Corporate governance is about how corporations behave; and ensuring how corporations behave is ultimately a reflection of the society they operate in.
Are they careful about how they use resources? Are they respectful of their environment? Do they care about the safety, health and overall wellbeing of the people in their workforce? All these things matter because where there used to be just shareholders who invested money and drove the desire for profits above all else, there are now stakeholders who know that what any corporation does in the course of doing business will affect them and the environment. No longer are profits exclusively in the spotlight; how you obtained them have now become much more important.
Choices and Values
Corporate governance concerns companies but companies are brought into existence by individuals Hence, it is not possible to decouple corporate governance from corporate ethics because ethics is largely an individual attribute, integral to companies that want to set the right tone at the top. Ethics is about individual integrity, and because it involves the human individual rather than a dispassionate, artificial construct that is brought to life through legislation, there is nothing black & white about it. There is no right or wrong; there are only grey areas that need to be interpreted correctly depending on the circumstances – and this is what makes the subject of corporate ethics a complex one. Context is critical.
With ethics, there are always choices to be made, and they are always hard ones. But, to quote former HP CEO Carly Fiorina, “The toughest choices are made easier when you have a strong moral compass.” The moral compass is not a subject that can be taught, nor is it easily developed, but it does tell you the right thing to do. When dealing with an ethical situation, be objective, not emotional. Pick your battles. Remember that when you are in an argument, you may be using up your political capital, so decide what your political capital is worth, and how much of it you are willing to put at risk. Decide how far you can go; risk managers typically know how far they can bend rules without breaking them!
As far as possible, find a compromise. Create a situation where as many people as possible feel they have “won.” This helps you buy time while you try to find the root cause of the problem, and resolve the issue. But you have to constantly ask yourself if you can live with yourself after you have made the final decision. Ethical inconsistencies will always exist, but there are ways to help you overcome these. When confronted with an ethical dilemma in the corporate environment, you should ask yourself:
• Has the problem been accurately defined?
• How would you define the problem if you were on the other side of the fence?
• How did the situation occur in the first place?
• To whom and what do you give your loyalty as a person and a member of the corporation?
• What is your intention in making this decision?
• How does this intention compare with the probable results?
• Will anyone be injured by your decision or action?
• Can the problem be discussed with the affected parties before the decision is made?
• Will your position be as valid in the long term as it is now?
• Would you hesitate to disclose your decision or action to your superiors, subordinates, family or society as a whole?
• Is there any symbolism to your action if it is understood or misunderstood?
• Under what conditions would you allow exceptions to your stand?
Why the dilemma exists
Ethical decision-making is filled with conflicting views. The problem is that, for many businesses, commercial success is seen as more important than ethical behaviour. Commercial success can be quantified; ethical behaviour can’t. Nevertheless, it is the CEO’s responsibility to establish the tone at the top, and be seen to be “walking the talk.” Why is it the responsibility of the CEO, and not the Board? Because the CEO is present full-time while Board members are there for only a portion of the time, at best. Ethical behaviour has to be practised all the time so the Board should approve the CEO’s stand, and be seen to adhere to the same values as well. The Board, CEO and senior management together set the tone at the top and must demonstrate their commitment by being seen to be doing the right thing.
To be able to do this, they need high levels of personal ethics; in individuals, this develops from high levels of personal integrity. Personal ethics can drive corporate ethics; similarly, corporate strategy may well have a great influence on corporate ethics too. So how do you ensure that the right values develop from the implementation of corporate ethics? – Define the core values from the perspective of the organisation, in order to set the threshold for ethical behaviour in the company. When in doubt, focus on core values like respect for human dignity, respect for basic rights and being good corporate citizens.
The core values for corporations should largely mirror that of the greater society – but the organisation has the power to formalise a code of conduct of its own, that guides corporate behaviour, which takes into account local sensitivities and ethical practices. Management and line staff can be trained to recognise what else is needed, and to develop it on their own. What ultimately results is a code that stems from the organisation itself, that directs it as to what is acceptable and what cannot be tolerated. In the process, mistakes will be made – but learn from them. Problems will be identified, but address them honestly, and solutions will be found.
No one likes people who highlight problems, but organisations should ensure that when there is a problem, their corporate ethics can support them. While there is no distinct “right” or “wrong” way, stakeholders and shareholders alike want to see empathy, integrity and social responsibility underpinning the efforts of firms as they strive to make profits Corporate ethics are capable of aligning these with societal values, and making the business environment beneficial to all.
