Shareholders wrong to turn a blind eye to ethical standards

Last week’s report by the Chartered Institute of Internal Auditors revealed that only 8 per cent of FTSE 100 firms measure ethical performance in their annual report. This comes as no surprise.

When conducting audits of responsible business behaviour, GoodCorporation interviews shareholders as part of the process and the lack of concern for ethics is very noticeable. Shareholders admit that they only take an interest in ethical codes of conduct and environmental issues once a problem has occurred.

The principle reason for this is that ethics issues are long-term and a growing majority of shareholders are short-term, interested only in immediate returns.

The shareholders’ lack of interest in ethics, however, should not be a reason for failing to measure ethical performance. Boards need to take ethics seriously because failures in this area can be extremely costly in terms of management time, reputational damage and often in financial and profitability terms as well.

The implementation of the Bribery Act has focussed attention on anti-corruption practices and this is clearly vital. But it has also meant that there has been a shift in focus away from other areas of ethical conduct such as conflict of interest, illegal work practices and environmental mismanagement. All of which have led to high profile scandals in the last 12 months alone. Whether shareholders are demanding it or not, companies need to get a firmer grip on ethical conduct. Providing a clear and easy to understand measurement of ethical performance in the annual report would be a good start.