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Making Sense of Business Ethics

How do business leaders create a sustainable, ethical business culture? An important first step is helping the organisation stay focused on ethical concerns. Then, they must bolster this focus with practical actions, such as making sure there are shared values, having a credible code of ethics and ensuring continuous ethical improvements.

Travis Kalanick, Uber’s combative and arrogant CEO, is hardly a model ethical leader. His apparent “shock horror” at finding lack of respect for employees as rampant under his regime does not convince.

To Kalanick, business results outrank everything else. Integrity seems in short supply.  Whether it’s treatment of women or lack of respect for the company’s lifeblood – the armies of freelance, mainly powerless drivers.

This ruthless and, many would argue, unethical leader has nevertheless built a corporate culture in his own image. And that is surely the point about culture in business. It does not exist in isolation, it’s an inseparable part of its leaders.

Culture means “the way we do things round here.” Or more precisely, the current values that drive a company and its actions. It’s neither easy to measure nor to influence.

Yet that is what’s expected of ethical-minded business leaders. Just how are they supposed to build a sustainable business culture based on integrity, or “doing what’s right?”

Also, why even bother? What difference does it make for a company to adopt an ethical culture? How will doing so impact on its success or failure?

The answers have been coming into sharper focus in recent years, We’ve reached the point where there’s convincing evidence that, longer term, ethical companies generally do better than less ethical ones.

A continuing stream of studies make this point. Most notable, perhaps, is the list of the world’s most ethical companies drawn up annually by the U.S.-based Ethisphere organisation.

It sets high standards for gathering evidence — you don’t get away with less than a 40-page detailed questionnaire and follow-up questions, plus even interviews.

Ethisphere finds that the world’s most ethical companies regularly outperform the S&P 500 by 3 percent each year.

Also, ethical companies are particularly resilient during both market growth and decline, they tend to surmount crises more easily and generally prove to be sound investments. The importance of their company’s culture should, therefore, be a major concern of every CEO.

Stay Focused

To keep his presidential campaign on message, Bill Clinton’s advisers hung a sign in his Little Rock campaign headquarters that read: “The economy, stupid.”

Designed to keep the internal audience of campaign workers focused on what really mattered, it worked so well, the phrase stuck. It became the slogan for the entire Clinton election campaign.

Today’s business leaders wishing to keep their companies focused on success will sensibly adopt an equivalent to Clinton’s office sign: “It’s the culture stupid.”

The ability to create an ethical sustainable culture is strictly about delivering genuine business results.

A sign such a culture exists or there are serious efforts to create one stems from the observable behaviour of the company’s senior leaders. Do they model what integrity and being ethical actually mean in practice?

So what exactly does an ethical company look like? How would you recognise one if you encountered it on your travels? For a start, healthy ethical cultures have zero tolerance for destructive behaviour, such as incivility, aggression, sexual harassment and discrimination.

All five of these seem to exist in Uber, led by Kalanick. Following publication of an unflattering video of him getting angry with an unhappy Uber driver, he admitted,

“…the criticism we’ve received is a stark reminder that I must fundamentally change as a leader and grow up. This is the first time I’ve been willing to admit that I need leadership help and I intend to get it.”

You also know a healthy company culture exists if the organisation seems driven by shared values, has credible codes of ethics and practices and pursues continuous ethical improvements.

Shared Values

Values run deep in the human psyche. They lie at the heart of an organisation and its ethical culture. They can, therefore, be challenging for any company to make real and sustainable.

Leaders who take company values seriously quickly encounter many related issues demanding attention and time, such as “how can we know our corporate values are ethical? What happens when someone behaves against the values?” How do we instil the values in every single one of our employees?”

It soon becomes clear the route to an ethical culture is not an instant one. The effort often proves too much for some and all too often descends into destructive short-termism.

“Lessons must be learned from the corporate collapses of the past decade,” warns the Chartered Institute of Management Accountants (CIMA) in a report on culture and strategy.

And as if directing their message directly to the likes of Mr. Kalanick, CIMA adds: “…myopic strategies can create profitable entities, yet impressive initial results may turn out to be unsustainable.”

Leaders enamoured with short-termism tend to go through the motions rather than attempting to do the harder job of sustaining or shifting the culture.

In contrast, when Paul Polman, Unilever’s CEO, told his shareholders to put their money elsewhere if they wanted instant feedback on the company’s progress, he was indeed taking a risk.

Investors once held onto their shares for about seven years. Today, its closer to nine months or less. Since a culture makeover can take far longer, being ethical and taking a longer-term view is not for the fainthearted.

Credible Codes of Ethics

From the 10 Commandments onward, codes of ethics have struck a chord with humankind. Within a company, they help nail down policies and actions that are acceptable or unacceptable.

Most (85 percent) of the FTSE 100 firms produce a code. Unfortunately, companies often rely on such documents as their main tool for achieving ethical behaviour. Yet these can never be more than a rough guide to action.

Many ethical choices cannot be known in advance and codes can never be comprehensive enough to cover all possibilities – ethics begins where the rules end. They are merely some of the nuts and bolts underpinning the ethical climate.

Nordstrom, a famous U.S. retail company, resisted for years having an ethical code. It saw codes as complicated and unhelpful. Instead, every employee received a large booklet boldly headed “Rules.” Inside, all the pages were blank, apart from the first one which said:

“Use your judgement in the best interests of our company.”

Continuous Ethical Improvements

An ethical culture is always a journey and never the destination. Leaders who want their company culture to reflect important values such as honesty, transparency, respect and openness must do more than set the correct “tone at the top.”

To build a sustainable ethical culture means creating robust structures that ensure everyone understands what it means to be ethical. They must be educated to be able to readily and safely question dubious practices and procedures.

This clearly did not happen at Wells Fargo. Thousands of staff colluded in creating false accounts for their clients and charged them for services they never asked for. It all ended in tears, with the CEO sacked alongside over 5,000 bank employees.

Yet few leaders set out to be unethical. Driven instead perhaps by short-term pressures, they simply lose sight of the overall aim. To counter this, companies need to invest in regular ethical improvements through training, communications and changes in formal practices and procedures.

For example, in some firms, leaders require teams to meet at least one a month to consider ethical issues and to examine potential conflicts.

BAE Systems, for instance, has developed a series of scenarios to make employees aware of what it means to be ethical and how to approach the tricky task of making an ethical decision.

Elsewhere, there are numerous well-produced videos bringing to life ethical issues that can arise at work. Many are highly entertaining and help people to realise the hidden implications of actions that may potentially put a company’s reputation at risk.

Helping Leaders to Be Ethical

Just as Uber’s Kalanick needs help with his leadership, many CEOs would also benefit from more systematic learning about bringing ethics to life in their company.

For example, international research shows that under half (41 percent) of leaders around the world are satisfied with their leadership development opportunities.

This is where HR can play an important role in promoting the kind of learning about ethics that could make a difference. Similarly, the compliance role in a company can make leaders aware that codes, rules and practices only take them so far.

What may matter far more is learning: how to lead by example on integrity and acting responsibly; how to create open communications to foster an environment in which people feel safe to speak up; and how to manage multiple stakeholders, each with their unique interpretation of the organisation’s culture.

This article is partly based on selections from Ethical Leadership: Creating and Sustaining and an Ethical Business Culture, by Andrew Leigh, (Kogan Page, 2013).

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