When, at a recent event, an HR director told occupational philosopher Roger Steare that having a policy on ethics was “nice to have but not essential”, he realised UK plc still had a lot of work to do.
Steare, who has advised a number of blue-chip companies on how to develop an ethical culture, is constantly surprised that organisations do not take the issue of corporate ethics seriously enough.
“There is a widespread awareness of ethics, but in a misunderstood way,” he says.
Corporate ethics, according to Steare, is much more than simply complying with laws on financial reporting, discrimination and the environment it is about doing the right thing when faced with a difficult work situation.
“Ethics is about the way we resolve conflicts,” he says.
The bullying manager who gets results but alienates colleagues the refusal to pay an invoice on time to guard cashflow the receipt of gifts or hospitality in exchange for business – these are all scenarios that test our integrity.
These dilemmas, says Steare, cannot be solved by legislation. They require people to make difficult decisions based on right and wrong.
And with the line between what society considers acceptable and unacceptable behaviour becoming increasingly blurred, companies must educate their employees in ethics, says Sean Weafer, honorary vice-president of the Association of Coaching and a proponent of ethical business.
When this does not happen, as in the case of Enron and WorldCom in 2001, the corporate world finds that governments intervene to rein in their worst excesses.
“The Sarbanes-Oxley laws on financial reporting in the US were introduced to combat this breakdown in corporate ethical behaviour. If companies can’t be trusted to do business with integrity, they will have ethics dictated to them,” says Weafer.
Businesses are responding to this by developing their own strategies on ethics. According to Simon Wesley, research director at the Institute for Business Ethics (IBE), more than 90% of FTSE 100 companies now have an explicit policy on ethics, compared with less than half five years ago.
This reflects an increased interest in ethics following scandals such as Enron, and a current trend towards risk management, where safeguarding a company’s reputation has become the key issue.
But having a code of ethics is not just a way of protecting an organisation’s good name. Research from the IBE shows that companies that have an ethics policy are more likely to be commercially successful in the long run.
A report published in 2003 showed that, from a sample of 86 leading UK companies, those with a code of ethics had, between 1997 and 2001, outperformed a similar-sized group that did not have a code.
“Unless you have a good reputation with your employees and your customers, you won’t be able to keep your customers, and good people won’t want to work for you,” says Wesley.
But if an organisation genuinely wants to build an ethical culture, where does it start?
Wesley says the initiative must come from the top. He suggests the chief executive writes a mission statement detailing an organisation’s values and giving guidance to employees on how they should conduct business with customers and suppliers. This should be reinforced with training, the consideration of ethics in appraisals and employee surveys, and the provision of a dedicated telephone line where staff can report malpractice.
And what about HR’s contribution? According to Wesley, one in five companies delegates the responsibility for ethics to HR, with company secretaries and public relations departments being other popular choices.
“HR is in an ideal position to steer training in ethics,” he says.
Wesley also suggests that all learning and development should include an ethical dimension, even if it is just a few minutes at the end of a session where participants are asked to consider an ethical dilemma relevant to the training they have just received.
“This way, high standards are kept on the agenda, bringing the corporate values into every decision employees make,” he says.
Training is just one channel through which ethics is given a high profile at energy company Centrica, according to group HR director Anne Minto.
She says staff at call centres are given rigorous training in acceptable ways to make sales, and the importance of transparency when dealing with customers.
“It’s imperative we do this,” she says. “Often customers are at the end of a telephone and not face-to-face, so it’s important they trust us,” she says.
This is reinforced with a session on ethics at induction and a written document on the company’s values that has been sent to the homes of all 35,000 employees worldwide, communicating the principles by which Centrica wants to do business.
Reminders are also sent out by e-mail from time to time, while the code of ethics is available on the company intranet for staff to access at all times. “We want doing the right thing to be a way of life at this company,” says Minto.
And this seems to work in practice. There was an instance where an employee reported that a colleague had a relative at one of Centrica’s major suppliers. When the situation was investigated, it was found that the colleague had already declared a personal interest and had withdrawn themselves from the account.
“This is what we want to see: people being vigilant, but also being proactive,” she says.
Centrica’s policy on ethics even extends to contractors who work for the company and suppliers. Minto says the procurement department is charged with ensuring that all business partners, who have had the code of ethics document sent to them, make decisions that support the company’s values.
But Minto agrees ethics is not solely an HR issue. At Centrica, the company’s initiatives on ethics have been driven by the managing director and other executive board members. “There’s no way people in the business are going to conform to ethical principles unless those higher up are leading by example,” she says.
Insurance firm UIA championed a similar approach. In 2003, managing director Ian Templeton led a management review of the organisation, which was called ‘Insurance with Principles’.
“We revisited our entire business operation to ensure a principled approach ran through every aspect of our organisation,” says Templeton.
He acknowledges this was a time-consuming venture, but warns that increasingly sceptical consumers will see through companies who pay lip service to ethics and simply bolt on an ethical policy as part of a marketing campaign to appear more socially responsible.
Ethics, he says, has to be central to an organisation’s brand and evident in every aspect of the way it operates.
“Consumers will only accept an organisation as truly responsible if ethics can be seen to be ingrained within the business – from its policy towards customer service and its employees, right through to its work within the communities it serves,” says Templeton.
Case study: Citigroup
Following negative press coverage about Citigroup’s alleged association with the Enron scandal, the bank had to take major steps to repair its reputation.
The result was a change management programme driven by chairman and chief executive Chuck Prince, who took up his role in September 2002.
His first step, according to John Harker, head of HR for Europe, the Middle East and Africa, was an extensive survey of senior managers in different parts of the business to find out what kind of company they thought Citigroup should be.
The culmination of this research was a document called ‘Shared Responsibility’, which communicated the company’s principles as regards internal controls, diversity, performance and talent management and training.
This was complemented by the release of a corporate video that showed staff where the company had come from, and the legacy left by its founding fathers.
Alongside this, the company launched a comprehensive internet and classroom-based training programme that would eventually touch every one of its 300,000 employees worldwide.
Initially, the top 3,000 senior managers and country chairmen were given intensive training on ethical principles and good business practice.
“If this was going to work, we needed our top people to set an example through leadership,” says Harker. The next wave of learning took in 30,000 managers globally.
“An element of this focused on the work we do with our clients, and we have pulled out of a number of deals since this initiative, feeling that they didn’t align with our principles,” says Harker.