Get your ethics reporting right

Clarify who should tell what to whom.

My October 2012 article, "Stamp out unethical behaviour", addressed one key aspect of ethics reporting, namely the question of who will tell. This looked at how organisations can use their employees’ knowledge of misconduct as an effective way of uncovering and reducing unethical behaviour. The other relevant facet of ethics reporting which this article explores is the question of ‘who should tell what to whom’ which looks at why and what organisations should report.

Organisations generally have a number of reporting obligations, many of them in accordance with the law, such as those required of public companies to their shareholders. Much of this amounts to ‘compliance reporting’ that does not extend beyond a minimalist approach, generally falling far short of meaningful disclosure based on the choice to be open and transparent. The 2012 Africa ESG Investment Forum acknowledged that the paucity of information about environmental, social and governance issues (all of which are facets of business ethics) compromised investors’ ability to make informed decisions.

The Companies Act (No. 71 of 2008) added ethics to legal reporting requirements with the mandate that all but small companies establish a social and ethics committee. For some organisations this legislation may not be persuasive enough to move their committees beyond being a ‘tick-box’ exercise. But for organisations that strive to be good corporate citizens and embrace the associated responsibilities, their social and ethics committees can add value to the company and provide its stakeholders with pertinent information about the organisation’s ethics.

Beyond the strictly legal requirements, ethics reporting is also recommended by King III (the King III Report on Corporate Governance in South Africa). Its focus on ethical leadership and the management of ethics specifically includes the assessment, monitoring, reporting and disclosure of an organisation’s ethical performance, which is considered “necessary to provide the board and management with relevant and reliable information about the achievement of ethics objectives, the outcome of ethics initiatives and the quality of the company’s ethics performance”. A facet of ethics reporting is also addressed by the JSE Securities Exchange’s Socially Responsible Investment (SRI) Index, which measures the triple bottom line performance of companies.

Although these initiatives are noteworthy, they offer insufficient guidelines about the information that would afford stakeholders an understanding of an organisation’s ethics.

A web-based ethics survey offers an easy way to get a reliable measure of an organisation’s ethical status, it meets the ethics reporting requirements of the Companies Act and the King III, and, crucially, its results can provide meaningful, detailed insight into an organisation’s ethical status. The criteria which ensure such insight – detailed below – also reflect what ethics reporting should entail.

Ethics assessment and reporting should ideally take the form of quantitative measures. This allows the results to be compared, for example, to reflect improvements over time or to highlight differences such as between branches or departments. It also allows the success of interventions undertaken to increase ethical behaviour to be evaluated;

Ethics reporting should be based on an assessment of the perceptions and experiences of all the organisation’s internal stakeholders, not only on the limited views of its directors and executives;

Crucial to the effectiveness of any ethics reporting mechanism is the confidentiality and anonymity it offers respondents, allowing them to share their views and experiences frankly and without fear of come-back; and

An ethics report should include the following results:

  • An organisation’s current ethical status and the factors, positive and negative, that contribute to that outcome;
  • The organisation’s ethical strengths and how these can be grown;
  • The current ethical weaknesses or areas of concern and how these will be addressed and improved;
  • The degree of ethical maturity as reflected in employees’ and management’s commitment to the organisation’s values and the extent to which leaders are perceived to live the company’s values;
  • The organisational factors that most effectively drive and improve ethical behaviour;
  • The incidence of specific unethical behaviours;
  • The organisational factors that most effectively reduce or prevent unethical behaviour; and
  • The degree of inclusiveness or exclusiveness of the company’s ethical boundary which includes the extent to which the organisation’s values apply to different stakeholder groups; the extent to which the organisation values its employees as distinct from profit or personal gain; and the extent to which the organisation pursues the wider social and environmental interests represented by the triple bottom line.

The benefits of comprehensive ethics reporting are significant. The assurance it offers external stakeholders, such as investors, can improve stakeholder confidence and boost the organisation’s reputation. It can serve as a mechanism to reduce unethical behaviour by increasing ethical awareness. Crucially, it promotes openness and transparency, which in turn contribute to higher levels of trust and the creation of ethical culture.

By Cynthia Schoeman

Published in HR Future, February 2013