Where Do You Stand on Business Ethics?

If you are a Director on a Board, chances are you’ve already faced some tough questions on business ethics.

Ethical decisions are not necessarily about doing what is legal. We’re talking about doing what is right, given the circumstances and the type of company that you’re governing.

This can pose some significant challenges and we have to be prepared, as Directors,  to have our decisions scrutinised in the public arena.

Ethical decisions are rarely black and white and may involve choices between two unpalatable options. It may require considerable time for a Board to discuss these in detail to get comfortable with the decision they make.

Generic scenarios might be:

  • Whether to operate in another country, knowing that levels of remuneration and working conditions are lower than they are in Australia.
  • Whether to offer support in public (and potentially create a sense of respectability) to an overseas despot who is operating illegally, but the support enables your organisation to continue to provide services to the local community who are desperately in need of them.
  • Whether to withdraw operations from a local community knowing that the community is economically reliant on the business.

When contemplating ethical issues, here are some of the additional challenges I see facing Directors.

Ethical standards change over time

What was considered ethical and acceptable in the past may no longer be so today. Similarly, what is considered acceptable today may not be considered acceptable in the future.

So we must be aware of expectations within the communities we operate in, and weigh them against how we achieve our company objectives.

Whose ethical standards?

In our own culture there are different ethical points of view and cultural norms.

How do we respond where the ethical standards of others contradict our own positions?

Dealing with and operating in other countries – as a customer for our products or as an investor in our assets – can introduce some challenging differences in perceptions of ethical business behaviour that have to be carefully navigated.

Getting it wrong can have significant consequences such as damage to reputation, loss of investor confidence and, in extreme circumstances, criminal charges, fines and imprisonment.

The impact of behavioural bias

Behavioural scientists have shown that groups of people from the same professional discipline or training have a tendency to see the same information in a particular way.

This can introduce a bias that may not be in the interests of making the best decision.

Diversity on Boards can mitigate this bias by creating debate around different perspectives and interpretations of data. This should be encouraged.

It is how the Board then works collectively to develop these points of view into a collegiate position that is most important.

The need for emotional intelligence

Behavioural scientists have demonstrated that boards that excel exhibit high levels of emotional intelligence.

The Directors demonstrate self-awareness, self regulation, motivation, social competence, empathy and social skills and collectively they have the skills to navigate challenging issues with maturity and respect for divergent points of view.

The more ethically challenging the decision under consideration, the more a Board will depend on the emotional intelligence of the Directors to patiently and respectfully navigate the complexities of the issues.

What decision making criteria to use?

Many Boards use a decision making framework to assist them with their decision making. Many of these frameworks are designed to reflect the tests of care and diligence while some include the ethical elements that underpin the decision as well.

It is worth spending the time to ‘Decide on how you will decide’ – in terms of the process you will use, the information you will need, the criteria to consider and the level of agreement necessary to proceed.

Answer these questions before debating the issue itself.

  • What process will you use?
  • What information do you require?
  • What tools will you use to assist distill the issues?
  • What timeline will you give yourself to decide?
  • What guidance does our code of conduct offer?
  • Unanimous or majority decision?

The St James Ethics Centre provides a useful guide in this area – it is worth reading their article Ethical Decision Making in full.

Their ‘quick guide’ offers a series of questions to guide our decision making. They encourage us to assess our facts, values, assumptions and weaknesses, as well as asking us to consider our decisions in the light of public and family scrutiny.  And finally, to consider the age old question of ends and means.

The UK based Institute of Business Ethics offers three Simple Ethical Tests for a Business Decision that helps us to consider our decisions:

  • Transparency – Am I happy to make my decision public?
  • Effect – Have I fully considered the harmful effects of my decision and how to avoid them?
  • Fairness – Would my decision be considered fair by everyone affected by it?

These are very useful considerations for Boards considering ethically challenging issues.

As Directors, we cannot expect that we will always make perfect decisions.

The nature of ethical decisions is that whatever we decide there is likely to be someone or some group that does not agree with us.

What we can ensure is that, under the spotlight of external scrutiny, our decisions are considered to have been taken with care, with the right information and with consideration for the impact of our decisions on others.

Posted in - Governance