Ethics and the Nation

Can a country or a company be ethical if its leaders are not?

The ethical status of a country, like a company, translates into either a good or a bad reputation. And the difference is profound.

At a national level, a positive ethical status and a good reputation bring with it benefits such as enhanced access to international investment and funding, favoured trading partner status and good tourism revenues. A poor ethical reputation erodes these benefits, negatively affecting businesses and institutions and the population’s quality of life. Within a business, an ethical culture lends itself to many advantages – such as the ability to better attract and retain top staff and board members and increased loyalty and trust from stakeholders – while also avoiding the risk of reputation damage and the costs associated with ethical breaches.

You’re quite correct. There are a number of “risk management” varieties which cover anything from legal compliance, financial reviews, profit and debt modelling, income projections and everything in between. Our approach to risk management is focused more on helping clients understand the risks around potential new business partners, entering emerging markets, investing in new projects and managing engagements with stakeholders. So yes, our risk management services are most certainly linked to the general tenets of corporate ethics.

Realising these benefits is clearly very desirable – and what it rests on is the presence or absence of ethical behaviour.

This makes leadership a particularly important issue since leadership is widely recognized as one of the most influential factors shaping behaviour towards being ethical or not. As role models, leaders effectively set the standards amongst their followers by the values they demonstrate, by what they say and do, and by what they don’t say, don’t do, and don’t speak and act against.

Good leadership implies that leaders act to entrench sound values and to drive and encourage ethical conduct. It reflects what the King III Report on Corporate Governance in South Africa refers to as “responsible leaders” who “do business ethically rather than merely being satisfied with legal or regulatory compliance”, and who are characterized by the ethical values of responsibility, accountability, fairness and transparency.

Such leadership is especially pertinent in the public sector as their influence extends beyond the employees and stakeholders of a single company or group of companies to a whole country and all its citizen and institutions. Whether their leadership is good or bad therefore has the potential to impact huge numbers of people.

Viewing the ethics of a country or a company as separate from that of its leaders apparently supports a “yes” answer based on the rationale that the leader is not the organisation and that the organisation (be it a country or a business) is larger than the leader. But in practice, as the example of Zimbabwe illustrates, the ethical failing of its President and his government cannot be separated from how the country is perceived ethically.

Looking at South Africa as an example: Transparency International’s annual Corruption Perceptions Index provides a reliable measure of the perceived level of public sector corruption, ranking countries based on their comparative scores on a scale from 0, “highly corrupt” to 10, “highly clean”. South Africa’s scores over a three year period were all in the lower, increasingly corrupt half of the scale. In 2010 South Africa scored 4.5. This declined even further in 2011 to 4.1, which placed South Africa 64th out of the 183 countries surveyed, narrowly missing being in the bottom third. South Africa only scored 43 in the recent survey, the Corruption Perceptions Index 2012, on a slightly changed scale of 0, “highly corrupt”, to 100, “very clean”.

The pertinent question these results raise is whether they are a reflection of the country’s leadership or not. There may not be empirical support for claiming a correlation between these poor scores and the lack of ethical leadership. However, the parallel between these results and the huge number of public sector scandals involving fraud and corruption is impossible to deny.

Within a business the link between the company’s and the leader’s ethical status may be less tightly bound together, but it still has a major impact. Barclays was a high profile example in the 2012 Libor interest rate rigging scandal which saw the resignation of its Chairman, CEO and COO. The fallout was not only $450 million in fines - it also dictated that the new CEO, Antony Jenkins, place major emphasis on values and creating an ethical culture, and on rebuilding stakeholder trust.

There is, therefore, no doubt that there is immense value in ethical leadership. But the challenge is that there are often too few ethical leaders. This can prompt a response where the situation of poor ethics is simply accepted. But a preferable approach would be to look to the individual as another important source of ethical behaviour, and in doing so, promote the recognition that the pursuit of ethical behaviour need not be solely dependent on ethical leadership.

In recognition of the power of the individual to shape ethical behaviour, two basic features of ethics are noteworthy. The first is that ethics centres on the individual’s choice between good and bad, and right and wrong. While leadership is a strong influencing factor on behaviour, it is but one factor. The individual’s choice is equally shaped by personal values, by the norms of a group or of an organisation’s culture and by applicable laws, rules and regulations. The choice is also subject to the second feature of ethics, namely that people almost always know the difference between right and wrong. Even if a leader condones misconduct, for example corruption related to tenders, it does not affect the classification of the behaviour as wrong.

Thus, apart from situations of coercion or autocratic leadership, the individual is generally free to choose whether to follow a path of ethical or unethical conduct, and the power of this original choice should not be underestimated.

This warrants that a particular leadership assumption articulated by Peter Senge is challenged. He acknowledged that “when things are going poorly, we blame the situation on incompetent leaders [and] when things become desperate we can easily find ourselves waiting for a great leader to rescue us.” This outward focus of looking for someone else to be the ethical leader to raise the level of behaviour misses the bigger question, namely, what are we, individually and collectively, able to contribute? Taking personal responsibility for behaving ethically can make a difference in your sphere of influence.

This assumption also ignores the fact that the ethical status of a country, a company or a community is made up of the behaviour of all the individuals. Each individual’s every act – ethical or unethical, positive or negative – either builds or erodes the ethical status of that grouping.

Thus our country’s poor ethical status and the regular lapses of leadership ethics should not be the concluding point. Rather, it is important to explore what can be done to improve the situation.

This could invite the response that the problem is too vast to be changed. Yet, there are encouraging signs. Transparency International’s Global Corruption Barometer, which surveys world-wide public opinion on corruption, interviewed more than 100,000 people in 100 countries in the 2010/2011 survey. The Barometer found that 70% of people world-wide believe that ordinary people can make a difference in the fight against corruption, that 82% of people would support a colleague or friend in the fight against corruption, that 68% of people could imagine themselves getting involved in the fight against corruption, and that 75% of people would report an incidence of corruption. This illustrates that there is a basis on which improvement can be built.

Reaching a critical mass to achieve an ethical tipping point where the behaviour of the majority of people and public and private institutions tips in favour of sound ethics might be an ambitious goal and difficult to achieve – especially for a country, never mind only in a company - but that’s simply not a good enough reason not to try.

By Cynthia Schoeman
Published in Acumen, Issue 4, Second Quarter, 2013, GIBS, May 2013