The current international economic crisis has, not surprisingly, resulted in trust in the business community being at an all time low: a BBC debate at the World Economic Forum in Davos in early 2009 noted that this extends to CEOs who are also not regarded as trustworthy.

Evidence enough of unethical behaviour

There is certainly enough evidence of unethical behaviour to warrant statements like the above. Bernard Madoff, accused of $50 billion fraud, currently tops the list. When questioned by FBI agent Theodore Cacioppi about his actions, Madoff admitted that “there is no innocent explanation”.

The questions much debated now are how and why a crisis of this proportion happened. Speculation about the causes include lack of understanding, lack of knowledge, system failure, lack of managerial oversight, lack of regulation, and greed.

Unethical behaviour – a failure of values or rules?

Given that values and rules (which include laws, rules, regulations, systems and procedures) are two of the primary drivers of ethics, a particularly relevant question from an ethical perspective is whether this was a failure of values or of rules.

Probably both.

If you compare these two drivers of ethical behaviour, it is clear that values and rules are neither focused on the same intended outcome, nor do they achieve the same results.

Rules aim primarily to achieve compliance, while values aim primarily for commitment - which represents a big difference, not least as regards sustainability. The tendency of most organisations to favour rules as a mechanism to shape behaviour represents an apparently easier option than a value-based approached.

Do organisations need more rules or more values?

Yet, while rules are necessary, they are not sufficient to achieve ethical behaviour. You also need values. And, you need values more, because ethical behaviour can be achieved with sound values and very few rules, but not vice versa.

What then are sound values? Values in business generally comprise both moral values and business values: moral values such as integrity, fairness, and respect, and business values such as customer focus and innovation. Sound values are moral values which are lived, shared and consistent.

Therefore, in theory, if you have good moral values and good, comprehensive rules which are fair to all your stakeholders, you should achieve ethical behaviour from your employees and, consequently, achieve a positive ethical status for your organisations. In practice, however, you will mostly need to provide a bit more detail about how to do this.

Improving ethical behaviour

One approach is to reduce unethical behaviour. This can be achieved to a large extent by the more effective application of laws, rules, regulations, systems and procedures. The other approach is to improve ethical behaviour.

Two concepts are relevant in this regard: ethical maturity and ethical boundaries.

What is Ethical Maturity?

Ethical maturity reflects whether behaviour is shaped by rules or values. Low ethical maturity reflects compliance with rules, whereas high ethical maturity reflects a commitment to values. However, rules are almost always externally imposed, and their effectiveness thus largely stems from the quality of enforcement. Values, on the other hand, are a much more sustainable influence of behaviour inasmuch as they are personally owned. The effectiveness of values stems from the quality of the values, most notably if they are shared and lived.

What are Ethical Boundaries?

A third approach focuses on ethical boundaries. a crucial, often neglected, facet of ethics which addresses the nature and impact of behaviour and/or decisions. Are they exclusive, for self only, or inclusive, for self and other stakeholders? Are they exclusive in only pursuing an economic bottom line, rather than a triple bottom line? Exclusive ethical boundaries which exclude the interests and concerns of relevant stakeholder groups do not represent ethical behaviour, even if it stems from a high value base. Rather, this is a dangerous zone where self interest dominates.

By reducing unethical behaviour, increasing ethical maturity and expanding inclusive ethical boundaries, ethical behaviour - and an organisation’s ethical status - can be improved.

The Role of Leadership

Leadership is the most effective tool to achieve this. Leaders, whether formal or informal, exert the most influence in building a commitment to shared values and building compliance with rules, and good leaders are role models who lead not just for self, but for others.

Given that the concept of a role model rests on teaching by doing (not merely saying), the question can be asked whether your business is consciously taking on the responsibility of “doing” in a manner which reflects moral values? Do your directors, executives and senior managers build a commitment to your values by what they do and say?

The Crucial Question

The bigger question is whether ethics in your organisation is considered an illusion, a luxury or a necessity?

I would suggest that it is an absolute necessity, not only from a moral perspective because “it’s the right thing to do”, but also from a business perspective because ethics makes really great business sense. This derives from ethics being an increasingly important focus area for stakeholders – from the press to customers, suppliers, local communities, etc. Evidence of unethical behaviour, complements of global communication systems, is effectively shared very widely with numerous negative consequences, not least the erosion of corporate reputations and declines in sales.

Businesses with a positive ethical status will increasingly be rewarded with, for example, greater investor confidence, greater customer loyalty, easier access to capital and the ability to attract top talent.

So, if ethics matters to you and you regard ethics as a necessity, the final question is simply: “What you are going to do to make a difference?”

Published in the Wits Business School Journal, issue 17, April 2009

Cynthia Schoeman
Johannesburg, South Africa