BUSINESS ETHICS – HOW DOES YOUR COMPANY STACK UP?

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By: Adam Bernstein

Business ethics – the morals, values and principles that guide an organisation – has become increasingly important in recent years. Fairtrade, social responsibility and good governance have all followed from heightened levels of corporate scrutiny.

Take the fallout from the BHS debacle. A former paragon of retail, it once had 180 stores on the high street. Then in 2015, Sir Philip Green sold it for £1 to Dominic Chappell and his firm Retail Acquisitions – offloading £1.3bn in debt that included a pensions deficit of £571m in the process. In 2016, BHS went into administration with the fallout nearly losing Green his knighthood and his paying of £363m into the BHS pension scheme.

Rising prominence

According to Philippa Foster Back, director of the Institute of Business Ethics (IBE), ethical principles have shot up the corporate agenda in recent times. In her view “there is no escaping current increasing political pressure for exemplary ethical behaviour from our businesses.”

Corporate scandals, including misreporting and poor management practices are a key driver for change for Mel Green, research adviser at the CIPD, a professional body for the HR sector. She says that they “have continued to shine a light on the issue of ethics at work. They can damage an organisation’s reputation, erode wider public trust in business and harm individuals. There is broad recognition that business needs to be conducted in an ethical, transparent way for sustainable long-term success, but there has previously been a lack of clarity about how to go about it.”

Emma Scott, representation manager at Chartered Institute of Procurement & Supply (CIPS), notes that the problem is that news travels quickly but bad news travels at lightning speed. “Consumers, customers, suppliers and investors vote with their feet when it comes to dealing with businesses that aren’t doing enough or have been exposed for doing the wrong thing.”

Being responsible doesn’t mean that a business can’t make a profit or cut costs according to Scott. In fact, it’s her view that it can open up opportunities to increase market share. She highlights how the recent trends in veganism and reduced use of plastics “has made organisations look at their products and adapt them, or even introduce new products to make them more attractive to a wider market.”

Interestingly, Back notes that ethically run companies can outperform their peers financially in the long term. She points to IBE research back in 2003 which indicated that “this and subsequent research by others continues to show how organisations which take their ethical responsibilities seriously and embed ethical values within the fabric of how they operate, do better financially over the long term.”

Unethical behaviour takes many forms from full-blown illegal activity like fraud to so-called ‘pro-organisational unethical behaviour’ where questionable actions are taken because they seemingly benefit an organisation in the short-term. For the latter, Green has seen situations where “an employee might oversell the benefits of a product in order to hit a sales target. The short-term impact is financial gain, but down the line the client and employees lose out, trust is eroded, and reputation is damaged.”

Real world

So, how does business ethics play out in the real world?

By taking a definition of business ethics as to mean the ‘application of ethical values to business behaviour’ it should be clear that ethics has a direct relationship with how business is done. In Back’s opinion, “business ethics can be seen as being about big news stories of misconduct, corruption, black and white bad behaviour or big issues like human rights, sweatshop labour or climate change… we are all making ethical decisions every day.”

The practical reality means considering what supplier to go with, asking staff to work late, choosing who to employ or fire, or whether to bend the rules for a client – there’s often a choice. Where the ethical business comes to the fore is how it is applied in times of uncertainty and economic pressure.

But is ‘business ethics’ just another layer of bureaucracy – something that requires lip service, and nothing set in concrete? For Back the answer depends on how embedded the organisation’s ethical values are: “If your ethical values are just words on a wall, rather than embodied in how you do business, then they are going to be viewed with cynicism.”

Creating an ethical organisation is more than an exercise in image management in Green’s view. She says that “business ethics requires all stakeholders to be valued and treated fairly. This includes employees, suppliers, customers and wider society. Making decisions in isolation, or not thinking about impact, makes unethical outcomes more likely.” Organisations need to weave ethics throughout the business using checks and balances and behaviour nudges.

Writing a code of ethics

How should ethics be ingrained within operations? First off, procedures, policies and practices need to support employees to be ethical in their behaviour and decisions. For Green, this means aligning policies and practices with ethical behaviour – “this isn’t a simple task but could start with what behaviour is rewarded, and how individuals are incentivised. Having broad metrics for success and rewarding employees not just on short-term profit is a good place to start.”

Back echoes this view. She suggests starting by identifying the core values to which the business wishes to be committed and held accountable. She says these might include responsibility, integrity, honesty, respect, trust, openness and fairness. “Communicate them through everything you do, from client material to your Facebook page. It is important to insist that ethical values underpin the businesses mission statement, strategy and operating plan.”

Next comes the important part – translating those ethical values into guidance for all employees on how to act responsibly in different circumstances. Here Back says that “if ethical values are the compass which guides how you do business, then a code of ethics is like a map. It sets out the expectations that the company has for how employees should behave in any given situation, to assist with decision-making.”

But no matter what is included in the document, Green cautions that while a code of ethics can be effective, it will only be so when its actually used in practice. She adds: “A code or policy will be of limited value if it’s an ‘empty shell’ and behaviour, reward and business values don’t align with it.”

Unethical behaviour

Having policies means that it’s inevitable that infringements will occur. For Back, the response should depend on the nature and the seriousness of the mistake: “A good rule of thumb, to encourage an openness in the discussion of honest mistakes, is to investigate the mistake, rather than looking to apportion blame.”

Should an organisation maintain a zero-tolerance to unethical behaviour? Back says possibly – “little in life is black and white – it tends to be fuzzy and grey.” She gives an instance: “You may say you have zero-tolerance on harassment but find it difficult to fire your most successful salesperson who has multiple allegations against them. This is where the true test of ethical values comes in.”

Green makes a further point – that when communicating about ethics, businesses should focus on positive examples and what the organisation stands to gain, rather than what’s to lose: “Whilst businesses should be transparent about any issues, they must strike a balance between transparency and creating a sense that unethical behaviour is not the norm. Businesses need to communicate that ethics is ‘business as usual’ and provide clear guidance on what is and isn’t acceptable. This can help line managers and employees challenge unethical behaviour too.”

It’s relevant to point out that businesses need to have an eye on generating profit in a manner which will elicit public approval. A failure to act properly, to treat everyone fairly will soon get noticed. And from there it’s a downward spiral.

Ethics in the motor and allied trades

Ethics is rising up the agenda in the motor and allied trades and whether small or large, firms are engaging.

Take Hendry & Macdonald, an Edinburgh-based garage that’s now on its third generation of proprietor. It has a page on its website that details its ethical policies that include, for example, no work being carried out until customer authorisation (following explanations) and no high-pressure sales techniques.

Meca Car Services in Exeter, is a “independent lady owned business” that claims to offer “a friendly, professional customer approach and core values, which are echoed throughout our entire business ethics.” The company’s website highlights its care for customers through car care demonstrations, requests for formal feedback, and how it aims to care specifically for women motorists.

Looking at forecourts, Euro Garages reported in 2016 how it considered it unethical to sell alcohol to drivers and has stopped despite the loss in revenue that these products bring. Granted the business is owned by a Muslim family, but they’ve stated that the decision was made for ethical rather than religious reasons.

And looking at retail, Halfords says that it takes ethical trading seriously. Its website notes its policies on conditions of employment, wages and benefits, worker exploitation, health and safety and so on.

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