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A matter of language: practical business ethics Philippa Foster Back OBE Director Institute of Business Ethics www.ibe.org.uk © IBE ....doing business ethically makes for better business…. Topics A matter of language Business ethics as a practical matter Business issues Why bother? © IBE ....doing business ethically makes for better business…. Where does the law fit in? Legal position of a business - what it must do Ethical responsibility of a business - how it does it Remember: Law is mandatory - you are obliged to obey Ethics is discretionary – you have choice – determined by values © IBE ....doing business ethically makes for better business…. Business Ethics is about … Ethical Values Ethical commitments / Corporate Responsibility - to whom we are responsible: - ways of working - relationships with stakeholders Governance Core business strategy Policies & Codes & Targets Business Behaviour the way we do business What is Business Ethics? … the application of ethical values to business behaviour … © IBE ....doing business ethically makes for better business…. Values and ethics All businesses operate on the basis of core values – implicit or explicit These include business values and ethical values © IBE ....doing business ethically makes for better business…. Identifying Company Values © IBE ....doing business ethically makes for better business…. Identifying company values Business values Forward thinking Quality Ethical values Customer focus Respect Trust Customer focus Honesty Responsibility Openness Efficiency Transparency Teamwork Fairness Performance © IBE Profitability Integrity Reliability ....doing business ethically makes for better business…. Corporate Responsibility Ethical Values underpin…. approach to Corporate Responsibility Ethics Policy & Code CSR (Social) Policy doing things ethically © IBE doing ethical things ....doing business ethically makes for better business…. Ethical dilemmas – where they arise Societal values Personal values Company values Professional values © IBE ....doing business ethically makes for better business…. A classification of business ethics issues Ethics of the economic system Profit v service Ethical issues in the boardroom Values, governance, environment etc Ethical issues facing managers People issues, privacy, incentives etc Ethical dilemmas of employees Speaking up, bullying, work/home © IBE ....doing business ethically makes for better business…. Business Ethics as a practical matter © IBE ....doing business ethically makes for better business…. Who is interested? NGOs media employees shareholders suppliers COMPANY regulators communities customers stakeholders interested parties competitors © IBE ....doing business ethically makes for better business…. Business Issues © IBE ....doing business ethically makes for better business…. When does a business problem involve ethics? When it is not covered by the law If it raises moral problems for a member of the team If it makes you reflect on what is a correct and incorrect response If you are forced to consider where your obligations and duties lie. © IBE ....doing business ethically makes for better business…. What are the key business ethics issues? © IBE ....doing business ethically makes for better business…. Top business ethics issues for UK companies 1. 2. 3. Harassment and discrimination Supply chain management Environment Speak up policies (whistleblowing) Gifts and entertainment Conflicts of interest Remuneration issues Lobbying and donations Work / home balance © IBE ....doing business ethically makes for better business…. Key financial ethics issues The financial system Financial regulation Functioning of the markets Governance Role of government Role of central bankers Corporate financial reporting Misleading/fraudulent statements Bias © IBE ....doing business ethically makes for better business…. Elements of an effective ethics programme Ethical Values -> Ethics Policy embed, implement, make operational … Code of Ethics cf code of conduct •Guidance for Staff •The Way We Work • Business Principles •Our Commitments & Standards … Communication & Awareness Campaigns Training & Reinforcement Supporting context and Culture Monitoring & Accountability what, why, how; understanding as well as information … induction; on-line; dilemmas, debate; incentives … leadership, strategy; polices; resources, business goals; compliance; CR, CSR … surveys, sdr, stakeholder engagement; business review… Embed values & change behaviour © IBE ....doing business ethically makes for better business…. Leadership © IBE ....doing business ethically makes for better business…. Attributes © IBE ....doing business ethically makes for better business…. Behaviours © IBE ....doing business ethically makes for better business…. Why do people make poor decisions? © IBE ....doing business ethically makes for better business…. Why do employees ‘do right’? © IBE ....doing business ethically makes for better business…. Why do employees ‘do right’? Because it is the right thing to do.. Moral compass Fear Asked someone Read the code © IBE ....doing business ethically makes for better business…. Why do employees ‘do wrong’? © IBE ....doing business ethically makes for better business…. Why do employees ‘do wrong’? Fear Ignorance Belief Pressure from others Culture of the organisation Desire for personal gain Know no better… © IBE ....doing business ethically makes for better business…. Role of Codes Core ethical values • Publicly expressed commitments – in a Code of Ethics • Reinforced by training & tone at the top Maintains reputation Sustains culture of trust Supports staff in decisions & conduct© IBE Enhances financial performance Reduces risk ....doing business ethically makes for better business…. Simple ethical tests for a business decision Is it legal? Transparency: Do I mind others knowing what I have decided? Effect: Who does my decision affect or hurt? Fairness: Would my decision be considered fair by those affected? Who benefits? Am I doing this for my own benefit, or because I think it is the right thing to do? © IBE ....doing business ethically makes for better business…. Some red flags If you hear someone say any of these, you can expect something unethical is about to happen! “Well, maybe just this once.” “No one will ever know.” “It doesn’t matter how it gets done as long as it gets done.” “Everyone does it.” “Don’t worry, it’s part of the culture.” “Shred that document.” “We can hide it.” ““What’s in it for me?” “We didn’t have this conversation.” “I don’t want to know.” © IBE ....doing business ethically makes for better business…. © IBE ....doing business ethically makes for better business…. When tackling ethical dilemmas… Don’t make assumptions - try to find out the facts Disclose and discuss wherever possible Consult the company Code of Ethics Resolve the problem Communicate the decision quickly Take measures to prevent reoccurrence Learn the lessons © IBE ....doing business ethically makes for better business…. Why bother? © IBE ....doing business ethically makes for better business…. Profit and the price of life Business Fraud on Rise Amid Credit Crunch BA Executives face charges over price-fixing Nigeria sues drugs giant Pfizer © IBE ....doing business ethically makes for better business…. Does it pay? © IBE ....doing business ethically makes for better business…. The value of business ethics IBE research published in 2003 on whether business ethics pays provides evidence that large companies with codes of ethics… are consistently more admired by their peers. are rated higher than those without codes on their ability to reduce non-financial risks. perform better financially than those that do not have codes. © IBE ....doing business ethically makes for better business…. Average EVA by year for major UK quoted companies 500 Average EVA (£M) 400 Average EVA/year (ALL) 300 Average EVA/year (WITH CODE) 200 100 Average EVA/year (NO CODE) 0 -100 1997 1998 1999 2000 Sample: 24 with codes, 17 without codes © IBE ....doing business ethically makes for better business…. Price/Earnings Ratio (P/E) by year for major UK quoted companies 45.00 40.00 Average PE/year (ALL) Average P/E 35.00 30.00 25.00 Average PE/year (WITH CODE) 20.00 15.00 Average PE/year (NO CODE) 10.00 5.00 0.00 -5.00 1997 1998 1999 2000 2001 Sample: 26 with codes, 32 without codes © IBE ....doing business ethically makes for better business…. An update Further IBE research published in 2007 found that large companies that provided ethics training… Performed better than their peers in four financial performance measures (ROCE, ROA, TR and MVA) in a five year analysis © IBE ....doing business ethically makes for better business…. GRAPHICAL REPRESENTATION OF THE INDEPENDENT SAMPLE T-TEST RESULT Comparison of means between CAE and CRE 18.00 16.00 14.00 Mean 12.00 10.00 CRE 8.00 CAE 6.00 4.00 2.00 ROCE ROA TR MVA Financial Performance Measures CRE – Corporate Revealed Ethics CAE – Corporate Applied Ethics © IBE ....doing business ethically makes for better business…. Other reports on role of business ethics and good governance in successful companies ABI – 18% higher returns from companies with best corporate governance records Hermes – ‘Corporate Governance and Performance – the missing links’ Deutsche Bank – Global Corporate Governance Research ‘Beyond the Numbers’ 2003-2006 McKinsey – Coombe & Watson (2002) ‘Global Investor Opinion Survey’ © IBE ....doing business ethically makes for better business…. The Case for a Business Ethics Strategy (in a nutshell) It is good corporate governance The citizenship case It helps to develop a sustainable organisation The environment case Is essential for risk reduction programmes The risk management case It sustains a good reputation The PR case It The business case can enhance profitability in the long term © IBE ....doing business ethically makes for better business…. Summary © IBE ....doing business ethically makes for better business…. Business Ethics Values Ethics Culture Conduct Trust & Reputation AND Financial Performance Risk © IBE ....doing business ethically makes for better business…. Doing Business Ethically Improves trust and morale internally Helps to ensure consistent conduct Reduces ‘integrity’ and operational risks Strengthens external reputation Over the long term will benefit the bottom line © IBE ....doing business ethically makes for better business…. Thank you www.ibe.org.uk © IBE ....doing business ethically makes for better business….