Ethics in Business and the Professions October 2007

1. Ethics in Business and the ProfessionsOctober 2007

2. Workshop themes • Introduction - Basic ethics concepts & distinctions • Why ethics matters • Ethics and good governance • Ethical decision making

3. Part 1: Basic ethics concepts & distinctions

4. What associations do you make when you hear the words ‘ethics’ or ‘morality’?

5. Ethics Good Self Other

6. Definition of business ethics ‘The principles, norms and standards that guide an organisation’s conduct of its activities, internal relations and interactions with external stakeholders.’ King II Report

7. You are driving through a rural area of the country on your way to an important board meeting where you have been requested to make a presentation. Since your presentation is important to both the company and to your own career, you made sure that you will arrive in time for the meeting at the company’s headquarters. Everything goes according to plan until you are stopped at a roadblock in the countryside.

8. After inspecting your car the traffic officer tells you that he has reason to suspect that you are driving a stolen vehicle. He indicates that unless you provide him with the original registration papers of the vehicle, the vehicle will have to go to the vehicle test station in the town that you passed through about an hour ago to verify ownership of the vehicle.

9. Unable to produce the registration papers, as you keep them locked up in a safe at home, you explain to him that you would be late for an important meeting if you take the car back to the test station. In response he asks: ‘How much is it worth for you to be in time for your meeting?’ When you look at your cell phone in despair you notice that there is no cell phone coverage.

10. Which of the following actions would you opt for in this situation? • Propose to the officer that you are willing to pay him R400 if he allows you to continue your journey. • Agree to drive back to the testing station to have your ownership of the car verified. • Ignore the traffic officer and drive away.

11. Values Values = convictions about what is good/important/desirable

12. Values in organisations • Strategic values • Work values • Ethical values

13. Ethical dilemmas Dilemma ? ‘Road Tax’ Good Right Just Dealing straight Bad Wrong Unjust Bribery

14. Legal vs. Ethical Examples of • Ethical and legal • Ethical and illegal • Legal and unethical • Illegal and unethical Legal Illegal Ethical Unethical

15. Apples & Barrels Good Apple Bad Apple Good Barrel Bad Barrel

16. Features of professions • Extended theoretical training • Knowledge and skills vital for society • Monopoly on provision of services • Unusual degree of autonomy • Self-regulation by ethical standards to prevent abuse

17. Professional virtues • A virtue is a character trait that predisposes one to do the right thing • Example: Virtues of auditors • Independence • Integrity • Objectivity

18. Part 2: Why ethics matters

19. Dog eat Dog Business is a ‘dog eat dog’ world. The business environment is a lonely and hostile world. Either you trample on others, or you yourself will be trampled upon. To consider the interests of others would be a fatal mistake. It would leave you vulnerable and open to attack from any of the other dogs in the pack. The implication for ethics is clear. There is no room for ethics in business, because business demands that you should fight for your own interests.

20. Nice guys/girls come second It is impossible to be both ethical and successful in business. Ethics and business are opposites. Either one is unethical and successful, or ethical and unsuccessful. In short, ethics is detrimental to success in business.

21. All that matters is the bottom-line Business is about one thing only and that is profit. The financial bottom line is the measure of whether you are successful in business or not. Anything that impacts positively on the financial bottom line should be pursued and anything that distracts from it should be discarded. As ethics is not primarily concerned with the bottom line, business should not bother with ethics.

22. The business case for ethics • Sustainability • Reputation • Trust

23. Sustainability

24. Reputation Importance of reputation • Credibility of leaders • Ability to sell products/services • Attract investors • Hire talented staff • Loyalty of supply chain • Exert influence on government

25. The value of reputation • Johnson & Johnson is an example of a company that enhanced its reputation through ethically assertive action • The Tylenol incident • Any further examples of companies who enhanced their reputations through ethics?

26. The value of reputation • Due to its role in Enron, Andersen (at that stage one of the so-called ‘big five’ international accounting firms) disintegrated • Any further examples of companies who damage their reputations through unethical conduct?

27. Building trust The facilitators of trustworthiness • Openness • Competency • Integrity • Benevolence

28. Trust and Ethics What is the link between ETHICS and each of the following facilitators of trustworthiness? • Openness • Competency • Integrity • Benevolence

29. Three features of fraud • A motive for fraud • An opportunity for fraud • A rationalisation of fraud

30. Three avenues for fighting fraud • Undermining motivation for fraud • Restricting opportunities for fraud • Undermining rationalisations for fraud.

31. The role of ethics in preventing fraud • Strengthening the resolve to prevent fraud • Making fraud prevention a shared responsibility • Undermining motivations for fraud • Undermining rationalisations for fraud

32. Part 3: Ethics and good governance

33. Exclusive Only responsibility is towards shareowners Inclusive *Responsibility towards all stakeholders shareholders customers employees suppliers community environment Ethical foundation of governance * Ethics of governance: company is responsible for its actions to all stakeholders

34. Governance and Ethics Direction Control (performance)(conformance) Corporate governance Efficiency Ethics

35. Core values of Corporate Governance • Fairness • Accountability • Responsibility • Transparency

36. Integrated sustainability reporting Economic Reporting Social Reporting Environmental Reporting Triple Bottom Line Reporting

37. Social Reporting • Internal • Social • Reporting • Health • Safety • Equity • Human capital • External • Social • Reporting • CSR • Social • transformation • Ethical • Reporting • Organisational • Integrity

38. The Board and ethical values The inclusive approach requires the Board to: • Define the purpose of the company • Identify the values that should guide the company • Communicate company values and purpose to all stakeholders King II Report

39. Board: guidance on balance Provide guidance to company on the balance between core values: • Strategic values • Work values • Ethical values

40. The Board and ethical culture Board acts as a facilitator of organisational culture by overseeing the Governance of Ethics

41. The Governance of Ethics • Ethics risk analysis • Codifying ethical standards • Implementing ethical standards • Reporting, auditing and disclosing ethical performance

42. Ethics risk analysis • Ethics risk analysis • The company’s ‘state of ethics’ • Stakeholder expectations • Negative risk threats • Positive risk opportunities • Risks informs the code, ethics management strategy, structures, systems

43. Ethics risk analysis • 1-1 Interviews (With whom?) • Focus groups (With whom?) • Questionnaires (To whom?) • Document analyses • Benchmarking

44. Modes of managing ethics REACTIVE COMPLIANCE INTEGRITY TOTALLY ALIGNED Aware of ethics risk Prevent unethical behaviour Promote ethical behaviour Ethics integrated with corporate purpose and strategy Ethics standards created, but not enforced Rules & external enforcement Values & internal commitment Ethics entrenched in corporate culture

45. Where would you position your organisation on this model?

46. Codes of ethics(Setting ethical standards) • Professional codes of ethics/conduct: Examples of codes of the professions served by Fasset: e.g. SAICA, SAIPA, FPI, IMCSA, etc. • Organisations’/companies’ codes

47. The impact of codes on organisations 1. Verschoor (1998) Companies with stated commitments to ethics or that emphasise compliance to their codes in their annual reports, have significantly better financial performance than those that do not. 2. Webley & More (2002) UK FTSE 350 companies with codes outperform those within on 3 out of 4 measures of corporate value (MVA, EVA and EPS) (1997-2001).

48. Codes of ethics Key dimensions of codes: 1. Purpose 2. Process 3. Format 4. Content 5. Tone 6. Implementation

49. Purpose of a code What is the purpose of a code of ethics? i.e. what should the code DO for you?

50. The purpose of a code • Protects stakeholders & enhances trust • Promotes reputation • Prevents unethical behaviour • Promotes ethical behaviour • Encourages ethical decision-making and provides guidance • Facilitates social integration • Legitimises ‘ethics talk’