Unpicking the language of ethics
This month seems to be layers deep with seminars on interesting subjects. A choice must be made and mine fell for a workshop on Understanding, Implementing and Monitoring a corporate ethics plan. If anybody could deliver, this panel would: the workshop was organised by TIGFI with the UK Institute of Business Ethics (IBE), the Luxembourg Institute of Directors (ILA) and the CFA Society Luxembourg and hosted by PwC.
Welcoming the participants, former Prime Minister Jacques Santer, president of TIGFI, declared that ethics should be a “practical, applicable, down to earth discipline”. He was in the right room. IBE Director Philippa Foster Back started by “unpicking the language” around business ethics. We could do with more of this sort of thing. It is hard to write about ethical finance sensibly, let alone promote it, when terminology surrounding the discipline is slack.
To cite one example, “doing things ethically” is not the same as “doing ethical things.” Philippa Foster Back quoted the case a UK supermarket chain that had a fine corporate social responsibility programme but an awful reputation for the treatment of suppliers.
Walking the talk
A company cannot insure against this sort of reputational risk, but it can self-insure through sound ethical policies and training.
Listening to the case studies, it became clear that the application of ethical values to business behaviour requires thought and constant management, that is, it requires effort. This is because (ideally) a code leaves room for discretion.
There are common success factors. An ethical code works when the programme has been designed around the moral risks of the business in question. Senior management must set the tone, for instance, by attending middle management training courses and sharing real dilemmas they have faced. Middle management buy-in is also crucial. In a survey conducted by the Corporate Executive Board, some 60-70% of managers say they would not bother to “speak up” over an issue that had a business value of less than £1m, yet most staff take their moral line from the managers they work under. Such an attitude gives free rein to petty unethical behaviour.
CFA Charterholders are trained in ethical decision-making. However Christophe Jung, speaking for Arcelor Mittal, argued that an ethical code that did not set hard rules was impracticable for a company operating in 60 countries. “A multinational cannot have double standards,” he stressed.
This led to a debate on what constitutes ethical behaviour in, for instance, a context where child labour is part of the local economic pattern: to stop working with a community or to engage with them? The latter might have better long-term results but carries a high risk of misinterpretation by the media and ethical rating agencies – the very constituents you are trying to impress.
Most people consider themselves to be ethical, yet “ethical lapses” can occur on a phenomenal scale. Look at Enron. Like murder, ethical lapses require an opportunity, a motive and a weapon, which is why programmes cannot be bought off the shelf; they must be designed for the company. Anthony Smith-Meyer, representing ILA explained the importance of both governance and how a systematic tailoring of Ethics Programmes to an organisation would improve ethical decision-taking, and enable the measurement of its influence on the organisational culture and its ethical standing.
In his Arcelor Mittal case study, Christophe Jung identified some of the hazards:
- anti-corruption laws are uneven from market to market;
- domestic competitors may not be required to comply with international norms;
- local culture may endorse “win-win” behaviour (back-scratching) and an ethical norm of protecting family and friends.
Describing the ethical programme they designed for purchasing managers in the Ukraine and Kazakhstan, Christophe Jung said that the key messages were to teach staff to differentiate between private and professional life, to think in terms of values (not just legal rules), to be transparent with management and employees on questions of integrity and to lead by example, bearing in mind and that no issue is too small to count. Staff were reminded that an international firm was subject to international standards. “Do not accept favours,” they were warned.
Claire Fargeot, Head of Standards and Financial market integrity, CFA-EMEA region, led a discussion on the LIBOR scandal. Clearly, the situation was not functional and full of moral hazard. People who should have taken action did not.
An ethics code is always “work in progress”
The Luxembourg stock exchange has Ten Principles of Corporate Governance that are applied to all Luxembourgish companies quoted on the regulated market in Luxembourg. Maurice Bauer, head of Legal & Compliance, commented on the challenge of drafting a set of principles that could be applied to a multinational firm such as Arcelor Mittal or to a small golf club in the Grand Duchy. “At the end of this year, a third revised edition of the code will be published within 5 years ”, he remarked.
This comment was echoed by several speakers. A corporate ethics programme is never finished, not least because society itself is in evolution. In the 2012 edition of the annual IBE ethical survey, “corporate tax avoidance” is ranked second to “directors’ pay” as unacceptable corporate behaviour. It is a post-financial crisis phenomenon to find this listed above discrimination, bribery and corruption - indeed to find it listed at all – and follows some high profile news stories.
Regrettably, there was no time to discuss the corporate tax question or the wisdom of setting up headquarters in a country where you do no trading. Reputational risk may be financially uninsurable but you can mitigate risk by making sure that your corporate values are in line with those of society. As Philippa Foster Back pointed out, where they are not, the law usually changes.
The workshop fulfilled its promise of providing practical advice on setting up and running a corporate ethics plan.
Nevertheless, I regret that there was not more time to tackle ethical issues of closer relevance to the Luxembourg financial sector. This would be an excellent theme for a follow-up session. Let us hope that the partnership plans to make this into a series of workshops. ER
 The Luxembourg based Intitute for Global Financial Integrity