It’s a sad reflection on the state of corporate fitness that the types of ethical issues that continue to emerge are more the result of an absence of any intent to manage ethically than an indication of Machiavellian intent. Although ethics gets a mention in all the recent governance reforms around the world, the way in which it has been included reflects little new thinking on how ethical organisational cultures emerge or the changing nature of the external ethical challenges confronting business leaders.

Traditionally, the ethical dimension has existed as the depth dimension of organisational life surfacing in times of crisis and challenging Boards and CEOs with accountabilities that were typically taken for granted until exposed by the media and publicly denounced as socially unacceptable corporate conduct – ignorance about global supply chain exploitations, unwitting human rights abuses because of trading partnerships, environmental degradation through association, limited product liabilities as well as cultures characterised by insider greed.

While there are few who would today argue that business and ethics are incompatible forces, the ongoing exposes of corporate misconduct suggest there is still a lag between the values being espoused by today’s business leaders, and their efforts to ensure that the ethical imperative is embedded in day-to-day organisational decision-making.

While Boards are expected to set the “tone at the top” little in the way of skill development for this accountability is invested by boards and there continues to be a dearth of mechanisms in use to ensure values-rhetoric is transformed into practice. Instead, the implicit assumption prevails that “ethics can’t be taught”, that it’s a virtue rather than a set of skills and that if you haven’t the virtue by the time you reach board level then it’s too late to learn it there.

What needs to be publicly admitted is that ethical dilemmas and challenges are typically contextual and creep up on Boards, managers and employees in incremental steps. The business context can so often place people in situations where they can find themselves doing the wrong things for what they think are the right reasons. Because no one has skilled them for the ethical dimension that involves responding to the competing tensions between short term needs and long term sustainability; loyalty to colleagues and loyalty to the company; protecting the organisation’s reputation versus protecting the community’s interests or safeguarding jobs and safeguarding shareholder interests. Contextual pressures to perform can mean that shortcuts are taken and sometimes people and services are compromised. These competing tensions are inherently difficult to deal with because there are no obviously right or wrong answers. It is these competing demands of modern organisational life that underpin the complexities of modern day business ethics and highlight how the ethical challenge is more about recognising how to respond appropriately when “doing the right thing” isn’t always obvious. The sad reality is that for many organisations ethical standards suffer because of a culture of indifference or a set of behaviours that model an “if only we had the time” managerial mindset. Indifference to a higher purpose spawns organisational cultures where basically good people can find themselves compromised by their workplace contexts to such an extent that they find themselves learning unethical behaviour at work – it’s simply seen as the way we do things around here.

Boards too can find themselves blindsided by rapidly changing societal values that shape the new social accountabilities being demanded from business leaders. We now operate in a global marketplace where both the environmental and social footprints of the corporation have come under the media spotlight. What is deemed to be “acceptable” or “responsible” at a point in time keeps changing as new information becomes available and new technologies increase the ability of external stakeholders to monitor and hold business to account for its social impacts. A company’s social licence to operate is increasingly recognised to be a continually negotiated process involving the corporation, government authorities and public representatives. Ethical issues that arise in global supply chains such as confronted by the boards of manufacturing companies such as Nike and Adidas; ethical issues arising from product liabilities such as recently confronted the Boards of the Ford Motor Company & Bridgestone Tyre Company over their SBU vehicle safety standards or environmental impacts such as confronted BHP in OK Tedi serve as painful reminders that what is deemed ethical by society extends beyond the law and why dependence on traditional risk management advisers, such as lawyers, can blindside a Board to these new external accountabilities.

The law has always been a laggard to changing social values; now more than at any time before, just because it’s legal doesn’t mean it’s ethical.

Boards can be blindsided in other ways and can lull themselves into complacency by depending on compliance measures. While the present governance reforms place heavy reliance on the development of Codes of Conduct and Codes of Ethics as the front line defence shield against unethical behaviour, the history of corporate collapses shows that compliance doesn’t work if only because many of these corporate disasters were spearheaded by those at the top. Despite having the appropriate protocols in place these CEOs permitted another set of informal rules to coexist that said you could bypass the official policies as long as you were adding to the bottom-line. We now know for example that Enron’s executives were found to be involved in other kinds of “managerial mischief” as early as 1987 but this was swept under the carpet because of the promise of future riches.

For those boards who argue that the CEO is ultimately responsible then its the responsibly of the board to ensure that ethical competencies becomes a core KPI when briefing recruiters. How many Board’s can say hand on heart that they have given equal weight to the ethical acumen of their future CEO’s as to their financial record of performance?

Even with an ethically-skilled chief executive, the compliance approach still has its limitations. The soft option is to produce a Code of Conduct and mandate employee commitment. These ubiquitous codes are duly “signed by all” and understood by few because they do not speak to the day to day tensions that arise from the competing value priorities playing out in their local contexts. Such codes can instead indicate that management has managed to paper over the cracks but significant risk issues remain. The hard task of tackling real cultural change is put off to another day, while the corporate cadre of Board and management concentrates on delivering short-term results at the expense of the long-term ethical fitness of the enterprise. Managing an organisation to a set of values and principles is harder, takes more time and requires commitment from Board members and executives to both model and resource the development of this critical organisational infrastructure system.

Barings Bank, Anderson and Enron, where all cultures where many insiders knew unethical practices were rampant but few voiced concerns. This is perhaps more understandable when we recognise how many organisations continue to be run like political fiefdoms where egos, power differentials, inherent conflicts of interests and high financial stakes gel together into a way of doing things that encourages one way communications and a prevailing blind eye syndrome to events that don’t directly concern you.

Questions of business ethics is here to stay. Boards are being asked to step up to the challenge and make space in the Boardroom for rigorous analysis and debate on how the ethical dimension can be embedded in their organisations. Learning about workplace ethics belongs within the organisational realm because the issues are being shaped there and if opportunities to understand and learn the skills needed to behave ethically in an organisational context continue to go unmet then organisations seem doomed to continue to lose public confidence.

There is model in Australia from which business can learn. The Australian public sector organisations have leapfrogged their private enterprise cousins and are leading the way in managing the ethical dimension of organisational life by building internal capacities so that their people can feel comfortable in discussing and addressing the ethical tensions they will inevitably face at work. For them, ethics is no longer the bridesmaid but has moved to centre stage as a mechanism for driving standards of behaviour and spelling out what it means to be socially accountable. Their approach is a salutary lesson in contemporary accountabilities from organisations whose very existence depends on the goodwill of the public.

The public are increasingly questioning the social relevance of business and calling on Boards to reassure them that they will guide their enterprises in such a way that society is enhanced rather than diminished by businesses’ activities. Its not just shareholders who need protecting, nothing less than the continuing existence of the enterprise itself is at stake.

This entry was posted on Wednesday, February 24th, 2010 at 12:01 pm and is filed under Resources. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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