Ethics in organisations remains a hot topic for academics and practitioners alike. For instance, most of the UN’s Sustainable Development Goals are related to the ethical behaviour of corporations. In the same vein, the August 2019 declaration of the Business Roundtable, an association formed by the chief executive officers of the largest American firms redefined the purpose of the corporation as “to promote an economy that serves all Americans”.
The Enron case and other financial scandals at the beginning of the century favoured the proliferation of codes of ethics, in virtually any large corporation. However, these codes represent just a first step in the process of institutionalisation of business ethics, which is usually defined as getting ethics formally and explicitly into daily business life.
A subsequent, and potentially more fundamental step in this process, is the creation of ad hoc committees on the boards of directors. In that regard, the creation of an ethics committee at the highest organisational level should provide a powerful signal of the commitment of the board to the ethical agenda of the organisation.
Board-Level Ethics Committees in Large European Firms, a study which I co-authored and was recently published in the academic journal Business Ethics: A European Review, examines the factors that explain the firm’s decision to form an ethics committee, in the context of the large European corporation. The study found that almost 40% of the examined firms had at least one committee that could be broadly defined as an ethics committee (including, apart from the specific term “ethics committee”, the labels “corporate governance committee” and “social responsibility committee”).
The countries with the largest proportion of firms with these types of committees are France (71%) and the Netherlands (53%), followed by Switzerland, the UK, Italy and Ireland, with percentages below 50%. Conversely, they are relatively unusual in Denmark (8%), Sweden (8%) and Germany (14%). Regarding the distribution by industry, not surprisingly, ethics committees are more common in the healthcare sector (explained by the obvious ethical implications of the activity) and the financial sector (in this case, likely representing a straightforward response to the 2008 financial crisis) than in other industries.
The investigation of the motivations behind the formation of ethics committees reveals some interesting findings. First, neither the structure of the board nor the demographic characteristics of its members (gender diversity and formal educational background) seem to be strong determinants of the decision to create an ethics committee. However, regarding the board’s structure, companies with a large proportion of executive directors are less likely to create an ethics committee, although these committees are more likely when the board is chaired by an executive director.
In relation to the demographic characteristics of the board’s members, the study finds that companies with more board gender diversity are more likely to have created committees of this kind. More specifically, female directors seem to be more closely engaged with social responsibility issues than with corporate governance or business ethics.
As for the formal educational background of directors, the study fails to observe any significant association between the level of formal education and the likelihood of forming an ethics committee. Nevertheless, the presence of a large number of directors holding MBA degrees reduces the prospect of creating the committee. This result is consistent with the traditional view of MBA programmes as being generally associated with aggressive management styles, and is supported by some academic studies that observe that executives with MBAs are more likely to be aggressive managers with respect to business operations, and therefore, less concerned about environmental and societal matters.
The results of the study also indicate that firms with stronger agency conflicts seem to be more prone to forming an ethics committee. This is an interesting finding because, given the nature of the functions attributed to the ethics committee, its very existence is more justified in those firms which are experiencing more serious conflicts between their different stakeholders.
There are, however, several unresolved issues that need to be addressed in future studies. One of them is the assessment of the actual effectiveness of the ethics committee in pursuing its fundamental role of achieving more ethical firms. In the same vein that, for instance, the specific profile of the members of the audit committee is viewed as an important determinant of the ability of this committee to perform its function of guaranteeing the quality of the financial information released by the company, to what extend the profile of the members of the ethics committee may also affect its actual level of performance seems an interesting issue to address.
Dr Josep García-Blandón is a professor at the IQS School of Management, Universitat Ramon Llull, Barcelona, Spain.