Ethics in Businessby Simon Webley
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.
An American Management Association/Human Resource Institute 2005 survey (Ethical Enterprise: doing the right things in the right ways, today and tomorrow, 2006) of international business executives asked ‘what are the three best ways to assess the effectiveness of ethics programmes?’
The classification of the 1120 replies to the question is set out in below.
Business ethics effectiveness measures
|1. Results from ethics surveys – employees, suppliers, investors, customers||50.3%|
|2. Customers’ ethical complaints – number, types, trends||46.0%|
|3. Results from ethics audits – internal and supplier||45.0%|
|4. Completion of ethics goals* and associated business results||34.3%|
|5. Theft, fraud, financial malfeasance – number, types, costs, trend||31.4%|
|6. Lawsuits – number, types, costs, trends||23.0%|
|7. Public recognition||21.1%|
|8. Issue trend data from ombudsman||20.5%|
|9. Case data from ethics help lines||18.5%|
|10. Case data from ethics offices||9.5%|
*Ethical goals in line 4 of the table include such things as the percentage of staff that have been through ethical training or the proportion of invoices that have been paid on time.
Surveys are seen as the most useful tool in assessing the effectiveness of ethics programmes. Below is an example of questions that are used in surveying staff on their perception of how an ethics policy is working.
A corporate employee survey referring to ethical issues
Employees are asked to indicate if they ‘Agree, Tend to agree, [are] Not sure, Tend to disagree, Disagree’ with the following statements:
- Are the company’s core values experienced at work
- Do you understand the ethical standards required in your job?
- If you raise an ethical issue at work with your manager which is not taken seriously, would you feel comfortable in reporting it to more senior management?
- Could you report instances of dishonest or unethical practices without fear of reprisal in this company?
- Regarding the company’s Code of Business Ethics:
- Do you understand it?
- Is it relevant to your work?
- Are there issues on which you would like guidance that are not in the code?
Asking staff about the understanding of the application of values and ethics polices in different parts and at different levels of the organisation in regular employees’ surveys, is now a well established practice.
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 also now possible. For instance, the polling organisation MORI has data from polling employees on behalf of companies. ISR (International Survey Research), too, routinely tracks ethical items in their employees’ surveys.
Surveys of the opinion of other principle stakeholders are far less common, but can also be used to identify ethical problems in the relationships. The ‘stakeholder dialogue’ is one method being used successfully.
A stakeholder dialogue is a meeting, by invitation, of a representative sample of the main groups of outside people who are in some way involved with the company (investors, customers, suppliers, civil society). At such meetings, the company asks for opinions on different aspects of the way it runs its business. The dialogue or discussion provides an understanding of what those outside the organisation think of the company’s products or services or the way it does business. This helps to shape its policies and strategies. It is good practice to report back to the participants by means of a summary of what was said and what subsequently happened.
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’. Examples include monitoring the nature and content of calls made on a help line or logging issues raised by employees in annual appraisals or exit interviews. Taken together, ‘symptomatic’ indicators can be a useful internal tool in assessing the effectiveness of ethical policies. Some examples of these are given below.
Examples of symptomatic indicators of ethical problems
|Providers of finance||Changes in ratings agency indexes|
|Employees||Staff turnover rates by business and department deviate from past trends|
|Customers||Frequency of recorded complaints increases and swiftness of response rates slow|
|Suppliers||Number of invoices not paid according to contract increase|
|The community||Adverse media mentions and local community complaints increase|
In response to a growing requirement on the part of both corporate leaders and, for example, investors, for assurance on the ethical integrity of organisations, some externally-generated benchmarks have been established and more are becoming available. They can also serve as an indicator of how the standards of the organisation compare with others. One that has good reason to claim comprehensiveness is the Global Reporting Initiative Guidelines (GRI). These set out eleven principles covering non-financial business activity. A less well-known but eminently practical assurance tool is the GoodCorporation’s principles of a ‘good’ corporation, together with the items of evidence needed to verify that ethical standards are in place and being applied.
Boards of directors and other governing bodies are increasingly concerned with the need to reassure themselves about their organisation’s ethical behaviour. It makes sense for risk and reputation management, but also for the requirement in the new Companies Act (2006) that directors have regard to stakeholders and ethical issues and report on them.
One way in which boards can ensure that the ethical temperature of their organisation is monitored is to delegate responsibility for overseeing the effectiveness of the business ethics policy to a board sub-committee. This is now seen as part of good governance. The example below sets out how three companies see the purpose of their committees.
What is an ethics committee’s role?
The Ethics and Environment Assurance Committee (EEAC) monitors the non-financial aspects of management activity, such as ethical conduct, environmental matter and health and safety.
The role of the Corporate Social Responsibility (CSR) Committee is to keep under review and make appropriate recommendations to the Main Board as regards the Company’s management of Corporate Social Responsibility and the conduct of business in accordance with the Statement of Business Principles.
The [Corporate Responsibility] Committee’s main areas of focus will be health, safety, security, environment (HSSE), community relations, human rights and business ethics...The purpose of the Committee is to assist the Board of Directors of the Company in providing strategic leadership, direction and oversight and setting the policy on CR.
The establishment of an ethics committee, whether standing alone or with an existing board level committee, can be seen as an essential part of embedding ethical values throughout an organisation. Those responsible for the operation of the policy will regularly report to it.
The reports help to raise board members’ awareness of ethical values and issues. They also indicate to staff that values and ethics are taken seriously. The gist of them will form the basis of a paragraph in the Annual Report. Some elaboration of this may form part of any corporate responsibility report that is produced.
Policies to embed an ethics policy, and through it an ethics culture, in a business will not succeed unless it extends to all aspect of the organisation. The ethical quality of decisions taken at the highest levels, together with strategies for its implementation, are as important as, for instance, the way products or services are marketed or breaches of the code are handled.
To ensure that this is happening will require some measures of the effectiveness of ethics policies and practices to be in place, monitored and assessed. Most deviations from standards start in a very small way; if the culture is not to be degraded, it is important to know what is happening and react quickly.