Leon van Vuuren

leon.vanvuuren@tei.org.za

Institute for Timber Construction South Africa:

AGM

Ethical leadership

March 2019

Ethics in King Reports

• 1994: King I – (Almost) last chapter

• 2002: King II – Chapter 4

• 2009: King III – First chapter

• 2016: King IV – First chapter

Ethics in King IV

3

3

65

King III

Ethics Other

3

13

King IV

Ethics Other

Governance of social performance

Social and ethics committee

• Companies Act (2011)

• Mandatory statutory

committee in:

o State-owned companies

o Listed public companies

o Companies with

significant public interest

[regulation 26(2)]

Ethical

culture

Performance

Effective

control

Trust and

good

reputation

GOVERNANCE

RESPONSIBILITIES

OUTCOMES

Source: King IV framework

Governance and ethics

Ethics performance

6

Principle 2

The governing body should govern the

ethics of the organisation in a way that

supports the establishment of an

ethical culture.

Ethics/morality

Good

Self Other

Definition of business ethics

“In the context of organisations, ethics refers

to ethical values applied to decision-making,

conduct and the relationship between the

organisation, its stakeholders and the broader

society”.

King IV

Ethics and the law

Legal Illegal

Ethical

Unethical

Travelling in Africa …

You arrive at the international airport in Lagos, Nigeria. You are a key decision maker in putting together a project worth R100 million with business partners from China and Germany. They will be in Lagos for one day only. When trying to pass through immigration you are informed that the date of your last inoculation against yellow fever is not legible on the yellow card. You are given three choices:

(a) paying a $200 ‘yellow card tax’,

(b) returning on the next flight, or

(c) receiving a yellow fever inoculation.

You notice that the needles used for the injections are not sterile. You have no mobile phone signal.

What do you do?

Right, wrong and dilemma

Good

Right

Just

Protecting

life

Honesty

Bad

Wrong

Unjust

Killing

Bribery

Dilemma

?

‘Yellow card

tax’

Dilemmas in organisations

Examples?

• Gifts

• Entertainment

• ‘Facilitation payments’

• Rationalisation

• When to outsource work

• Conflicts of interest

• Nepotism

• Sexual harassment

• Etc.

The guest house

A senior executive’s son and his wife are

owner-managers of the Chillax Guest House

in an area adjacent to your organisation’s

headquarters. The executive regularly refers

out of town overnight company visitors to the

guest house. The company pays for their

accommodation.

Is there an ethical challenge here? Explain …

Learning points

1. Conflicts of interest cause people to

unfairly enrich themselves at the expense

of the organisation’s legitimate

expectations.

2. Even perceived conflicts can have

reputational damage.

3. Declaring/disclosing a conflict does not

make it okay.

4. Conflicts have to be managed and

eliminated when potentially harmful.

Reasons for organisations’ ethical failures

• Unreasonable greed

• Bad barrels – weak ethical cultures

• We allow bad apples to enter the organisation

• Leadership fails to set the example

• Corporate arrogance

• Consequence management inconsistency

Reasons for organisations’ ethical failures (cont.)

• Organisations reward the wrong things

• Unrealistic targets

• Survival ethics

• Loyalty > Honesty/fairness

• Contextual pressure

• Rapid growth

• When people lose their sense of shame

• When good people do nothing

Reasons for organisations’ ethical failures

Ethics management in Steinhoff…

Steinhoff Corporate

Governance Report (2011):

“Steinhoff has not

established a formal process

for obtaining assurance on

ethical awareness and ethical

compliance throughout the

group.”

(Corporate Governance Report,

2011, 2012, 2013, 2014, 2015, 2016)

• Ethics cannot manage itself

• Managing ethics is about preventing

decent people from doing stupid

things.

Can ethics be managed?

Ethical leadership

Ethical sensitivity/awareness

Ethical courage

Ethical behaviour (walk and talk ethics)

Making ethical decisions

Outcome: Ethical culture

Organisational ethical culture:

The way we do things around here

even when no one is watching …

How strong is your ethical culture?

12 item poll:

1. People do the right thing because they want to

2. People talk about ethics openly

3. All stakeholders are treated with respect

4. Leadership verbalise and act upon their

commitment to ethics

5. Business decisions are tested for ethical

consequences

6. People are not afraid to speak up (raise ethical

concerns) [not necessarily blow the whistle]

How strong is your ethical culture? (cont.)

7. People are rewarded for ethical behaviour

8. Transgressors are dealt with swiftly, decisively and

consistently

9. If mistakes are made, there is no hesitation to

apologise and take corrective action

10. Codes and policies are clear and people are aware

of the content

11. Ethics (doing the right thing) is promoted widely in

the organisation

12. Realistic performance targets are set

• Fragile/weak

• Underdeveloped

• Developing (towards

maturity)

• Mature

Organisational

culture

Strength of ethical culture

Ethical culture

Ethical culture is determined by …

These decisions and actions send signals:

1. Who you hire

2. Who you fire

3. Who you promote, and

4. What you talk about.

or

A few guidelines

1. It takes years to build an ethical

culture – one action at a time.

2. Stop focusing on ‘what we don’t want’

– Rather ask: ‘what (behaviour) do

we want?’

3. Catch those who do right.

4. Send out the right signals.

5. TALK ethics.

Conclusion(Ethical courage)

Thank you.