Why Business Ethics MattersCHC Governance Conference
Philippa Foster Back CBEDirector, Institute of Business Ethics
Powys, 26th February 2015
...doing business ethically......makes for better business
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About the IBEThe IBE was established in 1986 to encourage high standards of business behaviour based on ethical values.
AdvicePublicationsTrainingForumsResearchEducation
www.ibe.org.uk© IBE2
‘the application of ethical values to
business behaviour’
A definition of business ethics
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Business Ethics
Values
Ethics Culture
Conduct
Trust & reputation&
Financial & operational
performance
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Values Pyramid
CompaniesIndividuals
Professions
Society
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Some ethical values
Honesty Transparency Integrity Openness
Courage
Trust/trustworthiness Respect Fairness Responsibility Loyalty
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Business Ethics and the Organisation Model: How do values have an impact?
Core ethical values
Expressed in an Ethics Policy and Code
Influences conduct &decision making
Reinforces a culture of trust & integrity
Supported by an effective ethics programme
individuals
company/organisation
Basis of a Sustainable Organisation Model
The way we do things around here, i.e. our culture
&
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CONSEQUENCESDRIVERS
INTEGRITY FAILURE
Proxy for:Ethical lapse, irresponsible behaviour etc.
Reputation risk
Operational risk
Other risks
Other consequences
e.g. consequences for the economy, adverse effect on the well being of individuals and
societies
Insufficient ethics policy and control mechanisms
Behaviour of individuals pursuing their own interests (advancing career, protecting livelihood etc)
Target culture
Pressure from financial markets to produce short-term results
Wanting to help company to survive
Organisational culture and climate
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Elements of an effective programme
Communication &
Awareness Campaigns
Supporting Context &
Culture
Code of Ethics•The Way We Work•Business Principles•Our Commitments & Standards
Training&
Reinforcement
Monitoring&
Accountability
What, why, how; understanding as well as information, how to ask for help, seek guidance, Speak Up etc,
Leadership example; decision-making; strategy; polices; resources, business goals; compliance; CR,; Speak Up…
Guidance for staff on expected behaviours, how to deal with day to day ethical dilemmas, how to raise issues
Recruitment; induction; on-line & face-to-face; dilemmas; debate; appraisals; incentives and remuneration
Surveys, internal audit, stakeholder engagement; business review; external audit
Embed Values Influences Culture & Behaviour
Ethical ValuesReflected in the business model, purpose, strategy, governance and
decision making process in the organisation
Embed, Implement, make operational with feedback loops to build in learning and improvement
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Governance Structure
Sir Anthony Salz on culture
“Culture exists regardless. If left to its own devices, it shapes itself, with the inherent risk that behaviours will not be those desired. Employees will work out for themselves what is valued by leaders to whom they report.”
The Salz Review of Barclays Business Practice
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Culture is discerned through such questions as: What are the common understandings about the way this
organisation does its business?
What are the norms of how do we do our work?
What core values drive us?
What is the leadership style?
Can individuals challenge the norm?
Culture: the context for an ethics programme
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Your organisation
What Code do you have in place? What values guide your organisation? How have you embedded them? Are they lived? Do you know the dilemmas your staff face day to day? Is your speak up line used? What metrics do you use to measure culture?
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Speaking Up
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Reasons for not speaking up
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Retaliation (actual or perceived) Lack of confidence in the process Uncertainty
Lack of confidence in management capabilities Lack of understanding of the benefits of speaking up For the organisation For the individual
Too busy
Employees ‘speaking up’ 2012 Half (49%) of employees who were aware of misconduct
in their organisation did not report their concerns.
The top two principal reasons for not raising a concern were “It’s none of my business” (29%) and “I didn’t believe corrective action would be taken” by the organisation (24%).
Of those employees who did report misconduct, 70% were satisfied with the outcome. The 30% who were not satisfied suggests that there is work to be done on the speak up processes organisations have in place.
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Why boards need to know that their organisation is living up to its values
Good Leadership – tone at the top, competency
Business survival – internal controls, reputation, strengths and weaknesses, scrutiny of investors, market opportunities
Good Governance – guidelines require boards to meet their obligations
Disclosure trends – CR reporting, SEE risks in to Annual Reports
Legislation - UK Companies Act, UK Bribery Act.
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Testing whether it is working...
To assess aspects of ethical culture, such as: Company values Internal policies External relationships Awareness Experience Sensitivity Confidence
Ethical Assurance and staff surveys
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Summary
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What elements in a corporate culture lead to ethical lapses?
Paying lip service to positive ethical values (valuing profit at any price)
Fear of failure (targets, speaking up etc.)
Fear of raising concerns
Lack of ethical leadership and example at the top
Lack of support mechanisms such as speak-up lines, contractual incentives?
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Tone
“It is all about doing the right thing when nobody is watching....”
Carly Fiorina (formerly HP)
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Business Ethics
Values
Ethics Culture
Conduct
Risk
Trust & reputation &
Financial & operational
performance
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Thank you
www.ibe.org.uk
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