Tags: Code of Ethics
Deputy Director, Rachael Saunders, summarises the Hugh Kay lecture, Ethics Codes in Business - Choice, Courage, Counterproductivity.
The Hugh Kay lecture this year was given by Claire Ighodaro. Claire is the Chair of KPMG UK Audit Board, Non-Exec Director and Remuneration Committee Chair of Pennon Group PLC, Council of Reference Member of Westminster Abbey Institute and, until recently, Board Chair of AXA XL UK. She was a senior executive at BT PLC, working in the UK and Germany and was the first female President of CIMA (the Chartered Institute of Management Accountants). Claire spoke in a personal capacity.
Her key question was: with guidance and strong codes of ethics already in place for business leaders, why do things still go wrong?
A big question, and not an unreasonable one. With all the guidance and regulation that businesses have in place, why do significant ethical failures still happen? Claire’s key question was why, despite the growth of ethics codes and their application, moral behaviour in organisations is perceived to be an increasing challenge for business leaders and professionals.
Key points of the lecture:
- Ethics codes and their utilisation in business, particularly finance.
- How ethics codes and their implementation can become counterproductive.
- What choices and next steps are available.
Defining ethics
“Doing the right thing”; “The moral principles that govern a person’s behaviour or the conducting of an activity” - Claire was fascinating in building on these dictionary definitions by talking about her frustration with widespread assumptions that some other cultures have a poorer ethical culture or no manifestation of ethical values. She believes strongly that in our global interdependent markets shared or aligned ethical frameworks are both necessary and valuable and need not be in conflict with local culture or customs. When I asked Claire to expand on this in the Q&A she restated her view that whilst it could be useful to translate a code of ethics, and training might need to be tailored, codes themselves should be universal.
Claire went on to set out that there is widespread understanding in business of the importance of taking stakeholders into account in decision-making and described several models which help us to understand what ethical behaviour in business means.
How do we drive ethical behaviour in business?
So how do we drive ethical behaviour in business? A code is often at the heart of this. How does a code deal effectively with judgement, with ambiguity, with competing rights? Why are we still seeing articles about poor ethical behaviour? Good boards do take ethics seriously, alongside reputational risk and regulation. Ethics must be a basis for culture, and Claire set out some ways to make that happen including remuneration policies.
Claire then described her experience on the board of the International Ethics Standards Board for Accountants, IESBA, which establishes principles of ethics for nearly 3 million professional accountants in 130 countries in public practice, education, government service, industry, and commerce. The IESBA Code establishes five fundamental principles to be complied with by all professional accountants. The views of all stakeholders are considered, and comprehensive guidance is provided. The downside being that the code is now over 300 pages long.
Which codes of ethics are useful?
This led Claire to reflect on where codes can become counterproductive. The risk of rules-based codes is that the user is focused on individual rules and loses sight of the values or ethical principles that should underpin them. Ethics codes need communication and training programmes. Ethics need to be the basis of a culture programme, which must be sustained and must include key suppliers and people in outsourced services.
Despite this, well written Ethics codes have many benefits.
How to embed ethics
Claire identified a particular need for engaging younger people in organisations, who in her experience have welcomed training and the opportunity to consider ethical dilemmas. Junior or shadow boards are an opportunity to give younger or more junior employees a chance to engage in decision-making and consider real challenges. These junior boards can enable a better chance of long term embedding and avoid the change fatigue associated with perceived edicts from above. They can also help with continuity and prevent the next business crisis or opportunity from obliterating the culture programme.
Having the courage to learn from failure, learn lessons and get to the root cause is also vital, as is sharing and celebrating success.
Leaders set the tone, and a strong learning culture will enable individuals throughout the organisation to: “define business culture, build and nurture public trust, support a strong reputation, and ultimately build and sustain the conditions for long term success, benefitting all stakeholders.”
Author
Rachael Saunders
Deputy Director
Rachael is Deputy Director of the Institute and is responsible for our research programme, and our advisory and training services. She is most interested in how research can generate insights that inspire action.
Rachael has collaborated with senior leaders across business, charities, communities, local and central government. After gaining her first degree in Politics and History from the University of Durham, and a Masters in Gender and Social Policy from the London School of Economics, Rachael worked in Westminster, then for Carers UK, for UNISON, the public sector trade union, and for the TUC, on skills policy. She was at Business in the Community for over ten years, as an expert in workplace diversity and then in education business partnerships. As a Director at BITC, she worked closely with the Department for Work and Pensions, the then Department for Business, Energy and Industrial Strategy, and business leaders from Aviva, Barclays, Nationwide, UBS, McKinsey and many more. Her most recent role was on the SLT of Speakers for Schools as it scaled its delivery of opportunities for young people.
She has held a number of trustee roles including on the board of the Rich Mix Cultural Foundation, the Bromley by Bow Centre and East End Homes. She is currently chair of a charity called Sister System. She was an elected local councillor for ten years and served as leader of the Labour Group on Tower Hamlets Council. In 2019 Rachael gained an MSc from Birkbeck, University of London, in Business Ethics and Corporate Governance, with a dissertation focussed on how boards communicate their community engagement.