NEWSLETTER // March 2015
Ethics: A Necessity for Business Leaders
More and more leaders of businesses and other organisations are now waking up to the reality of social responsibility and organisational ethics. Public opinion, unleashed by the Internet particularly, is re-shaping expectations and standards. Organisational behaviour - good and bad - is more transparent than ever - globally.
Professor Deon Rossouw, Chief Executive Officer of the Ethics Institute of South Africa (EthicsSA) says unethical behaviour is generally bad for business. The scandals that are a result of unethical behaviour often result not only in landing an organisation in big trouble such as lawsuits but reputations are lost. The main reason for a company’s existence; to make money, is affected and an unethical leader alienates key stakeholders.
Employers, businesses and organisations of all sorts - especially the big, high profile ones - are now recognising that there are solid effects and outcomes driving organisational change. There are now real incentives for doing the right thing, and real disincentives for doing the wrong things.
According to the South African Corporate Ethics Indicator (SACEI) 2009 conducted by EthicsSA, most companies are exposed to a moderate ethics risk and they have moderate capacities to manage such risk. The study found that companies in the banking, financial services, medical and industrial manufacturing sectors have more capacity to manage ethics risk than companies in the retail, telecommunications and the construction sectors.
The measures in place in South Africa, such as the New Companies Act and the King Reports have gone a long way in ensuring that South African businesses and their leaders are ethical. As a result there are ethics subcommittees in most companies up to the board level.
As the body that offers advisory services and assists in all aspects of ethics policies drafting, EthicsSA has identified several make or break factors that are the difference between an ethical leader or business or an unethical one. Chief among these are the commitment of leadership to endorsing an ethical code of conduct, how communication is conducted to impart knowledge on ethical behaviour and whether training exists on the code of ethics.
Ethics risk assessments through conducting audits for both internal and external stakeholders is also critical for the effectiveness of an ethics code, says Professor Rossouw.
Organisational Outcomes and Benefits from Ethical Leadership
Like never before, there are huge organisational advantages from behaving ethically, with humanity, compassion, and with proper consideration for the world beyond the boardroom and the shareholders.
For starters, you gain competitive advantage. Customers are increasingly favouring providers and suppliers who demonstrate responsibility and ethical practices. Failure to do so means lost market share, and shrinking popularity, which reduces revenues, profits, or whatever other results the organisation seeks to achieve.
tract and retain only the best employees. Failing to be a good employer means good staff leaves, and reduces the likelihood of attracting good new-starters. This pushes up costs and undermines performance and efficiency. Aside from this, good organisations simply can't function without good people.
Investment – the biggest factor - is affected. Few investors want to invest in organisations which lack integrity and responsibility. They don’t want the association because they know that for all the other reasons, performance will eventually decline. Who wants to invest in a lost cause anyway?
People who work in a high-integrity, socially responsible, globally considerate organisation are far less prone to stress, attrition and dissatisfaction. Therefore they are happier and more productive. Happy productive people are a common feature in highly successful organisations. Stressed unhappy employees are less productive, take more time off, need more managing, and also take no interest in sorting out the organisation's failings when the whole thing implodes. As such, morale and culture are vital to the well-being of the company in all its aspects.
Consider the reputation of the company. It takes years or even decades, to build organisational reputation - but only one scandal to destroy it. Ethical responsible organisations are far less prone to scandals and disasters. In the unlikely event that one does occur, an ethical responsible organisation will automatically know how to deal with it quickly and openly and honestly.
People tend to forgive organisations who are genuinely trying to do the right thing. People do not forgive, and are actually deeply insulted by, organisations who fail and then fail again by not addressing the problem and the root cause. Arrogant leaders share the weird delusion that no-one can see what they're up to. Years ago maybe they could hide, but now there's absolutely no hiding place.
As Professor Rossouw notes, all organisations have to comply with proper ethical and socially responsible standards. These standards and compliance mechanisms, such as the King Reports, are not only national but global instruments. So it makes sense to change before you are forced to. Welcome to the age of transparency and accountability.
Even the most deluded leaders will admit that they would prefer to be remembered for doing something good, rather than making a pile of money or building a great big empire. It's human nature to be good. The greedy and the deluded have traditionally been able to persist with unethical irresponsible behaviour because there's been nothing much stopping them, or reminding them that maybe there is another way. Your legacy as an ethical leader and business that did good will permeate through the ages, long after you have gone.
Part of the re-shaping of attitudes and expectations is that making a pile of money, and building a great big empire, are becoming stigmatised. What's so great about leaving behind a pile of money or a great big empire if it's been at the cost of others' well-being, or the health of the planet? In the long run, this will change the deeper aspirations of leaders, present and future, who can now see more clearly what a real legacy is.
Poser for Ethical Leaders
Let us end of by doing a simple test for ethical decision-making in business. This test is applicable to all decisions in all types of organisations and in life as a whole. Next time you have to make a decision ask yourself about transparency. Are you happy to make your decision public - especially to the people affected by it?
Consider the effect - have you fully considered the harmful effects of your decision and how to avoid them?
Lastly, there is fairness. Would your decision be considered fair by everyone affected by it particularly your stakeholders - because the effects of decisions can be far-reaching?
If you can honestly answer ‘Yes’ to each of the above questions then you are likely to be making an ethical decision. If you have any doubt about saying ‘Yes’ then you should think about things more carefully. Maybe there is an entirely different and better solution - there often is.
However, if you cannot decide on how to answer these questions, seek input from someone who has strong ethical principles, and who owes you nothing. Never ask anyone to advise you about difficult decisions if they owe you some sort of allegiance.
Leaders can sometimes be blinded by their own feelings of self-importance, and more dangerously can believe that their job requires them to shoulder the burden of decisions which cause anguish and suffering, or worse. Believing that leadership carries some sort of right to take risks with other people's well-being is nothing more than arrogant delusion.
A strong feature of good leadership is knowing when, and having the strength, to find another way - the ethical way.