The benefits of putting ethics at the heart of company purpose
May 2019 | SPECIAL REPORT: BUSINESS STRATEGY & OPERATIONS
Financier Worldwide Magazine
May 2019 Issue
Culture is a hot topic at the moment, with the revised UK Corporate Governance Code requiring directors to understand their corporate culture and take steps to assure themselves that an organisation’s ethical values are embedded within the business.
Improving corporate culture is seen as essential in order for business to regain its standing in society, so that companies can secure their long-term franchise and their right to be heard in the debate on public policy.
It is the role of the board to give direction to the company’s purpose. In the UK, this is specifically through directors’ duty to promote the success of the company, as made clear in Section 172 of the Companies Act 2006. Once articulated, the board must bring the purpose alive, firstly to its employees and then to its wider stakeholder group.
This is all the more critical, when we learn that one in six employees in Europe say that they have felt some form of pressure to compromise their organisation’s ethical standards, according to our latest ‘Ethics at Work’ survey. The number of employees experiencing this pressure has risen in all of the countries for which historical data is available. The countries where these pressures are most severe are Portugal (22 percent) and France (20 percent ), while it seems to be less problematic in Ireland (11 percent), Spain and the UK (both 12 percent).
Employees are under more stress to deliver than ever before, and this is increasing the pressure to then cut ethical corners. These figures should be seen as a warning sign to organisations that they need to be more supportive of their employees when it comes to making ethical decisions. Employees are feeling more time pressure and are asked to take shortcuts more often than three years ago. They also say they are more likely to have felt pressure to compromise their organisation’s ethical standards in order to be a team player or save their job.
Context is crucial to understanding how these results are relevant to organisations. The ‘Ethics at Work’ survey took place in February 2018, against a backdrop of deep economic uncertainty and political turmoil. Since our previous survey was conducted in 2015, significant and largely unexpected events have produced the widespread feeling that the current political and economic situation is at a decisive moment in history. Divisive elections, an increasingly divided society and a growth of extremism in politics and society have fuelled uncertainty about the future.
There is a fear that many will be excluded from the benefits of a fast-paced globalised and increasingly digitalised economy. Public concerns about the effect of immigration and artificial intelligence (AI) on the workplace have compounded this sense of insecurity. The changing nature of employment is exemplified by the agile workforce or gig economy. Data shows that the number of people working on a project or contract basis, or as a freelancer, is on the rise, particularly in sectors like construction. While this provides more flexible ways of working, it significantly affects job security and employment rights and benefits, as well as inclusion in the workplace.
The uncertainty that characterises the current economic and political situation impacts on business with public perception that business is not being held accountable for its actions. This has a significant negative impact on how much people trust organisations to contribute to the development of society.
In this context, a key challenge that the international community faces is to develop governance systems that apply effectively to globalised markets. It is paramount that organisations of all sizes step up their commitment to be a positive driver of change, adopting governance frameworks that go beyond what is required by law and regulations.
Supporting an ethical culture in the workplace is a necessary first step for organisations.
We suggest three critical dimensions that responsible organisations need to take into account to ensure that their ethical values are effectively embedded in practice. First, assessing the ethical culture is essential to understanding the role that ethics plays in the organisation and how deeply the core values are rooted in the day-to-day decision-making process. Second, identifying ethical risks is important in order to understand which of them should be the focus of an organisation’s ethics programme, the aim of which is to ensure that employees do not feel pressured to compromise ethical standards. Finally, supporting ethics standards at work by providing the fundamental components of an effective ethics programme minimises ethical risks and shapes organisational culture around core ethical values.
Our survey data clearly shows the importance of an ethics programme. In organisations where employees are aware of a code of ethics, training and a speak-up mechanism, employees across Europe say that honesty is practised more frequently (86 percent vs. 74 percent), the organisation acts more responsibly with its stakeholders (86 percent vs. 57 percent), they are less aware of misconduct (27 percent vs. 31 percent), they are more willing to speak up if they become aware of misconduct (73 percent vs. 42 percent) and they are more likely to be satisfied with the outcome (72 percent vs. 28 percent).
However, while these results clearly provide a business case for boards to establish an ethics programme as part of their governance agenda, even with an ethics programme, establishing a unified ethical culture is a challenge. Global corporations, working across multiple jurisdictions, find achieving consistency particularly difficult, as reported business scandals in the news testify.
Establishing an ethical culture requires an understanding that everyone has an individual perception of what is right and wrong. Organisational ethics need to be simple and clear, including not only verbal and written guidance, but adequate and regular training.
And it is why having a programme is one thing, but visibly supporting that programme is the key to driving behaviour in a more positive direction. Creating a supportive environment for ethical behaviour is essential in applying business ethics in practice and closing the ‘say-do gap’ between how an organisation says it behaves, and the reality of day-to-day working practices.
Our ‘Ethics at Work’ survey uses the following elements as indicators of a supportive environment for ethics in an organisation. It uses these to ask employees their perception on: (i) tone from the top – which includes the ability of managers to set a good example for ethical business behaviour, explanations of the importance of honesty and ethics at work and support for employees in following the organisation’s standards of behaviour; (ii) stakeholder engagement – whether an organisation discusses issues of right and wrong at staff meetings, whether it lives up to its stated policy of social responsibility and acts responsibly in all its business dealings with its different stakeholders; and (iii) addressing misconduct – the ability of an organisation to discipline employees who violate its ethical standards at whatever level they occur.
The results are striking. In organisations with a ‘supportive environment for ethics’, the average European employee says that honesty is practised more frequently (91 percent vs. 53 percent), they are less aware of misconduct (21 percent vs. 60 percent), they are more willing to speak up if they become aware of misconduct (70 percent vs. 47 percent) and more likely to be satisfied with the outcome (90 percent vs. 15 percent) and they felt less pressures to compromise their organisation’s ethical standards (87 percent have not felt pressured vs. 59 percent).
These results – directly from employees – should focus the mind. When it comes to ethical culture, it is clear that most employees want to do the right thing. But the pressures upon them in this complex and ever-changing work environment mean that they need support and guidance to be able to do it.
There is no escaping current increasing political pressure for exemplary ethical behaviour from those running our companies and institutions. The threat is more rules and regulations. But these will never be sufficient as they can never cover all instances of behaviour. We are dealing with human nature and hearts and minds need to be won over to ensure all in society can benefit from globalisation.
This begins with business leaders being able to articulate clearly their organisation’s purpose, coupled with its values, its role in society and how it will behave in delivering goods and services. A clearly articulated purpose will help all those in the business begin to restore the trust which society has lost.
Philippa Foster Back is director of the Institute of Business Ethics. She can be contacted on +44 (0)20 7798 6040 or by email: email@example.com.
© Financier Worldwide
Philippa Foster Back
Institute of Business Ethics