During a Trevor Noah show he stated that in South Africa a red traffic light was merely a suggestion. The question addressed in this article is whether Principle 2 of the King IV Report on Corporate Governance^™, namely that “The governing body should govern the ethics of the organisation in a way that supports the establishment of an ethical culture”, is applied effectively in practice, or whether it is merely a suggestion upon closer inspection.

The concepts “ethics” and “culture” are perhaps not as clear-cut as they are often made out to be. Both are abstract concepts that may be interpreted quite differently between organisations, especially when read in combination. Whereas Principle 1.4 of King III prescribed that “The board should ensure that the company’s ethics is managed effectively”, King IV presents a bigger challenge than merely managing ethics. Establishing an ethical culture implies that organisations need to interpret and understand what is meant by “ethical culture”, then measure the maturity or strength of it, design and implement interventions to institutionalise culture, re-measure it on completion of interventions and thereafter disclose the status to its stakeholders.

A definite challenge for organisations is, however, that the Companies Act, as amended, is still pretty silent on what the organisational ethics mandate of the Social and Ethics Committee (SEC) of an organisation should entail. Fortunately, the additions to the ethics mandate as captured in the King IV Practice Note on the Social and Ethics Committee include reporting on organisational ethics performance as a broad directive to SECs. However, details on how this should be effected are sparse in formal corporate governance guidelines. Organisations could, however, resort to The Social and Ethics Committee Handbook to better understand how the King IV ethics mandate of the SEC could be expanded.

Whilst the Social and Ethics Committees’ Trends survey published in 2023 in collaboration with TEI generally indicates that organisational ethics is indeed being attended to some extent, engagement with many TEI clients reveals that ethics is still viewed as a somewhat “soft” issue. Additionally, there is the not-so-uncommon perception among many leadership cadres that ethics cannot really be “managed”. Moreover, according to the 2023 SEC Trends survey, ethics is often a “last” point on the agendas of SECs, with social issues, such as BBBEE, featuring more prominently. Many organisations still do not have a dedicated SEC to ask the right questions about ethics management that should be happening in the organisations.

Although the IoDSA SEC Trends Surveys show that SECs receive reports on organisational ethics performance, there may be much that is lost in translation between SEC and actual operational ethics management. The scope and depth of reporting to SECs on organisational ethics remain questionable. Subsequently, reporting on ethics in organisations’ annual general reports often reflects intentions rather than real progression on ethics management activities. (The 2024 Social and Ethics Committee (SEC) Trends Survey will be published in November 2024.)

Where the governance of ethics is a strategic and oversight responsibility of the governing body, and of SEC in particular, operational ethics, i.e. ethics management, and reporting thereof to the SEC, are organisational obligations. However, a state of disjunct may be prevalent. This results in either window-dressing regarding ethics performance at the governing body level, or inadequate ethics management on the ground. While there may be “some” ethics management within organisations, few truly understand and inculcate real, sustainable ethical cultures.

There could be many reasons for the disjunct. The first is either inadequate oversight at the SEC level, the SEC asking the wrong questions, or focusing on single activities such as dealing with whistleblowing reports to “catch those who do wrong”. It is understandable that many organisations, for the purposes of saving costs by not constituting too many committees at the governing body level, integrate ethics within the workplan of another committee, such as human capital (HR), remuneration, or audit and risk. This may lead to ethics being diluted in favour of other, seemingly more pertinent, concerns.

At the operational ethics management level, many organisations fall short in that ethics management is not an activity that is allocated to a dedicated function. Rather, it is, sometimes at best, listed as a KPA of some or other governance cluster entity, such as the company secretariat, compliance, risk management, HR, internal audit, or forensics. Again, integration leads to evaporation, and ethics management is put on the backburner.

In fact, many organisations actually have “Compliance and Ethics Officers”, but ticking boxes to ensure compliance relegates ethics management, and building ethical cultures, to being secondary responsibilities. Furthermore, even if a dedicated ethics management function actually exists in the organisation, the job is often given to a practitioner who may not have the seniority required to be taken seriously, lacks a specific ethics management qualification or competence, or does not have SEC and executive backing.

What is the ideal situation? Larger organisations, in particular, actually have no excuse for not having an ethics or integrity management function. But, firstly, they should appoint an ethics champion at executive level to be accountable in the final analysis and report on ethics performance to the SEC. The champion should sponsor the ethics cause at all levels, keep it going as a conversation at the governing body level, and act as an ethics performance link between the governing body, executive management, and the rest of the organisation.

Thereafter, put someone in charge of operational ethics management at a senior level, e.g. at the equivalent of a general manager position, and provide continuous support to such functionaries and their teams.

Building an ethical culture should undeniably be the primary mandate of ethics management, ethics officers, or ethics practitioners. Ticking boxes for the sake of compliance or having kneejerk reactions to auditors who ask what ethics training has been done will not build ethical cultures. For example, viewing ethics training for all as the ultimate solution to ethics ills probably causes more damage, as ethics is then thrown at people without leadership role modelling and support and an understanding of where ethics fits into the vision, mission, values, and objectives of the organisation. This applies specifically to superficial annual mandatory online ethics training.

Lastly, the logical life cycle of ethics management, which is also guided by King IV, is no longer a nice-to-have, but an obligation. This involves several key actions:

• Conducting regular ethics opportunity and risk assessments
• A 3-4 year ethics management strategy and plan to further unlock ethics opportunities and mitigate risks as identified, and to populate enterprise risk registers with ethics risks
• Regulating codes and policies to ensure ethics risks are accounted for
• Taking ethics to the people, including employees, suppliers, and customers – i.e. making ethics real (institutionalisation) through proactive interventions and those of a reactive nature when required
• Reporting on the ethics performance of the organisation to the SEC via the ethics champion

The ultimate goal is, of course, the creation of a sustainable ethical culture as an outcome of the governance of ethics and its operational ethics management support system.

The philosophy and actioning of the governance of ethics by the SEC and ethics management is not just a suggestion, like a red traffic light. It is an imperative. Not only for organisational sustainability but also for the resultant flourishing of the broader society. Organisations should not balk at the idea of managing ethics. One cannot just hope that people behave ethically; ethics cannot manage itself.

Prof. Leon van Vuuren is an Executive Director: Organisational Ethics at The Ethics Institute