in relations with suppliers. Naturally they have to be tough over suppliers' contracts, for they too live in a world of intense competition. But anyone who talks with these companies will hear tales of the bullying of some of their buyers. And if they complain publicly, as one did to me some years ago, they are threatened with the effective closure of their business.

The other area of complaint is slow payment or in some instances non-payment. Anyone who has dealt with large businesses knows that some are good payers and others are bad. You try to deal with the good payers and avoid the bad – or at least price into the contract the fact that you have to spend months chasing payment.

As for non-payment, I heard a new one just the other day. A company had terminated its contract with a supplier and the supplier was owed several months' money. Its explanation for not honouring its contract was that legally the supplier was quite correct but it did not make commercial sense to pay them!

So what is to be done? The moment is right to tackle these forms of unethical behaviour because we will increasingly live in a world where commercial morality will be an important issue. But how? There can be no magic wand but there are, I suggest, two main ways forward. One is name-and-shame; the other, use-the-market.

Name-and-shame is always a dangerous weapon because you never know how things will turn out if you go public. But companies do not like having a reputation for being bad payers. If I am right about the recent shift in public mood, they will like it even less. The advantages gained from delaying a payment can be more than offset by the adverse publicity that the company was abusing its financial power.

The trouble is that going public is a nuclear weapon in that it almost invariably ends the relationship. You get paid but you don't get any more business. But since the trouble is usually at a fairly junior level the trick is to find a way of letting senior management know about the problem without knowing the source. I suggest therefore that the information should be presented obliquely, perhaps though a non-executive director, rather than by a full-frontal assault. Non-execs have become increasingly concerned that they will be sued for unethical behaviour. Suppliers can use this fact that they are easy to scare by leaning on them.

But as a general rule, using the market is a better solution. Pricing bad behaviour into contracts is difficult but even weaker suppliers can price in good practice: discounts for prompt payment for example. Large companies can borrow cheaper than small, so this should suit them.

More generally, insofar as the high-inflation, high-interest rate world was associated with short-term attitudes in behaviour, so the shift to more stability should encourage a shift the other way.

It would be naïve to think that any grand global social trend – like this new emphasis on trust – will filter quickly down into day-to-day business behaviour. That is not the way the world works. But the fact that large companies are somewhat more worried about their reputation now than they were before the crash is useful. Clouds do sometimes have silver linings.