Business ethics: She’ll be right?

A recent visit by Philippa Foster Back, director of the UK-based Institute of Business Ethics, highlighted the need for business owners and managers to understand and implement a strong business ethics regime.

“Well, maybe just this once.”
“No-one will ever know.”
“Shred that document.”
“Don’t worry its part of the culture; everyone does it.”
“It doesn’t matter how it gets done – as long as it gets done.”
Does any of this sound familiar? If so, then your business may be taking avoidable risks resulting in unethical or fraudulent behaviour.  
For Philippa Foster Back, director of the UK-based Institute of Business Ethics, these ‘red flags’ indicate something unethical is about to happen, putting at considerable risk a company’s trust and reputation.
“Ethical values are absolutely vital for businesses that prize their reputation. And the need for good business ethics is now more pronounced because of the global financial crisis. This is exactly when shortcuts are taken, and when a desire for easy financial gain can destroy your reputation, and that of your company and/or colleagues.”
So what are business ethics? Philippa describes them as “the application of ethical values into business behaviour”. The Institute’s eight core values (based on survey findings) are: honesty, transparency, integrity, openness, trust, responsibility, fairness and respect.
“This may sound like ‘motherhood and apple pie’ but the business case for doing business ethically is strong: recruitment and retention of the best quality talent; being known for being trustworthy and so building and maintaining your customer base. You cannot insure against the damage inflicted on your business by a hit to your reputation so you need to take preventative action yourself. This is simple common sense.”

Raising awareness
The Institute of Business Ethics was formed 25 years ago in London to help support business people maintain the principle, ‘my word is my bond’. For the past 11 years, Philippa has been responsible for raising awareness of business ethics and spreading the word more widely, including several trips to New Zealand.
Her most recent visit, in September 2012, involved meetings and workshops with some of New Zealand’s leading companies, crown entities and institutes. Her message? “Doing business ethically makes for better business. And this is not just something that big business needs to worry about.”
Kiwis might think that larger businesses (21+ employees) are more likely to be places where fraud occurs, health and safety shortcuts are taken, potential conflicts of interest are not declared and bribes are taken. But small and medium-sized firms make up the vast majority (97 percent) of all enterprises in this country. They are not immune from poor decision-making on a range of levels.
“Small businesses are at ‘risk’ when the entrepreneur/founder no longer does all the hiring as the company gets bigger. The workplace is more dynamic and diverse than it used to be so employers need to give guidance around the expected behaviours in dealing with day to day dilemmas,” says Philippa.
But what about the repeated surveys and studies showing New Zealand to be one of the least corrupt countries – surely there is little to be worried about? Unfortunately, praising reports invariably only consider the bribing of public officials, they do not include private sector bribes. In fact New Zealand is arguably a high interest target for international pressures, given that:
• While New Zealand is a signatory of the UN Convention Against Corruption, it is one of few countries that has still not ratified the convention eight years later.
• Four percent of New Zealand companies surveyed in the 2010 Global Corruption Barometer reported paying a bribe (money and/or gifts, including hospitality and services) in the previous 12 months. This is a disturbing figure given the culture of gift giving and hospitality which New Zealanders will not typically associate with bribery.

Philippa says all businesses operate on the basis of core values – including both business and ethical values. These are expressed and given meaning through a code of guiding principles which help individuals in those businesses do the right thing and be supported by management in doing so. Frequently a ‘speak up’ line is put in place for employees to raise their concerns if they have a query or discover inappropriate behaviour.

Necessary practice
In 2010 Kensington Swan became the first New Zealand law firm to subscribe to the Institute. Partner Hayden Wilson says the need was clear.
“Business ethics is not just an issue of best practice but necessary practice. Just as issues of sustainability are forming part of deciding who to do business with, we are increasingly seeing assessments made based on business ethics – it appears on RFP and tender documents. It is also an important, proactive step to insure against the significant brand damage that results from a business found wanting in this area. 
“We have seen increased demand from clients, particularly those with operations overseas, for ways to manage their legal and reputational risks as the implications of legislation like the UK Bribery Act and the Foreign Corrupt Practices Act in the US came to the fore. Making New Zealand businesses aware of local and overseas compliance issues is absolutely vital,” says Hayden. “Our involvement with IBE has enabled us to bring a new set of business tools to our clients in managing those risks.

Priorities
So how should New Zealand’s SMEs go about developing and implementing an ethics policy? What are the priorities?
1. Identify and define core values of the business
What do employees think the values of the business are? These could include integrity, respect, fairness or a range of others.
2. Draw up a code of ethics
This is the main tool for implementing an ethics policy.  It translates core values into specific commitments and expected standards of behaviour, and its purpose is twofold:
– To make a public statement.
– To provide guidance for staff.
3. Embed the code
All employees should be made aware of the code, the commitments the company has made and the ethical behaviours that are now expected.
4. Utilise external standards and guidelines.
These will complement and strengthen an ethics policy and the culture of an SME.

Few directors of SMEs would deny the importance of good, trusting relationships with customers, employees, suppliers and the community. Imposing an ethics policy will enhance these, and at the same time, possibly secure your company’s future.