Perspective of women and men

Ethical culture gap: SOE vs. Private Sector

What ethical culture dimension in the State-Owned Enterprise Sector (SOE) differs the most in comparison to the private sector?

The Ethics Institute has been working hard to look at differences across different sectors of the economy regarding ethical culture using a large database of organisations. Ethical culture is a hot topic at the moment, and we do not have to mention the importance of creating an ethical culture for the long-term sustainability and performance of an organisation. But what is the difference in ethical culture across different sectors of the economy?

Our research found that there is a difference in the ethical culture seen in the private sector in comparison to state-owned entities. The difference is quite significant with state-owned organisations scoring substantially lower in terms of ethical culture (i.e., SOEs are less mature regarding their ethical cultures). However, there was one interesting finding where state-owned organisations differed the most from private sector organisations, namely ethics accountability and responsibility. This dimension involves holding people accountable and responsible for unethical conduct in organisations in a fair, transparent, and consistent manner. It also emphasises accountability across job levels in the organisation. It therefore appears that the most important factor undermining the ethical cultures of state-owned enterprises is accountability.

The environment that each sector operates in can greatly affect who will take accountability and responsibility for ethics. Although it is important to note that different industries may have more stringent legal requirements. There are a number of differences listed below between the private sector and the state-owned entities:

  1. Ownership: The private sector is owned by individuals and all kinds of institutions whereas state-owned entities are owned by the government. The ownership of an organisation might influence the decision-making process, which can have a direct impact on who is accountable and responsible, the ethical standards, as well as the flexibility and efficiency to respond to issues.
  2. Purpose: Private sector organisations are primarily driven by the creation of value for stakeholders. This means that the ethical culture in the private sector will be influenced by achieving business goals and responding to stakeholder preferences. On the other hand, state-owned entities may prioritise objectives such as providing public service that is rendered within the government or economy. However,  state-owned entities often do not respond as efficiently to the needs of the public and this is explained more in the next point. 
  3. Governance: The state-owned entities may face additional bureaucratic processes, regulatory requirements, and political considerations that impact the efficiency and ability to adapt to societal conditions. 
  4. Stakeholder engagement: State-owned entities have a broader set of stakeholders, including citizens, government agencies, communities, and public interest groups. As a result, the ethical culture in state-owned entities requires balancing the diverse needs and expectations of multiple stakeholders, including the public. On the other hand, the private sector typically prioritises the interests of shareholders, customers, and other stakeholders directly related to their business operations. 
  5. Resources: As the private sector is profit-driven, it will also have more autonomy and flexibility regarding resource allocation and strategic direction. However, state-owned entities are known to be vulnerable to debt burdens and corruption problems to name a few. A budget is usually required to be set aside and duly planned to ensure ethics is governed, which can be challenging if the resources are not available. 

The reasons mentioned above place state-owned entities in a situation that requires a longer process to manage ethics. However, if employees are not aware of or do not see how ethics is governed, they may assume the organisation does not hold anyone accountable and may have little motivation to take on the same responsibility. Moreover, employees need to be provided with the necessary protection, support, and guidance from leadership and management. This indicates that ethics accountability and responsibility require certain preconditions to ensure all employees will adhere to ethical standards.