This Policy Brief is the latest in a series on Ethical Business Practice (EBP) and Ethical Business Regulation (EBR). It summarizes current thinking on these topics, based on a Conference held at Wolfson College, Oxford on 4 May 2018. Big thanks to all who contributed.
What are ethical business practice (EBP) and ethical business regulation (EBR)?
The key concept behind ethical business practice and regulation is a focus on ‘doing the right thing’ by creating an efficient, ethical culture based upon
values, and consistent reinforcement and application of those values. Constructive inquiry through conversations to determine what is the right thing to do underpins the approach, as does fair, honest, and open feedback, without seeking to blame, for continuous improvement. The model also postulates full cooperation between ethical businesses and regulators based on a respectful, responsible relationship rather than an adversarial relationship or one focused on the attribution of blame.
The International Chamber of Commerce has a new report out on global trade. Timely with Brexit looming over us in the UK/
EU and the rattling of trade war sabres in the US. That said, the impact of new rules isn’t the only thing that is top of mind for people in this space. Living up to existing expectations and requirements is also a top priority.
The 2018 survey had input from 251 banks across some 91 countries. Combined they’re responsible for processing an estimated $9 trillion global trade finance transactions. So we’re talking real money here.
Only 1% of respondents said that Regulation & Compliance was not a barrier to trade. Contrast that with 93% who are Somewhat / Extremely concerned. That’s a lot!
One temptation is to focus on the output (compliance reporting) rather than the input (an ethical culture). A helpful term from computer science is GIGO: Garbage In = Garbage Out – and it applies here too.
“If young people acquire sufficient and appropriate education, they will be able to make a significant contribution towards preventing and combating crime and corruption, thus bringing about change for a better future.” – UNODC‘s Corruption and Economic Crime Branch Chief, Dimitri Vlassis
It has been exciting to be part of the development of a new set of modules to address exactly this. The team, some 70 experts from 30 countries across the globe, recently gathered at the European Public Law Organization (EPLO). We worked to finalize and sign-off on a new series of UNODC university modules, which will be launched online soon.
A widely reported survey of 2,000 UK employees conducted by Rungway found that 49% could not name their organisation’s values. More than a quarter (27 per cent) feel their organisation’s vision or values have too much corporate jargon and almost one in five (18 per cent) say they don’t reflect what the company is actually like.
This does not come as a surprise. In the course of my work in values-based ethics and compliance I have found it is a rare employee who can name some or all of their company’s values – let alone tell me what they mean. Even fewer feel that they are of any use in their day-to-day work.
Not invented here – and why
The reasons for this may be found in elsewhere in these research results: two in five (39 per cent) say they wish they had more involvement in contributing to their company’s vision and values.
One of the biggest mistakes that companies make is identifying their values and vision in the Board room, which I call, “plucking them out of the air”.
Even assuming that senior management can honestly identify what is important to their employees and to the success of the company based solely on their own experience, this method guarantees the application of the “not invented here” syndrome.
Properly identified and developed, shared values and vision create internal cohesion; they draw people together. An important factor in the success of values in guiding behaviour and decision making is employee’s participation in identifying and defining them. This is partly because the conversations that take place in doing so help develop a common and familiar vocabulary.
Perhaps it is also a reflection of the IKEA effect, identified by Professor Dan Ariely and his colleagues in a series of experiments discussed here.
The IKEA effect
The IKEA effect refers to a cognitive bias in which consumers place a disproportionately high value on products they partially created. Ariely and his colleagues used IKEA furniture assembly as a proxy and found that “labor leads to love” as they put it, but that it depended on an additional crucial factor: the extent to which one’s labor is successful. They showed that successful assembly of products leads to value over and above the value that arises from merely being given a product, or merely handling that product.
Why would this be the case? It is easy to see that contributing to making something would give it more meaning and value. Ariely and his colleagues suggested that successful completion gives people a sense of confidence; whereas failure does the opposite. They also pointed out a danger stemming from the IKEA effect – that “not-invented here” syndrome would cause people to overvalue their own possibly inferior ideas over superior ideas invented elsewhere.
All very logical, but what does it all have to do with identifying company values?
To the extent that your employees participate in identifying and developing core values, they are more likely to reflect what is important to them, so they will value them more highly. However, that might only be the case if they feel that their contributions were considered; so don’t ask if you have no intention of listening!
Next time I’ll talk about how to get all of your employees (and other stakeholders) input when identifying and developing (or reviewing) core values.
Corruption has a crippling effect on countries’ economic and social development and undermines public trust in businesses and governments alike. As an advocate for ethical business, ICC joins global partners to provide a unified voice in support of collective action and encourage greater private-public sector collaboration.
Join guest speakers Imogen Haddon, Chief Compliance Officer, News Corp UK, and Ruth Steinholtz, Business Ethics Advisory, AretéWork LLP, to learn how you can create an effective ethical culture.
Whether you have a corporate scandal to use as a burning platform – or you are seeking ways to create and sustain culture change once the crisis fades from memory – Imogen and Ruth can help you think it through.
I have always been fascinated by the forces within organisations that come together to create outcomes – especially catastrophic outcomes. I had a parallel career in crisis management, which gave me the opportunity to dream up terrible situations for my colleagues to cope with in live exercises. It helped us prepare for the unexpected. Now that I am continuing my crisis prevention work in the field of ethics, I focus on the human and cultural factors that cause ethical misconduct.
For one of my ‘Why Good People Do Bad Things’ sessions a couple of years ago I studied the destruction of the Challenger Space Shuttle. Brought down by a seemingly tiny part – the O rings.
At #SCCEecei I was fascinated to hear from Garrett Reisman, a real space man. He singled out the factors responsible for the Challenger explosion, and other tragedies, such as Apollo 1 and Columbia.
Garrett found that these tragedies had certain things in common:
Normalisation of Deviance – the mission team had previously gotten away with things that should have been problematic for some time. In the case of Apollo 1 it was using 100% oxygen at a certain pressure without blowing up the capsule. In the case of the Challenger, it was the fact that previous flights had shown O-ring erosion without incident; and foam had been falling off the space shuttle external tank since the very first flight. Long before it punched a hole in Colombia’s wing.
Garrett concludes, “Just because you get away with something over and over again, doesn’t mean it is not a danger.” I tell my husband this regularly as he walks out our front door with earphones listening to a book on Audible. Like most humans, he feels secure, since he has never been hit by a car coming from the wrong direction or had his pocket picked (except by me once, to prove a point!).
I love the way Garrett put his second common factor, “None of us is as dumb as all of us”. This is another way of raising the spectre of groupthink, and the tendency of humans to want to belong, and therefore to conform even if they hold a different opinion.
Watch the Conformity Experiments carried out by Solomon Asch if you don’t believe that this is a powerful force. (I warn you the haircuts will take you back!)
The third learning has a couple of facets. The one closest to my heart is the importance of encouraging dissent.
In the case of Challenger, the engineers did not think it was safe to launch at such low temperatures, but they were literally filtered out of the call where the launch decision was being made. When running crisis management exercises, I regularly observed someone who had correct information that went counter to the “wisdom” of the group being drowned out or marginalised, resulting in strategies that worsened the situation being “decided” by the crisis team.
A corollary of this is the importance of free and open communication – a topic we discuss at length in Ethical Business Practice and Regulation.
As Garrett pointed out, all of these situations occurred in an atmosphere of time pressure. Unrealistic goals, whether they be related to time or sales, are a catalyst for misconduct. So, watch yourself – it is so easy to fall into these traps (and others) without realising it.
Being self-aware as a leader, and organisational culture-aware can help prevent some very nasty consequences.
Learning from our mistakes, both individually and organisationally, is critical, if we are to create effective ethical cultures. Cultures that result in an acceptable level of risk.