South Africa

Details

  • Service: Advisory, Risk & Compliance
  • Type: Business and industry issue
  • Date: 2011/01/18

Business ethics – how values add value 

Since the 1980’s, more and more organisational researchers have come to realise that culture is the key to a lasting, reputable and successful business.

In the century of governance, Boards of Directors are increasingly obliged to tend to the ethics of their organisations.

 

This relatively new challenge is a response to rampant ‘casino capitalism’ of the Enron-type. It also indicates that stricter legislation is no longer regarded as sufficient or an effective guarantee of responsible and community uplifting business practice.

 

Unfortunately, reference to business ethics predictably invites scepticism from the public, who tend to view ethics and business as opposites. It also invites exasperation from organisational managers, for whom business ethics becomes just another resource-draining but valueless exercise in the risk management environment.

 

Therefore, in order for business ethics to fulfil its purpose of safeguarding the physical and symbolic assets of businesses and of restoring and maintaining public trust, a clear understanding is necessary of what is expected regarding ethics, and why.

 

An ethical organisational culture

 

Today business ethics centres on the idea of an ethical organisational culture. Accordingly, the Third King Report on Corporate Governance (2009) requires a Board of Directors to “take responsibility for creating and sustaining an ethical corporate culture in the company”1.

 

An organisation’s culture is its unique personality, and can include anything from dress codes to working hours. An ethical organisational culture is one “in which employees are empowered and expected to act in ethically responsible ways even when the law does not require it”2.

 

This kind of culture is established by aligning the organisation’s structures and processes with its habits and practices, and by grounding both structure and practice in the same ethical values. This can be achieved through a variety of strategies including ethics awareness campaigns, ethics training, positive rolemodelling and newsletters. These interventions need to be preceded by an ethical risk assessment exercise.

 

From rules to contexts

 

But why, besides regulatory pressures, would companies invest in something as intangible as an ethical organisational culture? Since the 1980’s, more and more organisational researchers have come to realise that culture is the key to a lasting, reputable and successful business. As Terrence Deal and Allan Kennedy argue in 1982’s seminal Corporate Cultures, companies with a strong organisational culture pass along more than just products and services. They also transfer values and beliefs. In the process, employees are motivated to do the right thing and experience their jobs as being more meaningful.

 

Because employees know what is expected of them, no time is wasted on deciding how to act. As such, an ethical organisational culture reduces ethical misconduct and enhances productivity. The logic is simple. Behaviour is rarely the product of rational calculation or rule application. People tend to behave like those around them.

 

Business ethics today is, therefore, not about the formulation of ever more detailed rules or converting ‘bad apples’. It is about cultivating the right context to prevent the harm caused by corporate misconduct and to build lasting companies that promote the common good.

 

1 Institute of Directors (Southern Africa). 2009. “King Report on Corporate Governance for South Africa”, p24.
2 DesJardins, J. 2009. An Introduction to Business Ethics. New York: McGraw-Hill, p78.