Fathoming corporate ethics

July 2017  |  FEATURE  |  FINANCE & INVESTMENT

Financier Worldwide Magazine

July 2017 Issue


In a world in which ethics and related concepts, such as transparency and democracy, seem to be under scrutiny like never before, a broad spectrum of stakeholders – including customers, shareholders and citizens – are demanding companies take a more ethical approach to business.

Indeed, a 2017 report by KPMG – ‘Promoting Ethics in Organisations: Letters from the Field’ – found that both proponents and sceptics have a desire to talk about ethics in organisations, with a strong appetite to identify and meet the daily challenges of creating an ethical organisation.

As a result of this demand, there has been a resurgence of interest in practical ethical cultures, business strategy and leadership across a range of sectors and industries, with corporates under pressure to put their house in order.

In the US, individual accountability for corporate ethics has been rising since the release of the Yates guidance memo to federal prosecutors in 2015. Further trends and developments in this space include the heightened demands customers and investors are making to include moral values within corporate objectives, the implications of changing corporate ownership structures that reduce boards’ powers and the dearth of diversity among board directors.

“Major scandals in previously respected companies over the last two years have shaken public confidence that they will be well treated by companies,” says Kirk O. Hanson, executive director at the Markkula Center for Applied Ethics. “As a result, ethics in business and government is being debated in the US as never before. Furthermore, having an established businessman with complex, global business ventures in the White House has raised greater public scrutiny of matters like conflict of interest and transparency.”

Ethics culture and risk mitigation

Sceptics will of course question how effective ethics policies and programmes can really be in mitigating the broad range of risks that a company may face, not to mention the difficulties in moulding culture to fit the ethics strategy.

Senior management complacency and a fixed organisational mindset are the reasons why so many companies struggle to implement a strong ethics and corporate compliance programme.

“Companies that invest in creating ethical communities and cultures can expect better business results and avert most reputational crises,” believes Ann Skeet, director of leadership ethics at the Markkula Center. “Ethical behaviour and culture can increasingly be measured and the real costs to companies like Wells Fargo and Volkswagen are evident. Tools for assessing ethical culture should be used to signal to employees that corporate leadership cares about ethics and provide a baseline for senior management and boards. Using mission statements as an expression of ethical intention and a guide to ethical behaviour is another key tool.”

Overcoming ethics hurdles

In many cases, senior management complacency and a fixed organisational mindset are the reasons why so many companies struggle to implement a strong ethics and corporate compliance programme. Major hurdles are compounded by a traditional notion that ethics is a soft and expendable skill, in contrast to financial and operational competence.

“Ethics is a leadership function,” asserts Ms Skeet. “Executives who short-change the ethics dimension of their leadership may be complacent, but often they are unclear about the ways to manage ethics through their own actions.” Furthermore, although much more is now known about the executive actions which discharge this critical responsibility, many executives, according to Mr Hanson, “start out with the intention to manage ethics”, but then let that role be “crowded out by the pressures of quarterly profit goals and short term expediency”.

Ethics going forward

Implementing an effective corporate ethics culture appears to be an essential requirement for conducting business in today’s fractured, fractious and economically shambolic geopolitical environment – an uncertain world which breeds mistrust and invites intense scrutiny.

“Policies and codes are only one tool to encourage ethical conduct,” says Ms Skeet. “To effectively move the needle in corporate ethics, a more robust practice of ethical leadership must exist beyond policy development. Top executives must convince their organisations, through repeated communication and storytelling, that leadership really does want ethical behaviour, even if it occasionally seems to be costly in the short run. Otherwise, managers and employees at all levels will conclude that the firm’s leadership really wants ethics to give way whenever profits are in the balance.”

Although in this day and age ethics can be something of a fluid concept, for the corporate world at least it should be treated with the utmost gravity – a moral responsibility that should underpin policies and practices, giving committed companies a real advantage in the years to come.

© Financier Worldwide


BY

Fraser Tennant


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