Ethics: creating value within businesses

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Philippa Foster Back

Philippa Foster Back, Commander of the Order of the British Empire (CBE), is Director of the Institute of Business Ethics (IBE). Her role is to give a voice to business ethics and highlight its impact on value creation.

The rise of ethics in business conduct

When asked about the main challenge facing the IBE since its creation in 1986, Philippa says: “Getting our voice heard”. If you want to spread the word about business ethics, you have to put yourself in senior management’s shoes. Companies want to see the “value of values” before giving guidelines to staff, Philippa explains.

While some businesses supported the IBE from the beginning and helped to raise its profile, others came on board later, recognising the growing importance of ethical questions in their business challenges. In the City of London, where the IBE is based, the arrival of electronic trading, which displaced traditional physical markets, was a pivotal moment. “Until then, trust was a feature of business dealings. ‘My word is my bond’ was the motto. As trading went electronic, firms wanted to make sure that they did not forget to do business in the right way”, explains Philippa. She also notes a significant difference between Europe and the United States in the way in which ethical questions have gradually come to be taken into account, observing that, historically, values have tended to shape Europe’s laws, while in the United States, the law has provided the framework for ethical policies to emerge. That being said, US firms are increasingly placing ethical values at the core of their business model. “Things are heading in the right direction stateside”, she comments.

So awareness is coming from companies but also from outside players, particularly civil society, which now has a much louder voice thanks to social media. Governments are also paying more attention, particularly since the 2008 financial crisis, when they had to bail out banks. Even mainstream investors are more engaged, as they recognise the damage that an ethics scandal can do to a company’s reputation and share price.

Deploying an ethical approach

Philippa identifies three essential levels when establishing an ethics policy. First, you have to identify the company’s values to be able to explain the vision to employees and stakeholders. With this in mind, to help companies tailor ethical standards to their own way of doing business, the IBE has drawn up a framework to help companies. Next, you have to create a code of ethics that provides practical guidelines for employees to follow day by day. Third and most challenging of all, you have bring that policy to life for every employee.

Three things are needed to achieve this last goal. “To spread a culture of ethics within the organisation, you first have to encourage people to communicate”, argues Philippa, who cites L’Oréal’s Ethics Days programme, which enables employees to ask questions to Group management through an online chat system, calling it “a perfect example of participative communication”. Group training is another fun way to get people working together. It is also vital to provide a toolkit, including reporting arrangements and statistical analysis software, so that employees can measure the results of actions taken. “For that”, says Philippa, “you have to think about appropriate metrics, such as employee satisfaction, turnover and customer complaints, and then analyse them in a holistic way, rather than in silos”.

Ethics as a driver of differentiation and innovation

Ethics offers a way to attract and retain the talented people who are going to drive innovation. Philippa explains: “You can’t only see it as a ‘reputation lens’, but rather as a business and HR issue and a means to mitigate the risks of someone somewhere doing the wrong thing, while at the same time inspiring people to use their initiative. If employees are encouraged to do the right thing, they will naturally seek to innovate in their work”. A good ethics policy will also mitigate the stress that can generate health problems or lead people to leave the company.

Companies can also use ethics to differentiate themselves through the relationships that they build with stakeholders, especially customers, by delivering high-quality products or services, but also with suppliers and partners, for whom trust is key. It can have this publically recognised through the IBE’s Investing in Integrity charter mark.

 A firm can additionally set itself apart through its business choices. When asking the question, “Should we expand into a country that is known for bribery and corruption?”, the company has to recognise that it is not worth its reputation to do business in such a place. On this point, governments have to be proactive in encouraging companies be more ethical, through anti-bribery legislation, tax regulations and more.

The last word?

Philippa is looking ahead with confidence: “Changing mindsets takes time but on the whole, ethics is increasingly viewed as a strategic factor. I am in no doubt that the next generation will embrace these issues over the coming years.”

CSR | October 2016