The value of values in corporate decision making

By Daniel Malan

In this uncertain world, decisions across a wide range of issues influence policy and behaviour, and if they are based on ethical values they are more likely to have a meaningful and beneficial impact on all stakeholders.

The need to ensure that this happens inside a corporation is a governance responsibility and is acknowledged in different parts of the world. It has been clearly defined in the recently launched 2012 Singapore Code of Corporate Governance, which states that it is the role of the board to “set the company’s values and standards (including ethics standards), and ensure that obligations to shareholders and other stakeholders are understood and met”.

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It was also entrenched in the South African King Code of Corporate Governance for South Africa, with the entire first chapter of the code dedicated to ethical leadership and corporate citizenship.

As a member of the Global Agenda Council on Values in Decision Making of the World Economic Forum (WEF) I have had the privilege to examine some of the work performed by all seventy Agenda Councils.

The councils address a very wide range of issues, industries and regions, and all provide input into WEF processes to make a contribution to the WEF’s mission of improving the state of the world.

Sometimes there is a direct, even obvious, link between more traditional values and topical issues (anti-corruption, the role of business, human rights); sometimes the link is mediated by related concepts such as sustainability (climate change, renewable energy, food security) or law (intellectual property, illicit trade, organised crime). And sometimes the link becomes clear only through the application of more indirect philosophical approaches (values associated with ageing, space security, social innovation).

From an initial high level assessment of the most recent Global Agenda Council Reports the following values clusters have been identified:

• Respect, including responsibility, sustainability, care, wellbeing, privacy;
• Honesty, including trust, transparency;
• Fairness, including equality, justice, rights; and
• Accountability, including compliance.

From experience, we know that not all employees in all companies adhere to these values in their daily decision making and behaviour. We also know that interventions such as training and communication can have an impact on behaviour, even when they are very subtle.

For example, an experiment conducted at Newcastle University in the United Kingdom a few years ago illustrated how people who participated in an “honesty bar” system became more honest purely because a photograph of eyes was posted on the door of a fridge!

Although it is a huge generalisation, from a management perspective it is useful make a distinction between good people and bad people, as well as good behaviour and bad behaviour, and then to examine the four different permutations.

Figure 1: People and Behaviour

Of course, the ideal would be to have good people doing good things all the time. For this to happen, everybody would have to be fully informed about all company policies and regulatory requirements, and to be driven by values such as honesty, respect and fairness.

But we know that there will also be bad people doing bad things: at least some people in any organisation will be driven by vices such as greed, selfishness and disrespect as opposed to ethical values.

According to the matrix outlined above, there are also two additional permutations: good people doing bad things, and bad people doing good things. The latter occurs as a result of strict compliance – some employees will do “the right thing” because they have to, not because they want to. At least in this case the end result (compliance) is desirable.

What happens when good people do bad things? This is usually as a result of ignorance or uncertainty. For example, when a naïve procurement manager accepts excessive entertainment from a potential supplier it is not necessarily because of ill intent. Or when an employee decides not to report misconduct of a colleague it does not automatically indicate a desire to harm the company.

For an ethics programme to be effective, all of these permutations have to be addressed. To increase compliance, at least a part of training should be aimed at bad people (“if we catch you we will discipline you”) and another part at good people (“we know you want to do the right thing, therefore we will give you all the information you require”).

But training should also be aimed at encouraging people to engage critically with values. A simple instruction to report misconduct will not be sufficient if an employee grapples to decide between loyalty to the company which conflicts with loyalty to a colleague.

Exposing people to ethical dilemmas and encouraging opposing views and critical debate will be more appropriate in this context. This could be dealt with sensitively, even in regions where the business culture is opposed to public disagreement and conflict.

Multiple levels of ethics training, incorporating both compliance and values aspects, should be further supported by a comprehensive ethics management framework. The main components of such a framework include:

• An initial measurement of ethical values in a company, usually performed through a confidential survey;
• Development of an ethics policy (or review of an existing policy);
• Implementation through a combination of compliance and values training and communication;
• The establishment of an effective and credible management function (e.g. an ethics officer or an ethics committee);
• The establishment of a reliable and confidential whistle blowing mechanism (e.g. a toll free number or online reporting facility);
• Board oversight – an appropriate committee should monitor the success of the programme and suggest interventions where appropriate. In South Africa it is a legal requirement for listed companies, state-owned enterprises and companies with a public interest score of more than 500 (according to the Companies Regulations 2011) to appoint a social and ethics committee;
• Reporting to stakeholders on the success of the programme – reporting could be online or part of the published annual report, and will increasingly become a part of the rapidly developing field of integrated reporting.

To conclude, it is interesting to note that integration has become a buzz word worldwide, from the WEF to the current debates about integrated reporting. We must remind ourselves that integration and integrity both have the same Latin root of integer, meaning “wholeness”.

A true commitment to this concept of wholeness, and the other values that support it, is what is required to develop the new models to improve levels of governance, to manage companies ethically and ultimately to improve the state of the world. If this commitment could be reflected in the decisions that corporations make every day, it would be huge step in the right direction.

This is an abbreviated version of a keynote presentation given to the Deloitte Governance and Transparency Values Summit that took place in Singapore on 22 May 2012.

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