By Cynthia Schoeman, Managing Director at Ethics Monitoring & Management Services (Pty) Ltd
Is ethics an illusion?
Ethics as an illusion is something that is talked about, but which does not really exist. The claim that “our employees are our most valuable asset” may be a standard inclusion in most company’s annual reports, but that often does not reflect reality.
A more serious aspect of this is the many ethical failures where the perpetrators specifically set out to create a false impression or misleading image. This can range from the employee who pinches the petty cash to the CEO who is guilty of false financial reporting, both of whom will strive to project the perfect picture of innocence.
Regrettably, Black Economic Empowerment sometimes also falls under the banner of being an illusion. While the pursuit of transformation is unquestionably the right thing to do, when transformation turns to tokenism it results in BEE becoming a delusion. Added to that, it is also very damaging for the people involved, who, instead of being sought out for their ability or potential, are expected to fulfill largely symbolic roles.
Is ethics a luxury?
Ethics as a luxury recognizes that while in theory it is the right thing to do, companies simply can’t afford it.
Competitiveness is the main reason used to justify this view, which recognizes that only the fittest survive, and that ethics undermines competitiveness. This all too easily leads to “results at any cost”, which includes paying bribes to secure contracts or tenders.
While this may deliver short term gains, it risks also delivering far bigger long term disadvantages. And, the legacy cost can linger and cast a shadow over an organisation long after the financial or other costs have been settled.
Is ethics a necessity?
However, beyond illusion and necessity, there are a number of sound reasons why workplace ethics is a necessity.
Ethics makes good business sense
Ethics makes good business sense because it can promote ethical behaviour, reduce unethical activity, and create a more trustworthy workplace.
From the perspective of stakeholder management, ethics also makes good business sense. All the company’s stakeholders – employees, customers, investors, lobby groups or unions – assess the ethical status of the organization. They base their conclusion on a myriad of things, such as press reports, what the employees say about the company and its leaders, how stakeholder groups are treated, whether there is a gap between what is said and done, and whether the values are lived or just framed on the wall.
Their conclusions about the ethical status of the organisation may rest on perception, but those perceptions represent the reality that will be acted upon. A positive view lends itself to many benefits, while a negative view can be very damaging on many fronts.
Among the benefits of being recognized as an ethical organization are the ability to attract and retain top staff and board members, improved investor and market confidence, reduced cost of capital and enhanced corporate reputation. Internally, an ethical organisation is also likely to enjoy better and faster decision making and consistency of responses, greater confidence in top management action and more individual accountability with less need for policing.
Ethics is a source of competitive advantage
Competitive advantage is increasingly critical, but is frequently subject to a limited window of competitive opportunity. Technology advances, for example, are vulnerable to the ease and speed with which they can be copied. A unique source of competitive advantage, which cannot be easily copied, would therefore have infinitely greater value.
Workplace ethics offers just such a source. This derives from the fact that ethics is not easy to copy, it cannot be bought or sold, and it cannot be owned, but must be lived every day.
Ironically, each fresh corporate scandal enhances the value of organisations seen to be ethical and makes them even more likely to be rewarded for their ethical stance.
The cost of ethical failure
The third reason in favour of ethics being a necessity relates to the cost of ethical failure.
The many high profile ethical breaches reveal a wide range of costs. Guilty individuals have lost their positions and, sometimes, their freedom following jail sentences. Companies have faced huge financial costs in the form of fines or legal settlements. Costs to reputation have ranged from eroding an individual’s credibility, reducing confidence in an organisation and negatively impacting its share price. In some instances, the cost has also led to the closure of the business.
When this happens, the employees who lose their jobs also bear the cost. This illustrates a particularly nasty consequence common to many ethical failures, namely that the cost extends beyond the perpetrators to innocent victims who effectively “share” the costs.
This adds enormously to the public outrage, the publicity and the damage – and also illustrates each time how much ethics matters.
Social and ethics committee
A further reason why ethics is a necessity today stems from the changes to the Companies Act.
The Act mandates that every state owned company and listed public company establish a Social and Ethics Committee by 1 May 2012. The Committee’s role will be to monitor the company’s activities with regard to relevant legislation, other legal requirements and best practice in the areas of ethics and stakeholder management. The Committee needs to comprise no less than three directors and will need to report to the board and report to shareholders at the company’s AGM.
The challenge for each organization will be to ensure that this Committee is not viewed as a cost, just taking up time and effort, but rather as a value which contributes positively to the company.
Proactive management of ethics
The argument in favour of an ethical approach should be persuasive over and above the legislative requirements of the Companies Act. Companies should, therefore, not simply follow a tick box approach.
Instead, ethics should be managed proactively, rather than reactively, and managed regularly, rather than on an ad hoc basis. This represents the optimal approach which allows organisations to reap the rewards of an ethical environment and avoid the cost of ethical failure.