Human Resource Management

HRM Guide Updates

Taking Business Ethics Seriously:
The core of a successful programme

By Simon Webley, Research Director,
Institute of Business Ethics

More and more of the larger UK companies are taking seriously the way they do business.

Over 90 percent of the FTSE100 companies have an ethics programme and 64 percent of the FTSE250 have indicated that they have a code of ethics. When we at the Institute of Business Ethics (IBE) published 'Codes of Business' in 1993, the equivalent numbers were much smaller.

It was Sir Adrian Cadbury in his 1992 report who stated:

"It is important that all employees should know what standards of conduct are expected of them. We regard it as good practice for boards of directors to draw up codes of ethics or statements of business practice and to publish them both internally and externally"

Since then, public awareness of the shortcomings of some businesses has led to calls for tighter laws on corporate behaviour. For instance, the Public Interest Disclosure Act 1999 provided some protection from retaliation for the employee who raises questions about behaviour at the workplace. It is a condition that he or she has been through the internal procedures before going to the media.

In the US the public exposure of accounting scandals involving at least thirty US companies in 2002 has led to the passing of the Sarbanes-Oxley Act. This has instigated the introduction of many more burdensome regulations affecting the way companies are run and account for their actions.

So, apart from meeting the requirements of the law, why should a company of any size take the time and trouble to introduce a policy which addresses business ethics issues? Why develop a code of business ethics?

Firstly, it is an indicator of good corporate governance practice. If the motivation is purely risk reduction it will not affect the hearts and minds of employees. Good governance commands respect.

Second, board directors are under considerable pressure to demonstrate that corporate behaviour is at least of the standard expected from individuals in society. The most practical demonstration of this is having a code to guide staff on how to handle ethical dilemmas encountered in day-to-day business.

It cannot be said too often or too loudly that all ethical behaviour has to be based on core ethical values such as truth, transparency or responsibility. And these have to be set by the board. A code applies these values and it is one task of a board to see that the values are embedded and the code is understood, used, taught and monitored.

There is no such thing as a code of business ethics which is suitable for all organisations - one size does not fit all. The Institute of Business Ethics has drawn up the IBE Illustrative Code of Business Ethics which covers the main ethical issues faced by any company. In October 2003 the IBE published a revised edition of this in 'Developing a code of Business Ethics: a Guide to Best Practice'.

One of the current corporate concerns involves the supply chain. The general public now require assurances from retailers that the products and services that are offered are not made by children, forced labour or in unhealthy and unsafe working conditions. In order to ensure this, companies are having to develop ethical trading policies. These make it clear that assurances - which can be verified - are given as to the origin of the goods. A supply chain is often quite long - it can be ten different suppliers and therefore is complicated. Having a clear written policy is the first step and making it widely known and having it consistently implemented, has become important. The fair-trade movement, especially focussing on food products such as coffee and tea, is an expression of the response to (a still limited, but growing) demand.

Other issues most commonly covered in codes of ethics are bribery and corruption, including 'backhanders' or graft; discrimination and harassment; conflicts of interest; and use and misuse of confidential information.

Having a code is not sufficient: Enron had one. With it must go a programme of continuous awareness involving training, help/advice phone lines and mentoring.

Codes need to be translated for staff in overseas locations, they need to have a person designated to be responsible for implementation; and its use should be reported upon in annual reports and not only in Corporate Responsibility Reports.

So a company that decides to develop an ethics policy based on core ethical values can not only expect their bottom line to improve over time but will have a useful tool to establish constituency of behaviour across the organisation. It will help to overcome some of the 'silo' mentality which is a characteristic of large operations.

Ultimately it will be the decision of individuals at all levels of the company that will determine the ethics (and sustainable) quality of the business: a code can be a great help in achieving this.

Notes:

- Developing a Code of Business Ethics was published in October 2003 and written by Simon Webley of IBE. Price £20, ISBN 0 9539517 4 X

- The Institute of Business Ethics (IBE) was established in 1986 to encourage high standards of corporate behaviour and sharing of best practice. IBE is a registered charity, funded by corporate and individual subscribers. The list of nearly 80 corporate subscribers includes Bank of England, Barclays Bank, BP, Diageo, ExxonMobil, GlaxoSmithKline, HSBC, Lloyds TSB, Nestlé UK and Shell. Further information is available at: www.ibe.org.uk

References

(1) Cadbury, A Report on the Financial Aspects of Corporate Governance

(2)Webley, S 'Developing a Code of Business Ethics', IBE, 2003 www.ibe.org.uk

Copyright © 2003 Simon Webley. All rights reserved.




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