ceo institute australia presentation - business ethics & your bottom line

© Managing Values www.values.com.au

WHY BUSINESS ETHICS MATTER TO YOUR BOTTOM LINE

David Mallard

[email protected]

© Managing Values www.values.com.au

© Copyright of Managing Values www.values.com.au

VUCA

• Volatile • Uncertain • Complex • Ambiguous

A 2012 IBM study of over 1,500 CEOs identified

their number one concern in business as ‘Perpetual

Whitewater’ characterised by global markets that are:


Where everything and everyone is interconnected

Interconnected


Interconnected

Where social media is the new public square


Interconnected

Where digitisation has empowered consumers,

employees and grassroots activists to take immediate direct

action


Interconnected

Because in an online world everything you do privately

and/or within your organisation can find its way

into the public domain


Strategic Risk

Exploring Strategic Risk - December 2013

Reputation Risk


Linking ethical behaviour to reputation makes ethics integral to what drives

business success e.g. Starbucks & Google tax minimisation fallout

‘Reputation risk is now the biggest risk concern, due in large measure to the rise of social media, which enables instantaneous global communications that

make it harder for companies to control how they are perceived in the marketplace’.

Strategic Risk


Connectivity Increases Vulnerability

• The internet means more people now see how you do things, how you impact on others and can tell others how you should be held accountable

• Stakeholder internet retaliation - anytime for no cost and without restraint


Business ethics context

• IBM’s CEO research points to greater organisational transparency & accountability i.e. values rather than rules

• Many leaders invest in ethics management systems to protect their people

• Embrace increased transparency as the enabler of ethical cultures

Business Ethics Context

• Business ethics is a management accountability in US, UK & Europe

• Ethical risks are known & regulators demand more than a paper trail

• Australia is out of step - business ethics is often seen as a discretionary endeavour


Business ethics dynamics

• Employees consistently report they are working in environments conducive to misconduct

• Fall out from GFC led many boards to concentrate on compliance and paper trails at the expense of managing culture

• However, compliance inhibits a systemic view of how risk issues emerge

• Ethical skill development promotes managerial & personal accountability


Do ethical failures matter?

• 2013 Leighton Holdings allegations

• 2012 UBS fined $29.7m for system failures

• 2012 HSBC paid $1.92billion to settle charges of money

laundering

• 2012 Barclay’s fined £290m manipulating key interest rates

• 2010 BAE Systems pays £400m settle bribery charges

• 2010 Rio Tinto employees jailed for bribery in China

• 2010 Daimler paid $185m fines bribing foreign government

officials

• 2008 Siemens paid $1.6billion to settle global corruption case


Discipline of business ethics

• Focus on the institutional & contextual dynamics that shape employee behaviour

• Demands that leaders move beyond ‘tone’ setting to aim higher - beyond legal minimums

• To design institutional practices that encourage & reward ethical behaviour

• To establish robust ladders of escalation


High integrity companies also high performing (CEB)

World’s Most Admired Companies deliver highest shareholder value (Hay)

Strong link between institutional integrity, employee engagement and discretionary effort

Investing in an Ethical Culture


2011 Australian research of 78 organisations found companies

that focused on culture as well as financial indicators were 3 times

more profitable



‘An organisation should aim to develop an culture that is self-policing and that positively encourages concerns about ethical behaviour to be raised at all levels and in all locations.’

The Hay Groups WoMAC’s were found to have outperformed average shareholder growth, by

about a quarter to two-fifths above normal returns

Corporate Executive Board research shows that integrity leaders incur only one-eighth the costs of misconduct than competitors, and have 12% lower labour costs because their

employees invest more discretionary effort, with shareholder returns 6% higher than the

average company



Culture - the root cause of business misconduct

Opportunity

The ease with which misconduct can be

completed

Rationalisation

The ability of an employee to

justify an intentional act of business

misconduct

Pressure

The motive or incentive for employees to

commit misconduct

Business Misconduct

1. Culture as much as policy and internal control, establishes

the standards for acceptable employee

behaviour

2. Disengaged employees are better able to

rationalise antisocial behaviour targeted

against an organisation

3. Cultures of integrity emphasise strong

business performance obtained in a

compliant, ethical manner


Pressure and rationalisation can be

reduced by promoting a strong sense of ethical

behaviour amongst employees and creating

a positive work environment

Culture - the root cause of business misconduct


Top ethical risks - how well are

you managing these?

• Funding concerns enjoying a higher priority than ethical standards

• Unaligned compensation plans

• Poor management of unacceptable behaviour

• Anti-competitive practices / contract violations

• Harassment / Retaliation

• Health or safety violations

• Insider Trading/stealing

• Substance abuse

• Environmental violations


Build organisational integrity?

Demonstrate ethical leadership e.g. remuneration that

rewards sustainable practices & culture builders, not just

bottom line results

Active culture measurement as well as compliance

Train employees & reinforce with visible action on poor

behaviour

Design systems to promote high level of trust

Leading businesses in Asia are increasingly investing in

ethical culture development to mitigate against local

practices


Successful businesses of the

future will:

• Build organisational integrity as an enabler of business profitability and success

• Embrace ethics and transparency as way of flattening hierarchies & engaging employees

• Step up to meet employee desire to be part of a business that seeks to enhance society as well as deliver bottom line results

12

12

-6

Disclaimer

This paper represents the opinion of the author(s) and not necessarily those of the Institute of Chartered Accountants in Australia (the Institute) or its members.

The contents are for general information only. They are not intended as professional advice – for that you should consult a Chartered Accountant or other suitably

qualified professional. The Institute expressly disclaims all liability for any loss or damage arising from reliance upon any information in these papers.

Detailed research in White Paper written by Managing Values for the Institute of

Chartered Accountants Australia.

White Paper

12

12

-6

Disclaimer

This paper represents the opinion of the author(s) and not necessarily those of the Institute of Chartered Accountants in Australia (the Institute) or its members.

The contents are for general information only. They are not intended as professional advice – for that you should consult a Chartered Accountant or other suitably

qualified professional. The Institute expressly disclaims all liability for any loss or damage arising from reliance upon any information in these papers.

Why Business Ethics Matters - to your Bottom Line

Case studies and blogs available on

values website

www.values.com.au

Thank you!

David Mallard


ceo institute australia presentation - business ethics & your bottom line

Business

business ethics matter

step business ethics

business success

ethical manner2

ethics integral

strong business performance

reward ethical behaviour

ethical failures matter