IS YOUR BUSINESS REALLY ETHICAL?
Setting the tone: A New Zealand perspective on ethical business leadership is a new book by the Institute of Ethics which interviewed 23 prominent New Zealand leaders. Co-author and IBE NZ Associate, Jane Arnott, explains what ethical business leadership
A new book by the Institute of Business Ethics looks at a New Zealand perspective on ethical business leadership and interviews 23 prominent CEOs and directors from a wide spectrum of New Zealand’s corporate sector. Co-author and IBE NZ Associate, Jane Arnott, explains what ethical business leadership means in practice.
Please tell us a bit about your new book and the thinking that prompted you to undertake it?
The real impetus dates back eight years when I first developed the business case for Philippa Foster Back, director of the Institute of Business Ethics to visit New Zealand for a series of meetings across the business sector including some regulators. This publication is the outcome and provides a local context for best practice and where our leaders are tracking. The publication highlights their concerns and their focus. It also provides insight into how a business ethics programme can be implemented effectively.
Don’t most companies in New Zealand already act in an ethical manner? As a member of the public I would like to think so.
Yes, possibly. However, it’s something that is often unspoken, remains invisible and largely assumed. If you ask the direct question you will always get the ‘we’re ethical’ answer. But let’s take a risk management approach.
What behaviours are rewarded in the company? Is it just winning clients or selling services and products, or are there checks as to how business is done? Do employees act in ways that reflect the values of the company or are they taking short cuts to get the job done or to prevent being seen as a troublemaker?
What is the approach towards paying suppliers on time and how do employees interact with customers?
We all consider ourselves as being ethical. The IBE’s view is that it’s important to peel back the onion and check.
The issue is that we all have different priorities. For example, our commitment to family could be in conflict with the company’s commitment to fair tendering or hiring. If company or professional values aren’t strongly reinforced, it’s hard to navigate what is the right thing to do. When company values are rarely expressed or applied then even people with apparently bullet-proof ethics can be led astray.
A business ethics programme will provide guidance that ensures, for example, that family members aren’t recruited over other credible contenders or that gifts and hospitality aren’t influencing procurement decisions. An effective business ethics programme can dramatically improve performance and protect a company’s reputation.
The challenge for every company, regardless of size, is to ensure that their company culture is strong enough; a high performing workforce best comes together when both hearts and minds are engaged.
A quote from one CEO in the book says that: “Ethics has always been there. The problem is talking about it in a more formalised way. In New Zealand, the approach to business ethics is often undocumented and is expressed through people’s actions.” Does that encapsulate much of what happens in New Zealand?
Yes very much. But having an unspoken code of ethics or never discussing values is a high-risk strategy. When the pressure is on, any sort of pressure, there is no guidance to do the right thing. So when employees face really difficult dilemmas around promotions, accepting gifts, or reporting a serious transgression they don’t know where to turn.
Things that are unspoken are the very things that we regret when things go wrong. Once you get a company’s values out in the open and you start to discuss what is acceptable or not acceptable against the company values you soon find that people regard them differently. They become relevant and ‘living’ rather than a tick box item that sits in the bottom drawer.
Why does it have to be more formalised? And how do businesses do that?
Probably a good starting point is clarifying what we mean by formalised.
By having a written code that highlights the company’s values and by, for example, aligning some of the bonus and incentive schemes with company values and by making the values visible, openly discussing them and reinforcing how they contribute towards building a trusted and successful company all stakeholders (including employees and shareholders) can gain assurance that the company’s future is in good hands. Ultimately though business owners need to reflect on their risk appetite. Human behaviours aren’t as predictable as we may wish to believe.
So by building trust or embedding an ethical culture we reduce the risk of things going wrong. We can’t create rules for everything but by enabling employees to apply values we can at least trust to do the right thing – a powerful risk management tool. We live in a highly connected and fluid workforce with greater diversity than ever before. By formalising the company’s values and the behaviours that align with them we demonstrate ethical business leadership at best.
Can you elaborate on the positive impact that an increased awareness of ethical issues has had on organisations?
Attracting and retaining great employees, building long term relationships with customers and suppliers, generating and sustaining profit, have a strong profile in the community, being able to raise capital and holding a position of credible influence in the eyes of regulators are just some of the positive outcomes and you can see this in companies from Icebreaker through to Mainfreight. The important thing to note is that each of these companies started with an ethical business leader who will talk proudly about the ethical decisions they made and how this has paved their way for the future. Of course you can also include such aspects as the prevention of fraud, bribery and corruption.
What is the definition of an ethical leader?
Ethical business leadership is about doing what is right for the longterm benefit of all stakeholders. An ethical business leader is open and honest in all their dealings, is prepared to disclose and discuss issues and engage with others. They demonstrate fairness and courage in how they run their organisations. In an overall sense they embrace the challenge of promoting and supporting an ethical business culture.
The book notes at one point that: “There is a significant difference between doing ethical things and doing things ethically. Business ethics focuses on the latter.” Can you explain that please?
There is this ongoing confusion that business ethics is about doing ethical things such as sponsorships or cause related marketing and helping charities – saving whales or planting trees. These are all ethical things to do. Business ethics is about doing things ethically. Its far more about how the business is being run meaning that, for example, conflicts of interest are readily identified and managed, procurement and tenders are awarded without kick-backs, gifts and hospitality have boundaries and employees as well as customers and suppliers are enabled to speak up, without fear of retaliation, when things are going wrong.
Can you describe some of the ethical dilemmas the leaders you interviewed talked about?
For those companies involved in both exporting or importing there were challenges around paying employees fairly in countries where fair pay was not recognised and where the country culture had not made the same advances in providing for parents in the workforce. Supply chain ethics is a major area where, given our digital age, it is easy to be caught out. There was also a sense that in some cases the zeal to build sales and profit had to be reined in or viewed through another lens that recognised that greater transparency may have influenced the outcome. For companies that had greater exposure to the environment it came through with how better environmental practices were to be incentivised/ rewarded and acknowledged.
What can business leaders do to improve the ethical footprint of their business?
Living up to their values and monitoring that the company values are effectively embedded and respected.
Where do you believe would be the best place to start?
Developing a meaningful code of ethics in a language that everyone can relate to is a great place to start. Making the code visible, applying it when business decisions are made and building a culture where everyone feels they can speak up and that speaking up benefits the company is the follow through. Ongoing monitoring of how employees are applying the values and how much they trust their managers is also never to be underestimated.
The book can be downloaded for free from www.ibe.org.uk.