Build your company’s ethics rating

Using ethical capital to improve your company’s ethics rating

Credit ratings fulfill an important role in evaluating the credit worthiness of businesses and governments. The rating is based on the rating agency's assessment of risk of the debtor's ability to pay back the debt and the likelihood of default. The value of a AAA investment grade rating is widely recognised, as is the negative impact when a rating is downgraded.

Similarly, an ethics rating can add significant value to enable investors and other stakeholders to assess an organisation's ethical risks and for organisations to get recognition when they have been operating ethically. An ethics rating also serves as a valuable tool to enable organisations to manage their ethics more effectively and in this way reduce ethical risks and maximise their ethical capital.

By way of an informal assessment of organisation's ethical status, I have asked audiences at various local conferences and workshops to identify just three companies operating in South Africa that have really distinguished themselves as being ethical. The very minimal number of companies identified is a telling sign – not that there are no ethical companies, but rather that very few organisations have been widely recognised for their sound ethical culture.

This represents a real waste of ethical capital. Seeing that organisations rarely waste other sources of capital, it is prudent that companies quantify their ethics to ensure they can leverage its inherent benefits.

An organisation should use its ethics rating to increase its reputation and to build its ethical capital with external stakeholders. For example, being able to increase the degree of trust between the company and its stakeholders would lead to many benefits, such as quicker, easier and more sustainable negotiations.

And, as credit ratings are intended to be comparable across different sectors and regions, so too can ethics ratings be used as a benchmark within industries, market sectors and regions.

Ethics ratings are ideally assessed on two key ethical concepts:

  • behavior, which can range from very ethical to extremely unethical; and
  • ethical boundary, which assesses the degree of inclusion or exclusion relative to stakeholders and the extent to which the organisation follows a triple bottom line approach.

As high credit rating are valued, so too should organisations aspire to an AAA ethics rating. To realise and retain this level of ethics rating necessitates on-going commitment from leadership to a sound ethical culture. Ethics also need to be clearly identified as a high priority organisational goal and included as a core feature of the organisation's strategy. In the absence of this support, the pursuit of ethics risks being overtaken by operational targets.

AAA, AA and A ethics rating

The best ethics rating is a AAA rating, which reflects the highest levels of ethical behaviour and ethical maturity and a very inclusive ethical boundary relative to stakeholders and social and environmental issues.

The rating declines to AA when ethical maturity declines and ethical behaviour is more a function of compliance with rules and regulations, or when the degree of inclusiveness of the organisation's ethical boundary decreases relative to its stakeholders or the triple bottom line.

A ethics rating

An A rating illustrates a situation where both ethical behaviour is at lower levels because it is largely compliance driven, and where the inclusiveness of the organisation's ethical boundary is not seen to fully encompass its stakeholders or its social and environmental responsibilities.

B ethics rating

While this indicates ethical behaviour, the ethical boundary falls within the exclusive zone which shows that ethics is practised primarily with reference to the organisation's own interests (such as economic goals), excluding the interests of all or most other stakeholders or a triple bottom line. Although, strictly speaking, this represents an ethical status, prioritising profits and self-interest is increasingly being considered unacceptable in the face of the on-going importance accorded to the interests of other affected parties and environmental concerns.

C ethics rating

This rating indicates unethical behaviour, but with an inclusive ethical boundary. This depicts an unusual situation that rarely occurs, in which the benefits of unethical conduct are not purely for self-gain, but are shared with others. A popular example of this is Robin Hood, who stole from the rich and gave to the poor.

D ethics rating

This is the worst ethical rating. It represents both unethical behaviour and an exclusive ethical boundary, where the misconduct is purely for self-gain, to the exclusion of the interests of others or the impact of such misconduct on other stakeholders, affected communities or the environment.

By Cynthia Schoeman
Published in HR Future, September 2013