Who’s really striving to be ethical?
Strate Ltd case study

Strate Ltd is South Africa’s authorised Central Securities Depository for the electronic settlement of financial instruments in South Africa. It is a public unlisted company owned by the JSE, four South African banks - ABSA, FirstRand, Nedcor and Standard Bank - and Citibank.

As part of the financial services industry, Strate falls within a market sector that necessitates trust. High levels of trust are even more pertinent for Strate given its central role within southern African financial markets. A sustainable way of earning and retaining that trust is to focus on values as a driver of organisational behaviour (over and above compliance with rules and regulations) and to strive to create a workplace with an ethical culture.

In pursuit of this, Strate recognised the value of an independent assessment of their ethics. To this end, Strate completed a web-based ethics survey, the Ethics Monitor, in May 2012 and again in May 2013. Their results over this period provide an excellent example of a company that is successfully improving and strengthening its ethical culture.

The Ethics Monitor survey tests a company’s ethics relative to two key ethical concepts: behaviour, ranging from very ethical to extremely unethical, and ethical boundary, which measures the degree of inclusiveness or exclusiveness relative to stakeholders and the social and environmental dimensions of the triple bottom line. The survey quantifies a company’s ethical status and produces accurate, credible ethics results based on the experiences and perceptions of all employees.

The credibility of the results derives from the confidentiality of the Ethics Monitor survey and is influenced by the employee response rate. The higher the response rate, the more it validates the results. Strate’s increased respondent response rate of 74% in 2013, up from 57% in 2012, reflects a noteworthy improvement in employee engagement, and the employees’ willingness to provide feedback via the survey also suggests that this is a trusted form of assessment.

The improvement in Strate’s overall ethical status is illustrated by their ethics rating. (For a full discussion on ethics ratings refer to this newsletter’s lead article.) In 2012 their results earned them an A ethics rating, which is a very good result, signifying ethical conduct and as well as positive ethical boundary that encompassed stakeholders and triple bottom line responsibilities. In 2013 this increased to a AA ethics rating, which was primarily driven by an even more inclusive ethical boundary. This improved ethics rating represents a notable source of ethical capital that should be valued within the company and by external stakeholders.

In terms of ethical behaviour, on a scale of 0 to 10 where 10 is the optimal result, Strate’s overall results increased from 8.23 in 2012 to 8.43 in 2013. The extent to which the leaders are seen to live the values tested (honesty/integrity; fairness; loyalty; respect; responsibility and accountability; and care/compassion) increased from 7.59 to 7.99 from the first to the second survey. Similarly, the degree to which values are taken into account when strategy is formulated, changes are implemented and decisions are made also all increased from 2012 to 2013.

However, the most significant change with respect to ethical behaviour was relative to the factors that increase or improve ethical conduct within the organisation. Amongst the seven factors the Ethics Monitor survey tests, in 2013 the behaviour of Strate’s leaders emerged as the most effective factor to improve ethical conduct. Given that research shows that leadership is the most impactful factor to shape ethics, this is an excellent result. That it is supported by the organisation’s values and job satisfaction as the next two most effective drivers of ethical conduct, creates a superb basis for a strong ethical culture.

The Ethics Monitor survey assesses unethical behaviour by evaluating the effectiveness of 15 factors to reduce misconduct and the incidence of 11 specific types of misconduct. Across all 15 factors Strate’s results revealed better levels of effectiveness to minimise unethical behaviour over the 2 year period. This year their own rules and regulations and policies and procedures were ranked respectively as the first and third most effective factor, which reflects positively on the efficacy of their internal mechanisms to shape employee conduct.

The incidence of misconduct is often a sensitive measure and achieving a zero score, that signifies no misconduct, is clearly desirable. However, this result is unlikely because all organisations will almost certainly have a few employees who are unhappy or who harbour a grievance, which will manifest itself in exaggerated negative scores. But the likelihood of this tendency should not be used to minimise the relevance of misconduct results. Rather it should serve to create a realistic view of the lack of a zero score. In Strate’s case, the data reveals that 5% of their employees consistently scored the company very poorly. Trying to surface the issues that prompted such responses could be done, for example, by providing a more secure reporting system that allows employees to raise grievances without fear of repercussions.

As regards the incidence of unethical behaviours at Strate, this was already low in 2012 and showed further decreases in 2013. Most noteworthy was a 35% decrease in terms of withholding information, from 3.91 to 2.54 on a scale of 0 to 10 where the lower the score the less prevalence of misconduct, and a 31.5% decrease relative to the unfair allocation of rewards, from 4.03 to 2.76.

Strate’s inclusive ethical boundary contributed to their good ethical status and excellent ethics rating. This is an especially positive result in the context of the company’s dominant position in their field. The degree to which they value their people increased by 14% off an already high base in 2012, and the extent to which the company’s values are applied to employees and external stakeholder both increased from 2012 to 2013. Their commitment to addressing a triple bottom line improved overall over the two surveys, with marked increases in 2013 in initiatives to improve or protect the environment (39%) and to build greater respect for the environment (28%).

With such sterling results, it could raise the point that, apart from the stretch goal of a AAA ethics rating, there is not much more a company like Strate needs to do in pursuit of an ethical culture. However, maintaining that strong ethical status – and, crucially, retaining the trust that it engenders – is not automatic. It rests on a proactive approach to managing ethics (as opposed to a reactive one) and it requires consistent, continual attention, especially from the organisation’s leadership, to ensure that ethics remains central to everything the organisation does.