How can businesses bridge the ‘ethics gap’?

According to business leaders, politicians and much of the media, the corporate world has taken a long, hard look at itself following the crash of 2008. Repeated calls for greater corporate responsibility have been issued and some of the findings from the latest CGMA survey on business ethics would suggest that some progress has been made.

On the positive side more companies have ethics policies, training and reporting hotlines than in the previous survey of 2008. Even more encouraging, is that over two thirds of respondents who had observed unethical conduct reported it, despite just over a quarter fearing trouble if they did and only half feeling satisfied about the way their ethical concern was handled.

However, there were a number of findings that are a major cause for concern. Despite the fact that four out of five companies have ethical policies in place that should be driving a rise in standards of behaviour, over a third of respondents feel under pressure to compromise those standards. This seems to indicate that although businesses are increasingly saying the right thing, they are not doing the right thing!

One key finding from the survey that could be driving this is a decline in the number of corporate leaders and senior executives taking formal responsibility for their company’s ethics policy. This issue of ‘tone from the top’ is frequently raised at GoodCorporation’s Business Ethics debates and is widely acknowledged by most of the UK’s leading businesses as being vital to successfully embedding an ethical corporate culture.  While this is in decline, it seems highly unlikely that we will see reality matching the rhetoric in terms of ethical behaviour.

Equally worrying, is the lack of measuring and monitoring of ethical conduct, despite the growing importance of non-financial reporting. Although more firms are now collecting ethics-related information (up six per cent), there is still a significant gap between the number of companies with ethics codes (80 per cent) and the number that evaluate the effectiveness of them (36 per cent).

One of the reasons for this perhaps, is that for many, measuring ethical behaviour is in the ‘too difficult’ box.  Evaluating management practices to see if they are ‘fair’ or ‘protect reputation’ sounds like a valuable exercise – but one that appears to be too difficult in reality. Our work suggests, however, that management practices can be measured in this way and the key to success is to combine a traditional audit of management practices together with surveys of customers, employees and other stakeholders to find out if they believe the organisation’s practices are reputable or not.

These issues are essential for the corporate world to tackle. Corporates might argue that, in the current climate, trust is the least of their worries; however trust in businesses is now languishing at an all time low. However these issues of trust and reputation are closely associated with the risk of significant organisational failure. A recent study of 18 major corporate financial crises revealed that failures of ethos, culture and behaviour that had gone unnoticed were the very cause of the crisis and lead directly to a reputational catastrophe for the organisation.

Embedding a sound ethical culture that is measured and monitored is therefore an essential risk-management tool, key to bridging the ‘ethics gap’ and vital for boards if they are to protect their organisations and allow their shareholders to sleep at night.

This copy first appeared on the CGMA Blog