Why Business Ethics MattersCHC Governance Conference

Philippa Foster Back CBEDirector, Institute of Business Ethics

Powys, 26th February 2015

...doing business ethically......makes for better business

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About the IBEThe IBE was established in 1986 to encourage high standards of business behaviour based on ethical values.

AdvicePublicationsTrainingForumsResearchEducation

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‘the application of ethical values to

business behaviour’

A definition of business ethics

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Business Ethics

Values

Ethics Culture

Conduct

Trust & reputation&

Financial & operational

performance

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Values Pyramid

CompaniesIndividuals

Professions

Society

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Some ethical values

Honesty Transparency Integrity Openness

Courage

Trust/trustworthiness Respect Fairness Responsibility Loyalty

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Business Ethics and the Organisation Model: How do values have an impact?

Core ethical values

Expressed in an Ethics Policy and Code

Influences conduct &decision making

Reinforces a culture of trust & integrity

Supported by an effective ethics programme

individuals

company/organisation

Basis of a Sustainable Organisation Model

The way we do things around here, i.e. our culture

&

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CONSEQUENCESDRIVERS

INTEGRITY FAILURE

Proxy for:Ethical lapse, irresponsible behaviour etc.

Reputation risk

Operational risk

Other risks

Other consequences

e.g. consequences for the economy, adverse effect on the well being of individuals and

societies

Insufficient ethics policy and control mechanisms

Behaviour of individuals pursuing their own interests (advancing career, protecting livelihood etc)

Target culture

Pressure from financial markets to produce short-term results

Wanting to help company to survive

Organisational culture and climate

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Elements of an effective programme

Communication &

Awareness Campaigns

Supporting Context &

Culture

Code of Ethics•The Way We Work•Business Principles•Our Commitments & Standards

Training&

Reinforcement

Monitoring&

Accountability

What, why, how; understanding as well as information, how to ask for help, seek guidance, Speak Up etc,

Leadership example; decision-making; strategy; polices; resources, business goals; compliance; CR,; Speak Up…

Guidance for staff on expected behaviours, how to deal with day to day ethical dilemmas, how to raise issues

Recruitment; induction; on-line & face-to-face; dilemmas; debate; appraisals; incentives and remuneration

Surveys, internal audit, stakeholder engagement; business review; external audit

Embed Values Influences Culture & Behaviour

Ethical ValuesReflected in the business model, purpose, strategy, governance and

decision making process in the organisation

Embed, Implement, make operational with feedback loops to build in learning and improvement

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Governance Structure

Sir Anthony Salz on culture

“Culture exists regardless. If left to its own devices, it shapes itself, with the inherent risk that behaviours will not be those desired. Employees will work out for themselves what is valued by leaders to whom they report.”

The Salz Review of Barclays Business Practice

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Culture is discerned through such questions as: What are the common understandings about the way this

organisation does its business?

What are the norms of how do we do our work?

What core values drive us?

What is the leadership style?

Can individuals challenge the norm?

Culture: the context for an ethics programme

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Your organisation

What Code do you have in place? What values guide your organisation? How have you embedded them? Are they lived? Do you know the dilemmas your staff face day to day? Is your speak up line used? What metrics do you use to measure culture?

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Speaking Up

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Reasons for not speaking up

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Retaliation (actual or perceived) Lack of confidence in the process Uncertainty

Lack of confidence in management capabilities Lack of understanding of the benefits of speaking up For the organisation For the individual

Too busy

Employees ‘speaking up’ 2012 Half (49%) of employees who were aware of misconduct

in their organisation did not report their concerns.

The top two principal reasons for not raising a concern were “It’s none of my business” (29%) and “I didn’t believe corrective action would be taken” by the organisation (24%).

Of those employees who did report misconduct, 70% were satisfied with the outcome. The 30% who were not satisfied suggests that there is work to be done on the speak up processes organisations have in place.

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Why boards need to know that their organisation is living up to its values

Good Leadership – tone at the top, competency

Business survival – internal controls, reputation, strengths and weaknesses, scrutiny of investors, market opportunities

Good Governance – guidelines require boards to meet their obligations

Disclosure trends – CR reporting, SEE risks in to Annual Reports

Legislation - UK Companies Act, UK Bribery Act.

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Testing whether it is working...

To assess aspects of ethical culture, such as: Company values Internal policies External relationships Awareness Experience Sensitivity Confidence

Ethical Assurance and staff surveys

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Summary

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What elements in a corporate culture lead to ethical lapses?

Paying lip service to positive ethical values (valuing profit at any price)

Fear of failure (targets, speaking up etc.)

Fear of raising concerns

Lack of ethical leadership and example at the top

Lack of support mechanisms such as speak-up lines, contractual incentives?

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Tone

“It is all about doing the right thing when nobody is watching....”

Carly Fiorina (formerly HP)

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Business Ethics

Values

Ethics Culture

Conduct

Risk

Trust & reputation &

Financial & operational

performance

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Thank you

www.ibe.org.uk

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