A new survey on ethical values shows that come companies are taking the issues seriously. But what about tax?

Investment in corporate ethics programmes has increased over the last three years. But what are companies spending it on?

The Institutes of Business Ethics has conducted a triennial survey since 1995 into the mechanisms companies use to communicate and embed ethical values. The 2013 survey has just been published.

In the beginning, the IBE only asked large UK companies whether they had a code of ethics in place and how those codes were implemented, but since then the case for effective ethics programmes has been firmly proven and recognised.

In contrast to when the IBE first conducted this survey back in 1995, it is now the norm for the UK FTSE 350 to encourage high ethical standards in business practice through a code of ethics or similar document. But the challenge remains in how best to support employees in everyday operations and decisions to live up to the values espoused in any code of ethics.

There are two important questions. What are the elements of a typical corporate ethics programme? And what are companies doing to support the embedding of their values to strengthen their ethical culture?

The role of the board

One of the most notable findings of the 2013 survey is the evidence that corporate management has increased investment into ethics programmes over the last three years. Seven out of ten respondents said this, compared to five out ten in 2010. What is more, 87% of UK respondents state that a member of the board of directors takes ultimate responsibility for the ethics programme. This suggests that the embedding of ethical values is being given a higher priority by top management

However, ethics is only a regular board agenda item for 65% of UK respondents and 70% of those in the rest of Europe. When the cost of ethical failures to a company’s reputation is considered, it is a cause for concern that more boards are not regularly assessing their company’s ethical performance.

Given the role which the board is expected to play in setting the ethical tone of the organisation, it is surprising that 24% of the FTSE350 respondents offer training to the board only once.

Embedding ethics in business processes

So on what are companies spending this increased investment?

It appears there has been an increase in the embedding of ethics into business processes such as recruitment (63% up from only 38% in 2010). Three quarters (74%) say that a breach of their company’s code of ethics has led to a disciplinary procedure during the last three years, up from just under half (48%) in 2010.

Some organisations are choosing to be transparent with this information and making data about these disciplinary procedures publicly available in company reports or on their websites. This survey also shows that two thirds of corporations now include ethical issues in staff appraisals.

Training has also returned to the 2010 levels, but despite the increased investment in ethics programmes, a fifth of companies seem to offer training only once to general employees and managers, and only a third routinely train staff and managers once a year.

Given the seriousness with which companies are taking any breaches of their code, it is imperative that staff are given the tools for them to apply the code in their day to day business relationships.

For training to be effective and the information retained by employees, it needs to be continuously repeated. Without regular refresher sessions it is unlikely that employees will gain the necessary acumen and sensitivity. As a result, the risk of an ethical lapse occurring in their business conduct is more likely.

Monitoring and assurance

In order to assess whether an ethics programme is achieving what a company wishes it to, it is essential to monitor its effectiveness, and the number of UK companies doing such monitoring has increased from 59% in 2004 to 79% in 2013. Monitoring and reporting on ethical policy and practice are essential for companies if they wish to assure themselves that they are living up to their values.

How respondents are monitoring effectiveness has changed over time. The “use of Speak Up and hotline data” has just overtaken “use of internal audit” as the most used method amongst the respondent companies – up from 56% in 2007 to 71% in 2010 and 88% in 2013. This has been a ‘Cinderella’ subject for too long but the refinement and increased use of relevant tools has made it more practical. The use of proxies to measure ethical effectiveness is a sign that the business ethics programmes are maturing.

The percentage of FTSE 350 respondent companies seeking external assurance from organisations such as FTSE4Good, DJSI and GRI to assess ethical performance, rose from a just over 1/5 in 2010 to over 1/3 (35%) in 2013.

Bribery and corruption

It is not surprising given the continuing and growing international political attention, that companies report the issue of bribery and corruption as the most significant concern for them.

The implementation of legislation such as the UK Bribery Act and the topic’s appearance in the Leader’s Declaration following the G20 Summit in September 2013, illustrate the importance being attached to it. At the same time, when the flow of media reports of western companies being investigated for bribery, particularly in Asia, are added, then it is not surprising that companies are placing the topic higher on their risk registers.

This is in stark contrast to the issue of tax avoidance, which companies rank as the least important issue. For the British public however, tax avoidance is the most important issue according to the IBE’s 2013 survey into their opinion of issues that companies need to address.

Tax avoidance is an ethical time bomb waiting to go off, and companies therefore need to give it more attention. Boards should be more aware that unless they deal with public concerns about ethical issues head on, they are likely to face reputation risk and possibly more restrictive legislation.

Simon Webley is research director at the Institute of Business Ethics.

IBE’s triennial survey 2013 Corporate Ethics Policies and Programmes: UK and Continental Europe Survey is available as a free download.

business ethics  Corporate tax  ethical values  Investment  SRI 

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