Ethics in Business

by Simon Webley

In a nutshell

1. Ethics and business

Ethical values play an increasingly important role in business today.

  • Some 83 per cent of the British public say they consider that a company’s social responsibility is an important factor when deciding which product or service to purchase.
  • Ethical values are relevant in providing guidance to staff in situations where the right thing to do is unclear.
  • Some of the key issues addressed in current codes of business ethics are bribery and corruption, gifts and hospitality, conflicts of interest, diversity, health and safety, environmental stewardship, and political donations and lobbying.
  • An organisation cannot be genuinely responsible without an embedded and inherent culture that is based on ethical values such as trust, openness, respect and integrity.


2. The ethics policy

Having an ethics policy is now considered a hallmark of a well-managed company. The ethics policy is normally expressed in a code of business ethics, sometimes called a code of business conduct or given a description such as ‘the way we work’.

  • Top management is expected to show a commitment to the company’s ethics code and set an example with their own behaviour.
  • Board involvement is essential if an ethics policy is to be effective.
  • Middle managers are given operational responsibility for implementing and upholding the organisation’s ethical standards.
  • Both business (customer service and efficiency, for example) and ethical values (such as ‘highest ethical standards’) are needed to serve as benchmarks against which behaviour can be determined and strategy tested.


3. The business case

There are a number of commonsense arguments that ethical business practices positively affect company performance:

  • If employees are being treated well, workplace productivity will increase
  • The provision of a responsive customer service may result in increased customer loyalty
  • Codes reassure customers, investors, suppliers and even competitors about the integrity of the business
  • Employees generally wish to work for organisations they trust and that make them proud
  • An increasing number of graduates are requiring assurance that the company recruiting them has values and standards
  • SMEs are finding that having an ethics policy is now becoming a condition of tendering for contracts as larger businesses extend their ethical standards to those in their supply chains.


4. Pressures to be ethical

There has also been a marked increase in pressures on boards to address issues concerning the means by which they conduct their business, including

  • The frequency of well-publicised and conspicuous examples of corporate misbehaviour in the western world
  • Issues of corporate governance – a company that fails to implement ‘The Combined Code on Corporate Governance’, administered by The Financial Reporting Council, has to explain its nonconformity in its Annual Report in order to retain its listing on the London Stock Exchange
  • The growth of socially responsible investment (SRI)
  • Legislation, such as the Pensions Act of 1995, requiring trustees of pension funds to state ‘the extent social, environmental or ethical concerns are taken into account in the selection, retention and realisation of investments’
  • The activities of pressure or advocacy groups, known collectively as non-governmental organisations (NGOs), together with the media
  • Low public perception of the trustworthiness of corporate leaders
  • Employees, who are now expecting their managers to provide guidance on ethical behaviour.


5. An ethics programme

Developing and then implementing an ethics code within an organisation requires the involvement of many people if it is to be done well.

  • The board and CEO must be enthusiastic, not only about having such a policy, but also about receiving regular reports on its operation.
  • A member of the board should be tasked with acting as champion for the programme.
  • A senior manager should research and draw up the code.
  • When the draft version has been approved by the board, there should be a pilot test.
  • The approved final version should be introduced with a programme of familiarisation and integration.
  • A review mechanism must be established.


6. The structure of a code of ethics

Corporate codes of ethics or conduct normally take one of two forms:

  • An ‘issues approach’, consisting of a series of policy statements covering the company’s key areas of concern
  • A ‘stakeholder approach’, which sets out a company’s obligations to its principal constituencies, often referred to as stakeholders.

An effective and credible code is one that reflects

  • The values of the company and the way it conducts its business
  • The concerns of employees and others at different levels and locations
  • The relationships that the company would like to have with its stakeholders.


7. Implementing an ethics code

Implementation is critical. The code must be seen to be endorsed by the board and so should be launched by the CEO and cascaded down to all levels and locations.

  • The meaning and principles of the code must be explained to all staff.
  • All staff should have a copy of it.
  • It can be linked to performance appraisals and perhaps included in employment contracts.
  • There must be a clear, simple disciplinary procedure to deal with violations of the code.
  • Confidential help lines can be available for people who feel a senior manager is asking them to behave unethically.
  • Safety valves should be put in place to avoid employees resorting to whistleblowing.
  • The code should be posted on the company website.


8. Handling ethical dilemmas

Situations will arise that have not been anticipated by the code and where no clear guidance exists about how to behave in the particular circumstances.

  • Cases of this type often involve customer or supplier practices. In these instances, it is always preferable to encourage staff to ‘disclose and discuss’, perhaps with a line manager.
  • A lack of dialogue with employees is often at the root of internal disagreements over the resolution of ethical dilemmas.


9. Cross-cultural problems

One of the most difficult areas of business ethics concerns dilemmas arising in countries where law, values and customs are different from those in the company’s home country. Issues covered in the codes of multinational corporations indicate that the most common cross-cultural issues addressed are

  • Gifts (hospitality and bribes)
  • Equal opportunities and discrimination
  • Protection of the environment
  • Conflicts of interest
  • Supply chain.


10. Monitoring and reporting

For any policy to be effective it has to be monitored and regular reports provided for the board or relevant board member.

  • Surveys are seen as the most useful tool in assessing the effectiveness of ethics programmes.
  • Answers to ethics questions can also be compared over time, thus generating useful data to compare trends.
  • Benchmarking against the performance of other companies taken in aggregate is now possible.
  • Other ways of assessing the effectiveness of a values and ethics policy can be developed for each of the stakeholder relationships by using ‘symptomatic indicators’, such as an increase in the number of customer complaints.
  • A board sub-committee or other Ethics Committee should provide regular reports to the board.