Business ethics

Ethics refers to the knowledge and practice that seeks to inform thoughtful and conscious decision making.

It is about the choices we make and the actions we take as individuals, communities and societies, and the effects on the world.

What do you mean by business ethics?

Business ethics describes the choices made by an organisation and its people, informed by its values, principles and purposes. These kinds of organisational issues vary in their scope, relating to matters such as conflicts of interest through to how to respond to climate change.

Some kinds of ethical issues in business are easily discernable. But the most difficult decisions to be made are those in the ‘grey’ zone, where principles and values are in conflict. In certain circumstances, decision makers look for the ‘least bad’ option.

Perfection in making ethical decisions, therefore, cannot be expected of anyone. The lack of clarity in making these kinds of choices requires sincerity and good decision-making skills.

Ethics and the role of the board

The fiduciary and statutory duties of directors are paramount in board decision making. Directors are required to act in good faith, for a proper purpose and in the interests of the organisation as a whole. These duties also include acting with care and diligence, ensuring they do not misuse their position, and avoiding conflicts of interest, disclosing material and personal interests. Directors must comply with any further duties applicable to their organisation and sector.

The role of a director in making decisions about the governance of their organisation, however, is inextricable from ethical issues. Values, principles and purpose shape all decision making, regardless of whether one is conscious of it. Ethical choices thereby underpin all board processes, procedures and each decision made by the board – even decisions to include or omit topics for boardroom discussion. Each choice is an expression of the ethics of the board, which then impacts organisational culture and operations.

There are innumerable examples of organisations suffering from public revelations of unethical behaviour. Ethic failure destroys value – particularly in organisations that rely on intangible assets such as goodwill. While legislation, regulation and internal compliance measures are indispensable to enforcing proper conduct, they are insufficient on their own. It is not enough for directors to look solely to the law for guidance in oversight and direction of their organisations.

It is for board members to address the ethical considerations of the corporations, the markets, the communities and environments in which they operate. The decisions they make will shape the brand and the impact of their organisation on the world around it. Directors must develop their skills in navigating ethical complexity – like any skill, proficiency in ethical decision making is honed with time and practice.

Ethics and discussions around the board table

Despite the inescapable ethical aspect of decision making, speaking openly about ethical considerations in the boardroom can be difficult. Some boards may tend to only consider their obligations under the law when making decisions. There are a number of factors which may make explicit discussion of ethical implications a challenge:

• The mention of ethics may cause anxiety about being seen to be judging or being judged as a ‘good’ or ‘bad’ person.

• Some might see ethics as a matter of opinion.

• It may evoke suspicion that it is being used to conceal misconduct.

• Ethics is seen as a double-edged sword – something that can be turned against you once it's brought up.

Regardless of these misgivings, boards that do not openly discuss ethical dimensions of their decisions are ignoring a crucial element in their fiduciary role. It is best to tackle this element head on, to be honest and fearless of matters that might cause a strong reaction. It can be uncomfortable to examine it, but considerations of ethics in practice can reveal that the values of the organisation and the values of the individual are not always the same. By discussing these issues, board members need to be open to sharing from their own values and beliefs. In questioning and teasing out the tensions of intuitive feelings of ‘right’ and ‘wrong’, directors must strive to be open-minded and come to a mutual decision.

Identifying ethical challenges for directors

Board issues do not always present themselves as ethical issues. It is the role of directors to identify and untangle the ethical issues in ‘everyday’ decisions. Here we identify a number of board issues which commonly or invariably involve ethics, and sometimes overlap with other ethical considerations:

• Ethical issues relating to personal abilities, capacities, knowledge, interests and relationships of board members or employees.

• Business practices; this includes a vast array of things, such as organisational culture change, behaviour, supply chains and stakeholders. It can also refer to IT systems design, employment policies and remuneration, risk appetite and investment strategies.

• Ethical issues for an organisation may arise from its social or economic environment. These may affect trust with stakeholders, brand and reputation, and could concern such things as supply chain integrity, human rights or environmental sustainability.

Four lenses for considering ethical issues

Ethical issues can vary in their complexity and scope. When examining the ethical issues or dilemmas that arise in the boardroom, it is useful to view them through four different lenses.

General influence

Through this broad lens, the board can view a particular issue within the context of the organisation as a part of society.

The board’s culture and character

The decisions made by the board should reflect the desired culture of the board and the organisation.

Interpersonal relationships and reasoning

There are many factors which affect group decision making. Each member of a board will have their own decision-making style and method of reasoning. This diversity of viewpoint and thinking is an asset to a board. The personal relationships between members will have an affect on how different voices and opinions are heard. The efficacy of the chair in guiding the conversation of the board is also a major influence on the quality of a board’s decisions.

Individual directors

This lens refers to the motivations, biases and reasoning styles of each director. It recognises each director as a contributing factor in an ethical company.

More about principles of business ethics

For more on fostering ethical discussions in the boardroom, download our tool Ethics in the Boardroom: A decision-making guide for directors.