Business Principles: 11 Pillars for Equality and Success
Small companies and large corporations alike have a part to play in promoting fair and honest trading in the business sphere. Businesses of all sizes should prioritise treating both staff and customers with respect and integrity according to their own measure and in accordance with the law. After that, they can turn their attention to things like sustainability, operational efficiency, and financial success.
The UK’s fiscal regulator, the Financial Conduct Authority (FCA), has created a list of 11 business principles [1] which all UK businesses must abide by. While the FCA’s rules apply to the UK only, these principles set a standard for companies worldwide who want to operate with soundness, responsibility, and care.
Here’s a rundown of the FCA’s 11 business principles, examples of companies who have broken them, and an explanation of how you can follow these guidelines within your company.
1 Integrity
“A firm must conduct its business with integrity.”
Having integrity is doing the right thing even when nobody's watching. It’s also being honest and following high ethical standards for the benefit of others, not just for the sake of compliance or ticking a box.
When integrity drives a business, the overarching question changes from “Is this allowed?” to “Is this right?” [2].
Business integrity means you stand true to your word and promises in business. That applies to how you treat customers, employees, businesses in your supply chain, and investors. It means taking responsibility and accountability for mistakes, and making honesty and a drive for improvement a priority from the top down.
2 Skill, care and diligence
“A firm must conduct its business with due skill, care and diligence.”
In 2012, Barclays Bank arranged and executed a £1.88 billion transaction for politically exposed persons that required extra monitoring, care, and due diligence in order to mitigate the risk of financial crime. While it was found that no crime took place, Barclays did not follow its standard procedures. They were subsequently fined £72 million by the FCA for failing to meet this principle [3].
Failing to act accordingly can bring about a range of issues: it’s often more expensive to fix a messy job than it is to do it properly in the first place. Acting carelessly can also bring about a poor business reputation, and lawsuits in the worst-case scenario.
3 Management and control
“A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.”
Safety is non-negotiable. This principle shouldn’t be viewed as a restraint, but rather as a guideline that’s in place to protect and benefit all businesses. Here’s why risk management and control is important:
- Strict business operational guidelines are hard to misinterpret and are easy to update as things change within the business.
- Designed to keep people safe on both sides of the business transaction.
- Provides protection from events that are detrimental to both the company and the environment.
- Protects assets, data, and finances from potential harm.
- Keeps legal liability and insurance policy premiums low [4].
4 Financial prudence
“A firm must maintain adequate financial resources.”
Finance experts, Hero FinCorp, explains that financial prudence basically means planning your money well in advance and investing in areas where you can expect high returns. It also means having complete knowledge about the money you have and how you can make it grow best [5].
This means sustaining positive cash flow, spending investments and business loans responsibility, and taking adequate measures to keep your business sustainable. This can be achieved by creating budgets, streamlining your business plan, making smart long-term investments for your business, and finding ways to reduce costs - without cutting corners ethically.
5 Market conduct
“A firm must observe proper standards of market conduct.”
Market conduct relates to the strategies that businesses use to gain a competitive advantage over their rivals. This includes pricing and marketing strategies. The choice of marketing strategy will vary greatly from market to market depending on the products, industry, and customer base.
Fair market conduct is the reason why brands can’t make debatable statements and opinions and present them as facts. For example, it’s why Carlsburg claims that they’re “probably” the best beer in the world. Guinness and Heiniken would argue otherwise.
Market conduct also relates to the relationships between suppliers and buyers, and the mutual interdependency of suppliers on one another to act ethically [6].
6 Customers' interests
“A firm must pay due regard to the interests of its customers and treat them fairly.”
Customers exchange money for your goods and services. As a business, you are tasked with fulfilling your side of the agreement with the utmost care, respect, and consideration of your customers’ needs and expectations. This isn’t a blanket, “The customer is always right” rule. Rather, it means that customers must be treated fairly. It means that all customer interactions should be mutually beneficial and positive. Principally, it protects customers from mistreatment due to discrimination or prejudice.
7 Communications with clients
“A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading.”
It’s your duty to share a certain amount of information with clients. What you share depends on your business and your specific agreement. It includes misleading clients or knowing that clients have misinterpreted something and failing to correct them because their mistake will benefit your company.
Failing to communicate with a customer after payment and before they receive your products and services also breaks this principle. For example, if you have to reorder stock in order to fulfill an order and you fail to inform the client, it’s deemed as a lack of communication that they’re entitled to know.
8 Conflicts of interest
“A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.”
There are an infinite number of scenarios where a conflict of interest can arise at work. For example, as a manager, you may know about a position opening up in your company and have agreed to give interview tips to an underqualified friend or relative in order to help them get hired.
Or, you manage the stock and purchasing at your company, and you decide to buy from a friend who is a vendor, even if it’s more expensive.
Not only is acting in these scenarios unprofessional, but it can also lead to dismissal and is unlawful in some cases.
9 Customers: relationships of trust
“A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment.”
An example of how this rule may be broken is if you withhold information. Say, if you have a duty to tell customers that they will receive a better deal if they wait until a certain date to purchase something, but decide not to tell them since it’ll lower your commission if they do.
If a customer is making a decision based on the information you disclose, you must be honest, even if it will discourage them from doing what you’d like them to do.
This principle also includes acting in ignorance and failing to properly assess a client’s situation before making a decision that will impact them.
10 Clients' assets
“A firm must arrange adequate protection for clients' assets when it is responsible for them."
This mostly applies to businesses like banks and real estate agents. To apply this to a hospitality setting, this principle does not include a customer visiting a restaurant and forgetting their coat and leaving it there. Rather, if the customer paid to use the cloakroom and the coat was misplaced or stolen.
It’s been said repeatedly throughout this blog: as a business, you are in a position of trust with your clients. Proper organisation is rudimentary if your business has temporary ownership of a customer’s belongings.
11 Relations with regulators
“A firm must deal with its regulators in an open and cooperative way, and must disclose to the FCA appropriately anything relating to the firm of which that regulator would reasonably expect notice.”
In 2018, Santander failed to pass on funds belonging to deceased account holders to their beneficiaries. Over £183m was withheld, impacting almost 40.5K customers. This also breached principles 3 and 6, management and control, and customer’s interests. Santander’s probate and bereavement process contained weaknesses that reduced its ability to effectively identify all the funds it held which formed part of a deceased customer’s estate and failed to inform the beneficiaries of this issue [8]. They were fined and given a final notice from the FCA.
Bonus: Strong foundations
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