Embedding ethical excellence

Speaker:
Professor Stephen Bartos
Director, Allen Consulting Group

Abstract:
Ethics in an organisation stem from its culture. Culture is neither accidental nor uncontrollable: it can be managed. So what do organisations need to do to embed a culture where high standards of ethics are the norm?

The importance of leadership in creating and maintaining an ethical culture is well recognised. There is a raft of literature in the popular management genre on the subject, with catchy titles based on folk wisdom or apocryphal Chinese proverbs, about how leaders in an organisation influence its members. Effective leadership is undoubtedly a necessary condition for embedding an ethical culture — but not a sufficient one. Other elements are required to reinforce, reward, monitor and distribute ethics.

As an aide-mémoire based on my work in governance, we can group steps required to embed an ethical culture under five headings: leadership, incentives, measurement, information and transmission (LIMIT).

Leaders have to demonstrate the importance of ethics through both words and action. Nothing undermines a message from the top more than perceived behaviours from the leadership group that are inconsistent with that message (witness the outcry when heads of motor companies crying poor travelled to meet the US Congress in their individual private jets).

Incentives for ethical behaviour are just as important. Negative incentives for poor ethical behaviour are probably the ones with which we are most familiar, but positive incentives can include: incorporation of ethical standards in selection and promotion decisions, discussion of ethics in employee performance reviews. It is also vital not to reward those in the organisation who achieve results (whether outstanding financial performance in the private sector, or political ends in the public sector) through ethically dubious means.

Measurement of ethical behaviour underpins an organisation’s ability to reward it. Metrics need not be quantitative provided they are applied consistently. Codes of conduct or ethics are no use if never monitored or measured.

Information is vital to maintain an ethical culture — primarily in the form of consistent narratives about “the way things are done round here”.

Transmission of information throughout the organisation rounds off the picture. If ethical concerns are not part of regular events (from leadership forums and board meetings through to shop floor staff meetings) then it is unlikely the organisation will maintain an ethical culture over time. Transmission ought to be part of regular business, not an afterthought (“right, we’ve come to the ethics item on the agenda — anyone got a problem they want to admit to?”).

Looked at in this way, ethical culture is an overall outcome of a number of elements within
organisations’ cultures that interact with and reinforce each other. It is a less fragile approach than reliance on heroic leadership to do the job.

This paper is not intended to LIMIT your own thinking about ethics. Systemic approaches are not simple, exceptions are frequent, and alternative approaches may work as well. Nevertheless, experience in Australia (e.g. the NAB foreign exchange dealings, the AWB affair) and the increase in corporate governance problems worldwide reinforce the need for a systemic approach.