We take a look at why effective ethical codes of practice are so important, the challenges leaders face when addressing company culture and the basics of implementing ethics systems day-to-day.
A good reputation is essential to business survival – it always has been. But the nature of reputation – how it is achieved, how it’s maintained and how it’s judged – has changed
Reputations are no longer based simply on products and services delivered to the customer. Now, clients, employees and society at large takes an active and vigilant interest in every business’s commitment to responsible and ethical operation. And that interest can have a direct and profound effect on a company’s bottom line.
Regulators are increasingly reflecting this concern: The NZX has recently codified it’s requirements around the relationship between ethics and listing. The FMA (Financial Markets Authority) has also renewed its ethical initiatives, publishing its Conduct Outcomes Report 2016 earlier this year. Similarly, State Services Minister Chris Hipkins has said the Government plans to review New Zealand’s Protected Disclosures Act soon, updating the 17 year-old law to keep pace with international best practice.
And the onus is on directors to respond.
It’s not just about the law – it’s about culture
This idea – that businesses and their directors have a moral obligation to act in ethical ways – is of course firmly ingrained in the popular consciousness, here in New Zealand and worldwide. And of course (almost) every company supports ethical standard in principle.
Walking the talk of ethical conduct is not as easy as it may at first appear however. Companies need to demonstrate that they can sustain ethical relationships with stakeholders across the business – from procurement to recruitment to financial reporting and beyond – but it’s not about simply ticking regulatory boxes or complying with the letter of the law. It’s about creating a company grounded in the core values that support an ethical culture – a challenge, given the fact that a culture of ethics is not always naturally present in a business.
“Ethical business leaders encourage people to make their own decisions, taking into account organisational values,” states a new NZ-focused report from UK-based IBE (Institute of Business Ethics), Setting the Tone a New Zealand perspective on ethical business leadership.
“Creative problem solving, reasoning and discretionary judgement based on ethical values needs to replace blind obedience. This gives employees the confidence to deal with situations that are not specifically covered in the ‘rulebook’ and supports the belief that ‘doing the right thing’ is the right thing to do.”
“This ensures that poor, unwise or non-compliant behaviour is reported and dealt with. Speaking up is seen positively and encouraged. It enables early intervention and prevention, thus helping to keep a company’s reputation intact.”
Simply put, it’s about creating a company culture where staff are empowered to question behaviours and raise issues with employers, think for themselves and speak up when necessary.
Put another way an ethical culture in an open culture. But don’t underestimate how difficult it can be to ensure that speaking up is seen in a positive light. That’s no small feat and one that requires a strategy.
So what’s required to extract the ideals embedded in ethical policies and communicate those ideals in a way that makes them tangible, visible and acted upon day-to-day?
“The IBE’s research suggests that ethical business leadership is most effective when it is reflected in an ethics programme that includes training, internal communications and monitoring, as the company moves to new levels of engagement with its markets, employees, suppliers and customers,” says the report.
“Business success cannot be achieved through a culture of fear or control, or ticking boxes on what to do or not to do. It has to be grounded in core values and in an ethical culture.”
The responsibility for these ‘cultural’ concerns falls to senior business leaders – and these leaders often require guidance themselves to know how to turn a corporate ethics policy into an implementable, pragmatic project.
Bespoke ethics training solutions that lay out explicitly what is expected of senior staff and encourage individual decision-making by employees are a key factor in the creation of an open, honest business. Furthermore, studies show that businesses with an internal fraud reporting hotline in place reduce internal theft and fraud by up to 50% through early detection. The “deterrence effect” created by the presence of an independent reporting system also has considerable benefits – including compliance with NZX rules.
Report It Now is an independent organisation which equips businesses with the tools and capabilities to foster an open and honest work environment.