Business ethics: Does your firm cut it?

The right incentives and senior management taking the lead will make all the difference.

 

In recent months, six of the world’s biggest banks have been accused of rigging foreign exchange rates, while the UK’s dominant retailer has admitted misstating profits by a quarter of a billion pounds. 

 

It’s easy to be cynical about corporations’ ability to do good. Most companies exist to make money, and under pressure from the boss, shareholders or their own bank balance, it’s easy to imagine how some people might lose focus and do the wrong thing.

 

The good news is that this happens infrequently. While scandals will always occur, most firms act in a generally ethical and principled manner – it’s simply good business practice to do so.

 

The Chartered Institute of Management Accountants (CIMA) recently polled its Chartered Global Management Accountant (CGMA) members about their employers’ ethical principles. Three-quarters reported that their organisations valued their professional standing and code of ethics. When asked why, four-fifths of respondents said that acting ethically would improve their reputation with their customers, investors and other stakeholders. Three-quarters said it meant they would comply with laws and regulations. Half felt that being good helped their brand image. In other words, there are many forces – not just moral ones – which compel a firm to do the right thing.

 

Unfortunately, relying on goodwill is not enough. Ethical behaviour must be embedded in a company. This is where businesses have work to do. 

 

In addition to compliance and instilling best practice, developing a culture of ethics has to be recognised as a communication job, with the right measures and incentives in place. And the tone has to come from the top, with senior management taking the lead.

 

CGMA’s survey found that 89 per cent of firms have a code of conduct, ethics, or similar in place. However, a third described communications to staff about ethical policies as “occasional”. In 3 per cent of organisations, it was non-existent.

 

This is an issue for the whole of the UK. To be an ethical firm, you need to do more than write a policy – you must communicate it consistently and regularly, keep on top of performance and ensure the right behaviours are being encouraged. An employee is more likely to step over the line if they haven’t been told where it is. These issues can be accentuated when managing an “open workforce” of freelancers, contractors and external partners, who are less likely to be fully immersed in their employer’s culture.  

 

The benefits of business leaders having more input in the creation of an ethical culture are undeniable – three-quarters of the survey’s respondents said that ethics are embedded when senior management lead by example. Likewise, three-fifths replied that “creating channels to raise ethical standards” (usually meaning organising staff training sessions on ethics and how to implement them) is a key way to ensure a firm stays on the right side of the law.

 

The lesson is that ethics shouldn’t be a tick-box exercise to be undertaken once then ignored – nor should an ethical policy be viewed as a “nice-to-have” event, like an annual company away day. It’s in a firm’s self-interest to design policies and processes – which means training, putting the right measures in place, and having regular communication – to ensure that their employees do the right thing, and are incentivised to do so. 

 

The impact of doing the wrong thing is clear. In the wake of Tesco’s recent profit overstatements, £2bn was wiped off the company’s value. While it pays to be ethical, being perceived as unethical can cost more. 

 

 

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