What is ethics, and is it essential to building strong personal characters, where ERM professionals are concerned? Ethics is generally perceived as personal scruples or a private matter between individuals and their consciences but every case of fraud, corruption, exploitation and oppression is rooted in a lack of ethics. Wrongdoing may be viewed as an isolated case involving an individual, rather than a management problem, but ethics is interconnected with management., and unethical business practices reflect the values, attitudes, beliefs, and behaviours of organisational culture.
Fraud, corruption and corporate mismanagement all fall under the purview of ERM. Of all the components of ERM, ethics is perhaps the most difficult to manage, primarily because it has so much to do with what people’s characters are, not what they do. The firm’s corporate governance responsibilities, fiduciary duty and transparent processes also fall within the area of corporate ethics. While an individual’s ethics guides their behaviour when dealing with other people, corporate ethics has to consider a host of potentially controversial matters like bribery and corruption.
Employee or management misconduct, insider trading, fraud, discrimination, the use of undue influence or sexual harassment are also ethical issues. This is where a corporate code of ethics comes in. Some ethical corporate practices are now legal requirements, like insider trading restrictions or mandatory environmental assessment reports. But what happens when corporate leaders have to make decisions that involve ethics? These decisions are often a reflection of personal beliefs, culture, upbringing and background.
Such decisions also have further-reaching effects than mere personal decisions, as businesses must consider the interests of the various stakeholder groups. The reputation of the business may be affected by decisions that lack proper ethical orientation. Just having codes of ethics today is not enough; organisations must be seen to be practising it.
The board and senior management must set the standards for the organisation, i.e., ‘walk the talk.’ Their behaviour and character send the correct signals about organisational conduct and what is expected of the workforce. As figures of authority, they must set moral examples as well, based on universal principles like honesty, integrity and respect for others. Organisations can set the right tone by having a policy on ethics, and ensuring all employees are aware of it. The same standard of ethics should be disseminated and enforced across the organisation. Anyone involved in unethical practices, regardless of seniority, will be penalised. But a lot really depends on the human element – the individuals who will do the right thing even if no one is watching.
To encourage this, there should be close, constant engagement between employees at different levels. This kind of interaction leads to a better understanding of each other’s characters, constraints and limitations. Ethical investment too has intensified in recent years as investors look for companies with proven track records of ethical practices, to invest in. Generally, such companies are perceived more favourably.
The public abhors corporate dishonesty, exploitation; and the lack of transparency, compassion and humanity; corporate ethics are meant to strengthen trust between the corporation and the public. Good values are often taken for granted in stable, undisrupted times but in times of disruption, ethics and ethical behaviour are emphasised. The public is more concerned about how corporations make their profits today. With ethics, there are always choices to be made, and they are always hard ones. Ethical decision-making is filled with conflicting views.
How do you ensure that the right values are developed? Define the organisation’s core values, then set the threshold for ethical behaviour in the company. Focus on core values like respect for human dignity, respect for basic rights and being good corporate citizens. Ethics is about individual integrity and involves the human individual rather than a dispassionate, artificial construct brought to life via legislation. There are grey areas that need to be interpreted correctly depending on the circumstances. Context is critical.
