Six reasons to measure and report on ethics: Part 2

Consider the second three reasons that make a case for monitoring, measuring and reporting on your company’s ethics.

The article in the September issue acknowledged that the impetus for action in organisations can range from obligatory reasons – that is, doing something because you have to – to willingness, which implies doing something because you want to or choose to do so.

Ethics within the workplace is especially susceptible to this distinction. “Doing something because you want to” stems from intentional choice by the person or organisation and this internal locus of control makes the actions and decisions – and hence the ethical conduct that follows – much more sustainable. In contrast, “doing something because you have to” is generally in response to an external authority, such as legislation. When non-compliance with legislation has very few consequences (as is the case with the Social and Ethics Committee requirement in the Companies Act) or is poorly implemented and monitored, it is likely to diminish the commitment to action.

Adding to the three factors included in the September issue (the Companies Act, King III and directors’ liability and responsibility), the following represent further reasons why organisations should measure, monitor and report on their ethics.

Reason 4: Improved management of ethics

An important facet of a comprehensive ethics management system is the measurement, monitoring and reporting of ethics. Its inclusion rests on a number of sound business reasons.

Quantifying ethics makes it much easier to manage ethics. The ethics assessment tool used should clearly identify the areas where the organisation needs to act to improve ethics and how severe the issue is, thereby enabling the company to draw up a prioritised action plan to address problems or to retain ethical strengths.

Assessing the organisation’s ethics is crucial to gaining an understanding of its current reality as regards ethics. As such, the assessment should canvass the views and experiences of all (or almost all) employees and key stakeholders to ensure a credible picture is obtained. Only once the current status is clear can the organisation decide how and where it should act to improve ethics. Understanding one’s current reality also avoids organisations being able to pretend that everything is alright (think Enron) or to embark on an ethics management system on an assumed reality.

Having qualitative results for the organisation’s ethics also allows the value of ethics to be more fully appreciated. Ethics should be recognised as a key part of the organisation’s intangible asset base, but its somewhat indefinite nature can lead to its still not being valued sufficiently. Quantitative assessment results that specify the extent of a company’s strength and weaknesses can overcome that problem.

Crucially, for the ethical organisation, measuring ethics also provides a clear measure of success. This leads on to the benefits of ethics reporting since good assessment results can be viewed as legitimate “bragging rights” that warrant being shared with key stakeholders. The positive outcome of this is that it can enhance the company’s reputation and bolster trust levels.

Reporting also serves a valuable role to keep stakeholders properly informed and this transparency effectively serves as a motivator to keep the organisation’s focus on ethics and “encourage” them to maintain good ethics results.

Reason 5: Risk management

Risk management is an important issue for most business. Ethical risks, in particular, need to be managed as the cost of ethical failure can be very damaging to the organisation, whether financially, in a falling share price or in eroded market and customer confidence. The accurate, regular assessment of the organisation’s ethics can provide the organisation with a sound ethics risk profile that highlights problem areas so that these can be remedied promptly and that allows areas of deterioration to be easily monitored, thereby reducing risks.

Ethics reporting also supports risk management, although mostly for the organisation’s stakeholders. While current or past ethical performance is not a guarantee of future ethics, it is a noteworthy indicator. Thus, by providing stakeholders with relevant information about the organisation’s ethics, it allows them to make better informed decisions relative to their relationship with the company, thereby reducing their risk.

Reason 6: Reputation management

Since the comprehensive assessment of an organisation’s ethics and regular reporting both illustrate the organisation’s ethical status, for ethical organisations this can provide an opportunity to increase the recognition they get for this asset from their stakeholders (such as shareholders and potential investors). This, in turn, can enhance the organisation’s reputation, which is very advantageous.

A good ethical reputation, which can be equated with a high level of “ethical capital”, brings with it many advantages. It increases brand equity, favours easier access to capital and a lower cost of capital, enhances employee commitment and customer loyalty, supports the recruitment and retention of top talent for employees and the board, and supports good stakeholder relationships.

Collectively there are, therefore, many sound reasons why organisations should measure, monitor and report on their ethics. The only decision should be how to go about it, not if.

By Cynthia Schoeman
Posted on HR Future, October 2014