Nine principles for an ethical culture

Monday, 01 April 2013

Peter Pearce photo
Peter Pearce

    Peter Pearce dispels some modern myths to help directors and their organisations embark on an ethical journey.

    Ethics is the essential but too often silent ingredient in corporate governance, risk and compliance (GRC) efforts. For directors and boards, GRC and a whole lot else will always be found wanting when pursued without vigorous engagement with an ethics culture to underpin all of your enterprise activities.

    If there is no active and engaged corporate moral compass fostered by, and guiding, those charged with the fiduciary duty to ensure proper conduct, bad things happen, even when there are apparently well-developed checking and regulating systems in place.

    You can take guidance from the regulatory system to steer your minimum efforts at good conduct, but not to tell you the difference between right and wrong. That comes from within and will only permeate your enterprise culture if pursued assertively from the top.

    That’s the paradox of regulation. While it’s necessary to regulate the conduct of certain enterprise affairs – what Matt Ridley called in The Rational Optimist part of the rules and tools of capitalism - doing so sometimes disempowers the corporate moral compass.

    Harmonised work health and safety laws are a good development, but they are only an aid to, and not a substitute for, a culture that knows that keeping people safe in the workplace is the right thing to do.

    Like so much else, driving formation of that ethical culture is a job that starts at the top. Effective IT governance, sound financial administration, diligent project management or strategic HR practice don’t just happen. Why would we expect ethical culture to be different?

    Yes, most individuals know what’s right and what’s not, but organisations are systems that are much more than the sum of individual human parts and must learn preferred culture through development of board-endorsed cultural norms.

    To begin a board-endorsed ethical culture journey you might first need to dispel some modern myths.

    In Western liberal societies, we are at the back end of an age of strident relativism, with a consequence that we have learnt – and now need to unlearn – a belief that all statements of ethics are equal. They are not. Business and non-business enterprise exists within society and is a social activity. Its social purpose is to advance the human endeavour, what the theorists call "human flourishing". Beliefs and actions that do not value humans equally and detract from human flourishing are not of equal moral worth to those that do. This is so regardless of the depth of passion of those who hold that we are not all equal in our humanity. This is a simple and accessible example that is hopefully sufficiently illustrative of the point.

    Your enterprise life will generate much more subtle and challenging examples for which you will need to have developed a set of core ethical standards against which you test enterprise behaviours and collective beliefs. This is hard, but if you start with a goal of promoting human flourishing and stick as best as you can to that, you will be on the right track. There is good grist here for the board discussion mill.

    Another myth is that of the inherent malfeasance of enterprise and particularly corporate enterprise. We may have grown used to the idea of the "Big Corporation" as a pejorative term, but ethically this has no basis and often actually takes us away from ethical truth.

    Some enterprises, large and small, have been caught out, but that’s a function of their conduct, not their scale.

    When beginning your board’s ethical culture journey hold onto this idea – value-creating enterprise is the well from which we draw to fund civilisation. Without a constant and successful effort to maintain new value creation, the funding base for civilisation withers and civility declines. It is a core ethical duty to maintain enterprise viability and you may care to even go so far as to overtly value ethically your very enterprise existence. Imagine the power of that message coming from the top.

    The ethical duty to maintain viability does not provide a licence to engage when times are tough in what you would otherwise view as unethical conduct. As the saying goes, it’s easy to be good when it’s easy but not so easy when it’s hard.

    Sophisticated ethical conduct is a complex balance. It is nuanced, challenging and sometimes plain hard work but also remember, there is no expectation of ethical perfection, but rather a genuine good-faith engagement with ethical culture and practice – even more reason for clear guidance, assertiveness and drive from the top.

    To help you with getting started, here are nine principles for an ethical culture that directors and boards might find useful:

    • Act with reason;
    • Act for purpose;
    • Act on defined values;
    • Foster meritocracy;
    • Foster internal transparency;
    • Act truthfully;
    • Ensure viability;
    • Do no harm; and
    • Protect the future.

    Others, including perhaps even you, will articulate these principles differently, so interpret and paraphrase at your will. It’s the ethic that matters, so capture it in words and then behaviours that work in your preferred enterprise culture.

    Peter Pearce FAICD is a Brisbane company director and business ethics adviser.

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