ETHICS REPORTING: WHO SHOULD TELL WHAT TO WHOM? (Part 2)

Our May 2012 newsletter included part one of our focus on ethics reporting, addressing the topic of “Ethics reporting: who will tell what to whom?”. Part two addresses the question of “who should tell what to whom” which explores what organisations should report.

Organisations generally have a number of reporting obligations, many of them in accordance with the law, such as those required of public companies to their shareholders. Much of this amounts to ‘compliance reporting’ that does not extend beyond a minimalist approach, generally falling far short of meaningful disclosure based on the choice to be open and transparent. The 2012 Africa ESG Investment Forum, held in Johannesburg this month, acknowledged that the paucity of information about environmental, social and governance issues (all of which are facets of business ethics) compromised investors’ ability to make informed decisions.

The Companies Act (No. 71 of 2008) added ethics to legal reporting requirements with the mandate that all but small companies establish a social and ethics committee. The committee’s functions include that the company acts as a good corporate citizen by following a triple bottom line approach encompassing social and environmental dimensions, and its ethical duties include the prevention of unfair discrimination and the reduction of corruption. For some organisations this legal requirement may not be persuasive and their committees may only amount to ‘tick-box’ exercises. But for organisations that strive to be good corporate citizens and embrace the associated responsibilities, their social and ethics committees should add value to the company and provide its stakeholders with pertinent information about the organisation’s ethics.

Beyond the strictly legal requirements, ethics reporting is also recommended by King III (the King III Report on Corporate Governance in South Africa). Its focus on ethical leadership and the management of ethics specifically includes the assessment, monitoring, reporting and disclosure of an organisation’s ethical performance, which is considered “necessary to provide the board and management with relevant and reliable information about the achievement of ethics objectives, the outcome of ethics initiatives and the quality of the company’s ethics performance”. A facet of ethics reporting is also addressed by the JSE Securities Exchange’s Socially Responsible Investment (SRI) Index, which measures the triple bottom line performance of companies.

Although these initiatives are noteworthy they have insufficient guidelines about the information that would afford stakeholders better insight into an organisation’s ethics. A web-based ethics survey such as the Ethics Monitor both offers a practical and easy way to get a reliable measure of an organisation’s ethical status and meets the ethics reporting requirements of the Companies Act and the King III reporting recommendations. The key criteria are as follows:

Ideally ethics reporting should take the form of quantitative measures, not least because it is much easier to manage something when it can be quantified. Using quantitative measures also allow the results to be compared, for example, to reflect improvements relative to previous ethics survey results and to other results (such as between branches or departments, or even compared to competitors), and to provide a measure of the success of interventions to increase ethical behaviour.

The list of stakeholders to whom this information should be accessible includes those closely associated with the company, such as employees, labour unions and shareholders, as well as stakeholders who are affected by the organisation’s operations, such as communities in the vicinity of the business and lobby groups.

An ethics report should reveal the following as clearly as possible - which, optimally, should be customized (to produce results for the organisation as a whole, as well as for each branch, department, work level and stakeholder group) to generate even more meaningful results:

• An organisation’s current ethical reality or ethical status (as it actually is, that is, based on the perceptions and experiences of the majority of the organisation’s internal stakeholders, not only on the limited views of its directors and executives);
• The factors (positive and negative) that contribute to the ethical status;
• The organisation’s ethical strengths (which should be grown and celebrated);
• The current ethical weaknesses or areas of concern and how these will be addressed and improved;
• The potential ethical weaknesses or areas of concern (which should be carefully monitored);
• The extent of ethical behaviour or ethical maturity, which should include:
  
  
  • the respondents’ (which should include employees, management and executives) commitment to the organisation’s values and the values to which they are least and most committed;
  • the respondents’ perception of the extent to which the leadership is seen to live the organisation’s values (as distinct from the leaders’ actual commitment to values, which they can’t judge);
  • the factors that drive and improve ethical behaviour in the organisation and the relative strength of those factors.
• The levels of unethical behaviour, which should identify:
  
  
  • the incidence of specific unethical behaviours (which is based on the assumption that, when there is a breach of ethics, it is likely that someone within the organisation other than the perpetrator is aware of it);
  • the factors that reduce or prevent unethical behaviour and the relative strength of those factors.
• The degree of inclusiveness or exclusiveness of the company’s ethical boundary which should encompass:
  
  
  • the extent to which the organisation’s values apply to different stakeholder groups (for example, employees, labour unions, customers, suppliers and shareholders);
  • the extent to which the organisation values its employees as distinct from profit or personal gain;
  • the extent to which the organisation pursues the wider social and environmental interests represented by the triple bottom line.

Crucial to the effectiveness of such a tool is the confidentiality and anonymity it offers respondents, allowing them to share their views and experiences frankly and without fear of come-back.

The benefits of comprehensive ethics reporting and an ethical culture are significant – beyond just avoiding the most vocal ethics reports often being negative press reports. It can serve as a mechanism to reduce unethical behaviour by promoting openness and transparency, both of which promote an ethical culture and build and maintain trust. It can also position the organisation as an employer of choice. The assurance it offers external stakeholders, such as investors, can improve stakeholder confidence and boost the organisation’s reputation. Ultimately it can create a unique source of competitive advantage which distinguishes the ethical organisation from others.

By Cynthia Schoeman