Why companies need a moral compass

The board of directors must set the tone for ethical behaviour. By Sorayuth Vathanavisuth

The recent news about Nissan chief Carlos Ghosn sent shockwaves through the automotive industry and the global business community. Since joining Nissan in 1999, Mr Ghosn had become a corporate superhero and role model, turning around a troubled company and delivering outstanding results.

Mr Ghosn stands accused of under-reporting his income in violation of Japanese securities laws, based on information provided by a whistleblower within the company.

It takes great courage for people to expose wrongdoing. Here in Thailand, revelations by Panida Yotpanya and Nattakarn Muenpol about theft of funds intended for the poor in Khon Kaen led to an investigation which revealed that civil servants were looting welfare centres across the country.

But Ms Nattakarn lost her job for coming forward with her concerns. And while Ms Panida has since won widespread praise, she initially faced condemnation from a department head at her university.

What these stories have in common is people in positions of authority doing something they shouldn’t, and people further down the ladder trying to stop it.

Unfortunately, rule-breaking and unethical behaviour are widespread, whether it’s motorcyclists riding on sidewalks or executives padding their expense accounts, or worse.

SETTING THE RULES

In any setting where people work together, there will be some who will try to break the rules that everyone has agreed on. Such bad behaviour can weaken and tarnish the organisation as a whole.

In the case of a corporation, encouraging ethical behaviour and preventing wrongdoing involves communicating clearly with all stakeholders, from employees to executives and the board of directors.

Ethics are not discussed very much in day-today business. Everyone seems to assume that since humans instinctively know what is right and wrong, there is no need to mention the issue.

However, if ethics are not addressed regularly, people start to forget and some will just behave as they like, even if it’s not ethically right.

The right approach is to start at the board level. Directors need to view ethics and morality in relation to business strategy. Such discussions can be challenging, but the CEO and chairman could focus the discussion by stressing how ethics are part of the organisation’s core values and corporate culture. The discussion should cover topics such as:

What are ethics and morality?

How can we apply ethics and morality to our business?

Will applying ethics and morality lessen our business competitiveness?

The same kind of conversation should be held at the executive and employee levels as well, so that everyone understands how the organisation views ethical practices.

Having established the central importance of ethics, a company should also have a code of conduct. People facing difficult situations can consult this document, which can serve as a moral compass pointing them in the right direction.

ROLE MODELS

Human beings don’t always behave in a certain way just because someone tells them to. It is in our nature to ask questions, and to observe what those who tell us what to do are actually doing themselves. In other words, if you are a senior corporate leader, practise what you preach. Be a role model.

If leaders expect employees to be on time, they have to set the example. If the company has rules against conflict of interest, make sure the directors aren’t involved in questionable situations, such as sitting on the boards of two companies where mutual financial benefits are possible.

The “role model” leader must demonstrate low tolerance for unethical behaviour and take prompt action to correct it.

When things go wrong because of improper behaviour or decisions, you often find that the people involved were not fully mindful. When people are mindful, they tend to be reasonable, careful and not easily distracted. They think twice, not allowing emotion to overshadow the right decision. Therefore, mindful people will be reluctant to do unethical things.

A proper programme to encourage mindfulness in the workplace should be provided to employees. For example, at some companies, employee visits to meditation centres are not counted against their annual leave. Yoga classes, book clubs and other activities are also useful.

REWARDING GOOD BEHAVIOUR

Recognising ethical practices is also important. An annual recognition event is a good way to encourage employees to keep doing good by showing how the company values those who exhibit good behaviour.

When an organisation is run by ethical people and displays ethical practices, customers can be certain that they are in good hands, and the business will deliver good products and services. The temptation to commit internal fraud and corruption is greatly reduced.

In his book The Fish Rots From the Head, the corporate governance strategist Bob Garratt reflects on the critical role of the board in establishing the right tone. Assigning a designated director to take care the “moral compass” can be a very good starting point for this vital journey.

Sorayuth Vathanavisuth PhD is the principal and executive coach at SEA Leadership (Center for Southeast Asia Leadership). His areas of interest are executive coaching, leadership development, succession planning and talent management. He can be reached at sorayuth@sealeadership.com

‘‘ If ethics are not addressed regularly, people start to forget and some will just behave as they like, even if it’s not ethically right.