Looking back at the 2008 global economic crisis and the recent corporate failures, Steinhoff in particular, one may be tempted to ask: “Why didn’t boards and their advisory committees (audit committees in particular) not see what was coming?”
There has, undoubtedly, been a significant loss of confidence and trust in top management. Some of this is, of course, to do with competence but in reality it has mostly focused on the quality of top management and a crucial component is ethics and integrity and an appropriate degree of scepticism on the part of non-executive directors.
Governance is not a static theory; it is an ever-evolving process…
The European (and South African) authorities (refer to governance codes below) opted for a principles-based approach. However, governance cannot be truly effective without the integrity of purpose and actions which drive the ‘tone from the top’ leading to a strong moral compass founded on ethically-based values.
Corporate Governance has been a topic of ongoing conversation and even legislation since the early 1990’s. However, in spite of a number of outstanding codes and reports (such as the Cadbury Report, the four King Codes and Reports, the Combined Code and many more around the world), together with the various legislative responses (such as Sarbanes Oxley in the USA), business failures continue.
Where were the directors of these failed businesses and what were they looking at and asking of management when considering their approval of the financial statements year after year?
Each director is a steward of the company and should demonstrate:
- Conscience – intellectual honesty and independence of mind,
- Inclusivity – legitimate interests and expectations of stakeholders,
- Competence – knowledge and skills
- Commitment – diligence, and
- Courage – to take the appropriate risks and to act with integrity.
There is evidence that suggests that companies displaying consistent ethical values and behaviours based on solid and sustainable moral values driven throughout the organisation where all are aligned to the ‘tone from the top’ deliver better and more sustainable returns.
- Is it a reasonable presumption that all know and fully understand the meaning and impact of ethical behaviour, moral values and what drives them?
- Do the directors live out their stated ethical and moral values – the tone from the top?
- What are the views of management and the workforce of the leadership’s (director’s) ethical and moral values and the example set?
- Is it reasonable to assume that management knows how to embed these values throughout the organisation?
- How do directors measure the ethical and moral climate of their organisation?
- Does the ethical and moral climate of the organisation align with those espoused by the directors?
What is understood by ethics and morals – is there a universal standard, a universal moral compass?
In the Glossary of terms in the King IV report the term Ethics is defined as follows:
“Considering what is good and right for the self and the other, and can be expressed in terms of the golden rule, namely to treat others as you would like to be treated yourself. In the context of organisations, ethics refers to ethical values applied to decision-making, conduct, and the relationship between the organisation, its stakeholders and the broader society”.
However, what is understood by ethical values, behaviours and integrity? Can one assert that there is a set of Universal Principles? Consider the following:
Noted anthropologist Donald E Brown found in his research that the moral codes of all cultures include recognition of responsibility, reciprocity, and ability to empathise. Other studies have confirmed his findings. The major world religions preach common values: commitment to something greater than self, responsibility, respect, and caring for others. Genuine behaviour norms in different cultures may distract us from what we have in common with all people – a universal moral compass.
Stephen Covey suggests more evidence of universal principles: “From my experience in working with different people and cultures, I find that if certain conditions are present when people are challenged to develop a value system; they will identify essentially the same values. Each culture may express those values differently, but the underlying moral sense is always the same.”
The authors of Moral Intelligence (Doug Lennick and Fred Kiel, Ph. D) suggest the following from their research:
- Forgiveness and reconciliation
While the first two seem self-explanatory, what about the last two?
Compassion shown to an employee in distress may lead not only to a swifter recovery and return to full operational ability but also to a substantial gain in loyalty from employees – and not just to the employee concerned.
Forgiveness and reconciliation: Is not business the enterprise of risk? If employees and management are too fearful of making mistakes, how much business risk are they likely to take?
Finally, an organisation that demonstrates these ‘universal values’ from the top through management in alignment with actual behaviour will achieve, through its workforce, greater returns than might otherwise be the case.
So, these ‘soft’ practices have the potential of leading to hard bottom line results.
Ethics and moral values – are they worth it?
It has been suggested that companies with recognised good governance are valued at a premium over those with poor governance records. The same applies to companies with sound ethical records. Ethical companies attract and retain talent.
- Enhanced governance through demonstrated ethical behaviour
- What are your values and ethics?
- Does your behaviour reflect them?
- How do your board colleagues and your first line reports perceive your values, ethics, and integrity?
- What is your staff’s perception?
- How do you go about ensuring the values are embedded throughout the organisation to achieve alignment?
- Starts at the top
- Safety for those really tough and necessary conversations
- Ethics led performance
- Behavioural change and feedback
- Strong business case
Is your top team up for the challenge?