Business Ethics: much more than corporate responsibility

Material and integrated corporate responsibility

Organisations may feel they are responsible because they have a community programme which helps the less fortunate in their area and provides a side-order of cause related marketing to keep the board happy. They may feel they are responsible because they have signed up to rigorous environmental standards and now recycle and turn off the lights. They may ask their customers to behave responsibly when using their products, pay their suppliers on time and treat their employees fairly. They may even donate a percentage of profits to making the world a better place. At the IBE, we believe a company cannot be responsible, without first considering what its ethical values are and incorporating them into the way it operates.

This may seem to be simply semantics – surely a responsible company is an ethical company? But considering your responsibilities is only one aspect of ethical business. Being ethical demands a holistic approach – from the tone at the top, to the staff on the shop floor; from internal to external relationships. Business Ethics is about ‘doing things ethically’; corporate social responsibility is about ‘doing ethical things’.

The distinction is an important one. Corporate scandals and reputation hits continue to be reported in the press. In 2007, IBE’s weekly media monitoring picked up over 300 reports of alleged or actual malpractice within or by companies headquartered in the UK. Many of these companies have won awards for their great social programmes, generous philanthropic giving and innovative environmental initiatives. Of course, media reports on corporate malpractice make for good headlines. But they do affect public opinion and thus can cause a reputation problem for companies. A company’s ‘licence to operate’ depends on the trust that is placed in them. Recent figures collected by Ipsos-MORI indicate that trust in business people remains very low at 26%; this is despite the rise of corporate social responsibility programmes.

The media may be prone to singling out the big players. Because of the power that comes with high market capitalisation they are often expected to have higher standards of business conduct. Any irresponsible behaviour on their part may be met with particularly fierce criticism. It is of concern that all of the most frequently mentioned companies in the media have a code of ethics, and yet they are accused of behaving in a way that not only contradicts a certain set of societal values but also sometimes their own standards and stated values.

Embedding ethical values

Recent IBE Research shows that at least 90% of the FTSE100 and 65% of the 350 have some form of explicit ethics policy. And yet, despite having such policies in place, companies are still receiving reputation hits arising because of unethical behaviour within their organisations.

Having a code of business ethics is not enough. In order to have a positive affect on the corporate culture and the way business is done, ethical values need to be embedded deep within the organisation’s DNA. Ethics policies and programmes can be embedded through training. This can help employees to understand the company’s policies and to ‘live’ them, having been sensitised to the dilemmas they may face in their day to day work..

Staff need to be encouraged and feel supported in speaking up about their concerns; and companies who have such procedures in place can be alerted to potential problems before they become crises and appear in the media.

IBE 2007 research in Does Business Ethics Pay? – revisited found that, of the companies who had code of ethics, those that offered training to staff in ethics outperformed financially, those that did not. More research is needed to understand why a company with an ethical culture performs better financially. It could be as a result of the ‘feel good’ factor. Employees are able to feel proud of the company they work for, which in turn will lead to attracting and retaining quality staff. Suppliers and customers too, will want to align themselves with a company on the basis that success breeds success. Investors feel confident that the business is well managed and is actively managing risks.

All these factors can lead to company reputation being enhanced. This usually feeds through to the share price as well as lower costs of borrowing – all of which helps the bottom line.

The Ethical Company

Being an ethical company is not easy. It involves listening to others and making difficult choices. It’s tough when the right ethical choice conflicts with the right business decision. Tougher still when the choice is between two (or more) ethical positions. A recent example is that of Anglo American in Zimbabwe, where the company decided to remain in the country, despite being appalled by the human rights abuses of the government and the potential damage to the company’s reputation by remaining there because they felt they had an obligation to the staff and contractors who depended on them for their livelihood in Zimbabwe.

Being ethical is about being responsible. It is also about communicating your ethical values, not only to the outside world, but internally too. There is contradiction within the rise of the corporate citizenship phenomena which leads to these ethical lapses and accusations that CR is just a PR exercise. It is not good enough to invest in social projects, but to set unrealistic targets so that your sales teams mis-sell your products to customers. It is not good enough to make bold statements about environmental responsibility, but not to pay your suppliers fairly and on-time.

Once companies can get their ethical values right, they will find that they naturally consider their responsibilities and where they lie. Send a clear message from the top about ‘the way we do business around here’ and you will find that not only is your company ethical, it also lives up to its responsibilities as well.

Philippa Foster Back OBE CDir, Director of the Institute of Business Ethics

Philippa has 30 years of business experience, having begun her career at Citibank. Following 9 years at Bowater, leaving as group treasurer, she became group finance director at DG Gardner Group, a training organisation, then joining Thorn EMI in 1993 as group treasurer until 2000. She was appointed Director of the IBE in 2001.

In 1991 Philippa was project manager for her professional body, The Association of Corporate Treasurers (ACT). She later became President of the Association for 1999-2000. Philippa has since held a number of non-executive roles including chair of the Defence Audit Committee at the Ministry of Defence and currently the Board of the Norfolk and Norwich University Foundation Hospital Trust.

She has recently been appointed to the Advisory Board of the Centre for Corporate Reputation at the Said Business School at Oxford University and consequently as a Visiting Fellow of the University.