Tags: Code of Ethics
As we launch our latest research report, FTSE 100 Codes of Ethics: room for improvement, our chair, Prof. David Grayson CBE reflects on the findings.
The Institute of Business Ethics (IBE) has just completed desk research of material publicly available on company websites in relation to the FTSE and Codes of Ethics. The headline news is that 81 companies have a publicly available code of ethics of some sort. Four others claim to have a code, but we couldn’t find it anywhere. That leaves a significant ‘rump’ of 15 FTSE companies who provide no evidence on their websites of having a code – a proportion that has remained roughly the same for some years.
Of course, it is not a legal requirement for a PLC to have a Code of Ethics or to make it publicly available. However, it is surely reasonable for institutional investors to be asking those companies if they don’t have a Code, how the board and Senior Management Team (SMT) make clear to employees how they are expected to behave: “the way we want you to do business around here.” This surely becomes more important as the FRC expects boards to be showing how they are satisfying themselves as to whether the desired and actual cultures of their organisation (“the way we do business around here,”) are aligned.
The revised UK Corporate Governance Code in 2018 placed a greater emphasis on culture, encouraging companies to develop cultures that promote integrity and openness, that value diversity and are responsive to the views of stakeholders. Research conducted for the FRC’s 2020 Annual Review of Corporate Governance, however, indicated that only around a half of companies provided meaningful commentary on their culture in their most recent annual reports, while many companies made no mention at all, of assessing, embedding or reviewing their culture. We haven’t checked this, but it is surely a reasonable assumption that companies which don’t reference having a Code of Ethics are likely to be in the half of companies that also don’t comment on their culture.
As investors rightly give more focus to healthy organisational culture, post COVID19 and in the context of checking ESG performance, it is surely reasonable to expect FTSE companies to publish a Code of Ethics – or to explain how even without a Code they are promoting an ethical culture where people in the business know what is expected of them and are behaving with integrity.
As the IBE has long emphasised, however, a Code of Ethics per se, is no panacea. The Code has to be socialised and thoroughly embedded in the organisation through induction and ongoing training and regular promotion and discussion about it. Leaders at all levels of the business need to internalise and model the behaviours which the Code expects and to be comfortable in regularly talking about it – and using their own experiences and ethical dilemmas to help to bring the Code of Ethics to life. So, to avoid a “tick-box” approach, investors need to probe for evidence of how the Code of Ethics is promoted.
Another key finding of the IBE FTSE100 desk research is that the publicly available codes vary greatly in length, from 1 to 94 pages – with an average of 24 pages. Now, I know the Lord’s Prayer only has 66 words and Lincoln’s Gettysburg address only had 272 words, but you do have to question if you can provide enough broad guidance to deal with the complexities and subtleties of modern business on one page. Conversely, 94 pages feels to me more like an Employee Handbook than a Code of Ethics.
It is good practice to date a code, but 11 of the 81 fail to do so. Of the 70 codes that are dated, nearly a third have not been revised in the last 3 years (the IBE as a centre of expertise on ethical culture in business, advises that Codes of Ethics are revised at least every three years) and 1 in 7 are more than 5 years old. In other words, amongst the FTSE 100 largest listed companies, barely half have an up-to-date Code of Business Ethics.
Now, critics might legitimately say, we have a vested interest in the matter, as one of the advisory services the IBE provides, is to help organisations update their Ethics Code. On the other hand, it does feel like something pretty fundamental and reasonable to expect of the largest, listed companies in the UK: that they have an up-to-date Ethics Code as a foundational element of creating and sustaining a culture of integrity and transparency.
And as for the IBE’s vested interest, companies have a range of possible external advisers to help them revise their Code. If they choose us, they also have the knowledge that as we are a charity, their commission helps to fund our wider educational work with businesses of all shapes and sizes, helping more businesses to develop stronger ethical cultures. In any event, the key take-away is that as investors rightly focus more on ESG performance, one very basic question they can probe is whether the company in which they are invested has an up-to-date Code of Business Ethics.
Download the report here...
Author
Professor David Grayson CBE
Chair
David is Emeritus Professor of Corporate Responsibility at Cranfield School of Management. From 2007-2017, he was director of the Doughty Centre for Corporate Responsibility and Professor of Corporate Responsibility.
David became Chair of the Trustees Board on 01 April 2019.
He joined Cranfield in April 2007, after a thirty year career as a social entrepreneur and campaigner for responsible business, diversity, and small business development. This included founding Project North East which has now worked in nearly 60 countries around the world; being the founding CEO of the Prince's Youth Business Trust and serving as a managing-director of Business in the Community.
David has an Honorary Doctorate of Law from London South Bank University and was a visiting Senior Fellow at the CSR Initiative of the Kennedy School of Government, Harvard (2005-10).
He has served on various charity and public sector boards over the past 35 years. These have included the boards of the National Co-operative Development Agency, The Prince of Wales' Innovation Trust and the Strategic Rail Authority. He chaired the National Disability Council and the Business Link Accreditation Board; in each case appointed by the Major Government and re-appointed by the Blair administration. David now serves on the board of a financial services company in Asia where he leads on embedding ESG/sustainability and chairs the board’s Group Risk Management Committee.
He has previously chaired the national charity Carers UK and one of the UK's larger social enterprises and largest eldercare providers, Housing 21 during which the organisation made corporate history by becoming the first-ever not-for-profit successfully to acquire a publicly quoted group of companies. David received an OBE for services to industry in 1994 and a CBE for services to disability in 1999. He is a Companion of the Chartered Institute of Management.
David has written a number of books on responsible business and corporate sustainability including most recently: ‘All in - The Future of Business Leadership’ and The Sustainable Business Handbook – both with Chris Coulter and Mark Lee. He is part of the faculty of the Forward Institute and of the Circle of Advisers for Business Fights Poverty.
The Guardian has named David as one of ten top global tweeters on sustainable leadership alongside Al Gore, Tim Cook - CEO of Apple, and Facebook's COO Sheryl Sandberg.