Business Ethics and Global Companies: The Background

My summary of Section 2 from the IBE's (Institute of Business Ethics) research document 'Living Up To Our Values' (2006).

Business Ethics and Reputation

• Conducting business to high ethical standards is not new and can be traced back to the early 19th Century.
• The IBE describes business ethics as the application of ethical values, such as integrity, fairness, respect, and openness, to business behaviour and it relates to all the activities of a company.
• Globalisation and digitalisation means news (good, bad, true, or false) is instantly and widely available. There is a responsibility not only to act ethically, but to be seen to be doing so.
• Reputation takes a long time to establish or rebuild but can be seriously damaged in a short space of time.
• A company needs to ask itself "would this action (or inaction) damage the company's reputation in the mind of a right thinking person?" This is similar to those commonly used for ethical situations, such as "how would this be reported in tomorrow's newspaper?"
• Management of reputational risk:
• Ethical business conduct changes over time.
• There may not always be a simple right or wrong answer (conduct that causes reputational damage in one country may not do so in another).
• Standards of conduct may need to be above that required by law to avoid reputational damage.
• Ethical business conduct should be integrated into existing decision making policies.
• Openness and transparency are key elements underpinning ethical business conduct.

Responsibilities

Global Companies

• Reputation is important for all companies irrespective of their size or sector (and is more challenging for companies that have operations across countries with differing cultures, values and legal regimes).
• The rise of the Internet and 24 hour news means that reputationally damaging information can be generated on a scale and speed unthinkable as recently as 10 years ago.
• Global companies derive their legitimacy from 2 core factors:
• Their success in creating economic value.
• Demonstrating that they operate to high ethical standards (economic success alone is no longer sufficient).
• With power comes responsibility - one of the challenges of the 21st Century is to achieve and be seen to be achieving such standards.
• Having high standards and demonstrating such standards will gain a competitive advantage.

Boards of Directors

• Directors of the Board are under a statutory duty to ensure and assure high standards, and that this is reflected in decision making throughout the company.
• The Board should ensure that senior executive is responsible for the overall programme of implementing these standards.

Specific Board Committee

• The Board's Committee role should be to oversee and provide assurance to the Board that its overall policies are implemented and being followed.

Senior Executives

• It is the responsibility of the CEO and senior executives to develop and implement procedures and processes, and must therefore assume a personal responsibility.

Global Codes of Ethical Business Conduct

A Global Code should encapsulate "how we do business". Such a Code would be expected to:

• Set out clearly the standards of behaviour.
• Emphasise the commercial positive benefits.
• Provide a means for employees to raise questions and concerns.
• Give a warning to expect disciplinary action if there are breaches.
• Use clear and simple non-legalistic language.
• Include specific expectations of the behaviour of senior managers.
• Include an explanation of how the ethics policies are implemented.
• Be a living document.

Policies and Procedures in Areas of Risk

• Identify the particular areas of ethical and reputational risk.
• Provide guidance and training to all employees.
• Someone, somewhere will be acting unethically despite all the best efforts - how a company is seen to respond will be critical to its reputation. Critical elements include:
• Promulgate the global code.
• Provide training.
• Provide specific functions, such as helplines and ambassadors with whom concerns can be raised.
• Provide clear company policies, such as investigation, reporting, and disclosure.

Openness and Transparency

A global company cannot meet its obligations without a culture of openness and transparency. Being seen to follow the highest standards of ethical business conduct is as important as doing so. A company should ensure that:

• The global code are key policies and procedures are publicly available.
• Where allegations of misconduct are made, the company is open about the actions is has undertaken.
• There is regular reporting, both internally and externally.