It is not (yet!) too late for organisations to manage their ethics

by Prof Leon van Vuuren | Published on 25 March 2019 for The Ethics Institute monthly newsletter

Many organisations are reluctant to manage their ethics performance. Why? When leading practice has moved beyond the question of whether ethics can actually be ‘managed’ (taking it as given that it can), and huge efforts are underway getting the how of ethics management right as well, it seems perverse to ignore this aspect of organisational life. One answer is that the reluctance is nestled in the myth that people are either ethical or they are not, and that there is not much one can do about it. Therefore, ethics cannot really be ‘managed’. This naïve outlook, along with false beliefs, such as ‘it is too expensive’, ‘it is too complicated’ or ‘what happens if things come out?’, are often barriers to applying concerted and structured ethics management interventions.

Ticking clock

"Building an ethical culture relies on the same ‘mental wiring’ and human behaviour change as that required to establish a health and safety culture, and it can be done."

These barriers, which usually manifest at the level of leadership, can have dire consequences, as the following real-life examples demonstrate.

A year or so ago, the Public Investment Corporation (PIC) took steps to organise ethics management interventions. However, as testimony coming out of the PIC Commission shows, the project was subsequently quashed by top management, and the overarching character of the workplace continued to be one of fear. The PIC is now having to answer serious allegations of corruption.

And then there was Steinhoff, again in the news as those individual executives responsible for fraud have been named at last. The signs have been around for far longer than the present scandal, though. The following is an extract from the company’s 2011 corporate governance report: “Steinhoff has not established a formal process for obtaining assurance on ethical awareness and ethical compliance throughout the group”1. If you were expecting the next year’s report to provide an update on progress made, think again: this statement appeared verbatim in all Steinhoff’s governance reports from 2011 to 2016.

More than a decade ago, Eskom established an official ethics office and appointed an ethics officer dedicated to running it. Indeed, Eskom was one of the first organisations in South Africa to do so. Where is the evidence of the impact of that office? In truth, it has, at some point since, died a quiet death. Similar stories played out at the South African Revenue Authority and the National Prosecuting Authority, both of which had formal ethics offices, staffed by numerous professionals. During the last few years, these functions have been rendered ineffectual by a lack of top leadership support, and then suffered severe damage to their perceived credibility as a result of the unethical behaviour of those same leaders.  

Many organisations that are guilty of ethical lapses, and suffer subsequent financial and reputational loss, establish ethics management functions reactively. Unfortunately, this is often little more than a window-dressing effort to appease stakeholders. Such ethics offices rarely receive sufficient funding to appoint professional ethics officers or to implement ethics management interventions. Ethics management efforts are then often limited to a unilaterally designed code of conduct and a safe reporting (whistle-blowing) facility. Organisations then wonder why the safe reporting facility never receives reports on ethics transgressions.

Sometimes, the reactive approach leads to a genuine acknowledgement of the strategic importance of ethics investment right at the top. Such changes of this deep nature are, however, difficult and less common.

On the flipside, there are many organisations, in all sectors of the economy, that have taken a proactive approach. Having sensibly invested in ethics management programmes before there was a scandal on their hands, these organisations have ethics offices in place that have been serving them well for a number of years. Since organisations that do not experience major scandals seldom make the headlines, the true effect of ethics management on their ethical cultures is not widely known. However, they quietly get on with long-term sustainable development that ensures satisfactory shareholder-owner returns, while also serving the interests of other stakeholders.

The good news is that it is never too late for organisations to manage their ethics (though the logic of ‘the sooner, the better’ applies). It is also not too late to establish social and ethics committees at governing body level, as per principle two of King IV2, which recommends that governing bodies “govern the ethics of the organisation in a way that supports the establishment of an ethical culture”. The private sector is further guided by the Companies Act of 2011, and the public sector by the Public Service Regulations of 2016, to actively govern ethics.

The mere notion of establishing an ethical culture (to use the words of King IV) may send shivers down the spines of organisations that have not yet applied their minds to this challenge. Establishing an ethical culture surely requires that an organisation measures the strength of its existing ethical culture, implements interventions to enhance it and then re-measures to assess impact. These actions require particular skills and sustained financial investment, for they are, and must be, ongoing. Organisational ethics needs a budget as much as it needs the courage and passion of the people who enact it.

More good news: leading practice guidelines, ethics management frameworks and training opportunities that could catalyse the step-by-step ethics management endeavours by South African ethics practitioners do exist. Ethical cultures will not just happen if ethics management is relegated to subjective calls on employees to be ethical and tick-box initiatives to prevent unethical behaviour. The first step in building an ethical culture is to ensure that a proper ethics management strategy, structure and systems are designed and implemented. Thereafter, the abstract and fuzzy nature of ethics and its related concepts requires that ethics is made ‘real’ in the organisation.  This should happen through incorporating ethics risks in the organisation’s risk register. In this way, the potential impact of each material ethics risk is determined, risks are assigned to risk owners and control mechanisms and timelines are established to ensure that they are managed in concerted and visible ways. To ensure that these interventions contribute to the formation of an ethical culture, ethics should be further made real by translating ethical values (such as integrity, honesty, fairness, respect and transparency) into visible and measurable employee behaviours. Only then will it become clear that ethics in organisations is not as complicated or shrouded in mysticism as it is often made out to be.      

A question for those who remain reluctant about the idea of ethical cultures in organisations: do those companies who spend billions on extremely successful efforts to establish health and safety cultures  not rely on human behaviour change to do so? It is clear that they do, along with the standard disciplines of good management, because they are committed to minimising risk to human life in the workplace. So, since ethical failures could cause the demise of organisations and directly or indirectly lead to the loss of human and other forms of life, the risk of unethical behaviour should also be recognised as a real and present danger to be mitigated. In fact, building an ethical culture relies on the same ‘mental wiring’ and human behaviour change as that required to establish a health and safety culture, and it can be done.

The right time to adopt this attitude was probably yesterday, or the day before, given the sensitive and volatile post-state capture social moment we are living through. But it is never too late to start doing the right thing. And it is also never too expensive to manage ethics. If there is still doubt about this, organisations need to consider the financial and other potential costs of unethical behaviour. Better get cracking. The clock is ticking.

References

1 USB Management Review (2018)

2 IoDSA (2016)


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Prof Leon van Vurren is Executive Director: Business and Professional Ethics at The Ethics Institute. He holds a Doctorate of Industrial Psychology from the University of Johannesburg.