Business Ethics

I attended a seminar run by the Institute of Business Ethics the other day, where the issue of ethics in modern business was explored. Modern business people are now used to talking about their business values, things such as Quality, Excellence, Teamwork etc; however, perhaps less discussed are Ethical Values such as :-

Business values tell all employees what is important, and Ethical values tell them how to do business. The message about values goes beyond employees and is a commitment to all stakeholders such as customers, suppliers the community and shareholders as well.

We only have to think of the Enron debacle and the fallout from that to realise that failure to address ethical behaviour effectively can ruin more than one company. Click here to hear just how bad it can get!

Here is a variation on the ‘two cows’ theme:-

ENRON Venture Capitalism: You have two cows. You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt-equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows. The milk rights of the six cows are transferred, via an intermediary, to a Cayman Islands company secretly owned by the majority shareholder, who sells the rights to all seven cows back to your listed company. The annual report says the company owns eight cows, with an option on one more.

So getting it wrong can damage your business… think of how people feel about some of the big oil companies that have contribute to huge oil spills (remember the Exxon Vladez?).

If you are in a large organisation you probably have a neat little folder telling you about your company’s ethical standards. Interestingly, Enron had one too; it was written by lawyers and thus incomprehensible to normal human beings. Also, their system of reward & review only paid bonuses to the top 25% of the staff, so anything that might impact your performance affected your prospects.

As long as your Ethics Guidelines is just one more binder on your bookshelf it will do little good. It has to become part of the corporate culture, part of how you do things, part of your organisations DNA. You need to have an open culture where these dilemmas can be discussed. In the real world, no matter what a little book says, there are shades of grey. How do you handle foreign customers, suppliers and politicians who have different cultural norms? Just which countries cultural norms should you be abiding by?

Here is a simple three part test that can help keep you from making a misjudgement:-

1. Transparency: Would I mind if others knew what I have done? Or perhaps, would my gran be proud of me if she knew this?

2. Effect: Who, if anyone does my decision/action harm? Remember all those stakeholder groups!

3. Fairness: Would my decision be considered fair by those affected?

An interesting and salient fact is that businesses who get their ethics right out perform those who don’t on 3 out of 4 measures and survive hard times better. This is an issue that affects your bottom line! These days with a competitive job market, people don’t stay with employers that make them feel bad about themselves and their actions.. they walk. Can you afford ethics? Can you afford not to have them!

"Let me give you the definition of ethics: it is good to maintain life and to further life. It is bad to damage and destroy life. And this ethic, profound and universal, has the significance of a religion. It is religion."

Albert Schweitzer

For those of  those of  you who want to move into action here is some guidance on good and not so good practice in this area.

 Institute of Business Ethics Guide to making Codes of Ethics Effective

Good Practice

Poor Practice

Root the code in core ethical values

Pinning the code to the notice board

Give a copy to all staff

Failing to obtain board commitment to the code

Provide a way to report breaches in a confidential manner

Leaving responsibility for its effectiveness to HR or any other department

Include ethical issues in corporate training programmes

Failing to find out what concerns the staff at different levels

Set up a board committee to monitor the effectiveness of the code

Not to feature the code in induction training and management development activities

Report on the code's use in the annual report

Not to have a procedure for revising the code regularly

Make conformity to the code part of a contract of employment

Make exceptions to the code's application

Make the code available in the language of those staff located overseas

Fail to follow up breaches of the code's standards

Make copies of the code available to business partners, including suppliers

Fail to set a good example by corporate leaders

Review code in light of changing business challenges

Treat the code as confidential or a purely internal document

Make sure senior staff "Walk the Talk"

Make it difficult for staff to have direct access to the code

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