Ethics: the new bottom line

The importance of ethics can be argued both in terms of the benefits of ethics and avoiding the costs incurred by ethical failures. Both outcomes support not only a greater focus on ethics, but the formal elevation of ethics as an additional organisational bottom line. The rewards of more effectively identifying the organisation’s ethical capital are more than worth it, not least in an environment where corruption continues to increase the value of ethics.

Ethical organisations, of course, enjoy many positive returns: enhanced stakeholder confidence, improved risk management, easier access to capital, a sound reputation and increased brand equity. Internally an ethical culture fosters greater trust, allows better and faster decision making and greater consistency of responses, encourages more individual accountability with less need for policing, and avoids the need for excessive regulation. These reasons, among others, reflect why ethics makes great business sense.

However, somewhat as an aside, an interesting question to consider is how many companies are actually seen to be ethical. If asked to name just three organisations operating in South Africa that have truly distinguished themselves as being ethical, most people hesitate and often cannot name even one. What this signifies is not that there are no ethical organisations in our country, but rather that very few companies have successful build a strong ethical brand and reputation.

On the other hand, a lack of ethics or a major breach of ethics brings with it very visible negative costs and consequences. The ethical scandals involving KPMG, McKinsey, Trillian, SAP and Steinhoff illustrate the damaging effects of ethical failures. These scandals are often exacerbated by the negative consequences not being limited to the guilty parties. It also impacts innocent stakeholders, such as employee who are retrenched. The evidence of ethical failures at many of our State Owned Entities continues to emerge, together with insight into the disastrous consequences.

As these examples illustrate, ethics can represent a very destructive organisational fault line or a strength that constitutes a major organisational asset. It follows therefore that ethics should be a key leadership and management focus area. This warrants that the organisation monitors, measures and reports on ethics, and that ethics is managed effectively via a sound, comprehensive ethics management system – i.e. proactively instead of reactively after a problem has surfaced, regularly rather than on an ad hoc basis, and via an integrated system as opposed to disparate interventions.

But increasing the focus on ethics still runs the risk of it being overridden or superseded by economic pressure or by the selfish aims of powerful leaders. It therefore call for a more serious emphasis, namely that organisations move beyond a triple bottom line to four bottom lines to recognise ethics and their ethical responsibilities.

The rationale behind the move from a single, economic bottom line to a triple bottom line – namely to balance the extent of business influence with its responsibilities to the society and the environment in which it operates – applies equally to ethics as a bottom line. The extent of the influence exercised by private and public sector workplaces and non-profit organisations on ethical behaviour can be profound, to either improve the level of ethics or to erode it.

Ethics already applies to the triple bottom line in that organisations that persist in pursuing a single, economic bottom line are increasingly viewed as shirking their responsibilities. They may not necessarily be seen to be unethical, but they would certainly be regarded as poor corporate citizens. Ethics also informs the social and environmental bottom lines inasmuch as both stakeholder inclusivity and environmental protection fall within the ambit of ethical behaviour. However, ethics encompasses more than stakeholder inclusion and environmental responsibility. Workplace ethics is about inculcating the ethical conduct, practices, decisions and systems that result in stakeholder inclusion and environmental protection. Collectively, ethics is about building and maintaining an ethical culture that fosters a sound, ethical reputation.

In effect, what an ethical bottom line reflects is the organisation’s ethical capital, in the same way that financial, social or environmental bottom lines represent that value vested in those facets of the organisation, be that financial capital, customer or relationship capital, or community capital. Phrased differently, ethical capital stems from ethical behaviour exercised both within the organisation and relative to its external stakeholders and it represents the value that is generated by an ethical organisational culture.

But ethics should not become the fourth bottom line as regards its priority ranking. The top priority for the private sector has long been held by the economic bottom line. This is understandable in that achieving sound financial results is crucial for the company’s on-going sustainability. However, it is preferable that ethics occupies that first priority position, as a first among equals. This helps avoid the trap of ‘doing business at any cost’ which can arise when financial and associated results are the primary focus, and it undermines the rationalisation that ‘the ends justifies the means’.

Ethics as a formal bottom line also ensures a greater focus on how business is conducted and how the organisation is run, in line with King IV’s definition of corporate governance as being about “the exercise of ethical and effective leadership”. So too is an ethical bottom line an excellent start to making ethics a distinguishing feature of the organisation and its culture – a very worthwhile outcome considering the extent to which all stakeholders easily recognise the benefits of dealing with an ethical organisation.

As with any change, it rests on the organisation’s governing structure – the board and executive leadership – to have the foresight and leadership will to drive this expansion of their bottom line.

by Cynthia Schoeman
© Cynthia Schoeman, Ethics Monitoring & Management Services (Pty) Ltd, 2018