Given the many media reports of scandals and ethical failures, most leaders would acknowledge the importance of ethics in the workplace. But to realise any change or improvement, leaders need to move beyond an acceptance of the importance of ethics to pursue meaningful action. Indispensable to this progression is a sound understanding of ethics – of the current trends, ranging from best practice and the major pitfalls – to enable leaders to adopt a more effective strategic approach to ethics.
The following represent three of the key trends that should be recognised.
- Ethics is (incorrectly) frequently limited to a focus on compliance and fighting corruption
The imperative to combat fraud and corruption frequently results in organisations focusing virtually all their attention in the field of workplace ethics on curbing misconduct. While this focus is vital, it is not sufficient – the reasons being that minimising misconduct does not necessarily promote or ensure ethical conduct, nor is this factor effective enough to create an ethical culture on its own.
This tendency to concentrate on fighting corruption is often coupled to a focus on compliance. The need to abide by a multitude of laws and regulations is making compliance an onerous task that could be used to justify a ‘tick box’ approach. This is clearly not ideal, not least from a risk perspective.
However, the far greater problem that can arise is that compliance and fighting corruption come to be seen as the totality of the organisation’s ethical focus and ethics initiatives – that organisations decide that no more time, funds or resources can be allocated to anything else. This risk is enhanced by the reality that compliance is almost always obligatory (for example relative to legislation) while much of ethics can be considered voluntary.
The unsatisfactory consequence of focusing on corruption or compliance instead of pursuing a broad-based approach to ethics is that it limits the organisation to only one facet of ethics, namely the rule-based side of ethics. However, to be an ethical organisation requires an equal focus on fostering value-based behaviours. Values which are shared by employees are a much more sustainable and effective driver of behaviour than legislation and rules. Shared values are a greater contributor to the creation of an ethical culture.
Therefore, a sound approach to ethics needs to include an emphasis on reducing misconduct and on promoting and improving ethical conduct. An analogue that illustrates this well is that increased profitability is achieved not only by reducing costs, but crucially also by increasing sales and revenue.
- Ethics management is not sound enough to minimise risk and avoid reputational damage
It is accepted without question that the key factors within an organisation – such as performance, service delivery or safety – should be managed well. Typically these issues would be managed on a proactive basis using suitable methodologies and clear measurement (such as KPIs) in order to achieve the desired outcome.
The same logic needs to be applied to ethics. To realise the benefits that an ethical culture can deliver and to minimise the risk of ethical failure and its negative costs and consequences, ethics needs to be managed proactively and in a systematic manner. The fact that many organisations do not have a clear ethics management system is a shortcoming that needs to be rectified. The risks associated with ethics can no longer be addressed by an ad hoc or reactive approach.
A noteworthy support for ethics management is included in the draft King IV Report, which advocates that the role of the social and ethics committee should go beyond the scope of the Companies Act to include issues such as ethical behaviour and ethics management.
- Ethics assurance is, at best, seen as a corporate governance recommendation
Monitoring and reporting on ethics are requirements in terms of the Companies Act social and ethics committee and recommendations in terms of King III (extending to assessing, monitoring, disclosing and reporting). The value of external, independent ethical assurance is well recognised in King III as providing “internal and external stakeholders with relevant and reliable information about the quality of the company’s ethics performance”.
But assurance about an organisation’s ethical status is not often sought by stakeholders, nor is it currently a high-level expectation. Yet directors (especially non-executive directors whose distance from the organisation’s operation does not allow them to assess its ethics) should require meaningful assurance about the organisation’s ethical performance as a matter of course. So too should ethical assurance be a recognised deliverable for board committees such as the audit or social and ethics committee.
Organisations should anticipate that the requirement for ethical assurance will grow to where it will be a stakeholder demand – and, ideally, they should pre-empt this by providing quantitative results about their ethical performance. This serves the important outcome of building greater trust with stakeholders and strengthening the organisation’s reputation. Quantifying ethics also adds to the organisation’s commitment to ethics and provides valuable management information to enable better and more focused ethics management.
To conclude
Much as these three key trends (and others) make a sound case for organisations to advance their actions in the sphere of ethics, a further driver is required.
Ethics also needs to be recognised for the value it adds to the organisation. In the same way that organisations would expect a return on investment in their area of operation, so too should organisations pursue the ethics ROI, the return on integrity. Only when ethics is recognised as an asset in the form of ethical capital (which denotes the collective value that derives from ethics and an ethical culture) will ethics become a sustainable focus area in organisations.
By Cynthia Schoeman
Posted on USB Executive Education Thought Thursdays ,11 August 2016