Boards this week face a call to place culture at the top of their agendas. The message, from the Institute of Business Ethics (IBE), comes after research earlier this year showed that few FTSE 100 and FTSE 250 companies have publicly accessible codes of ethics.
This week also saw the IBE issue new guidance underlining the need for companies to embed culture through recruitment, training and pay policies.
According to Ian Peters, director of the IBE, the guidance is aimed at helping boards with the process of establishing an “ethical culture”.
“A positive ethical culture supports good decision-making and allows a business to show it is committed to doing the right thing for the right reasons,” Peters says. “That’s fundamental if you’re going to retain staff, maintain a positive workplace environment and ensure customer loyalty.”
The guidance has the endorsement of the Financial Reporting Council (FRC), the UK’s governance watchdog.
“Boards can show real leadership in embedding a positive ethical culture across their company,’ says Mark Babington, executive director of regulatory standards at the FRC.
An IBE report published earlier this year found that only around half of companies in the FTSE 100 and 250 have published codes of ethics. Even the codes that were available had problems. Ian Peters said at the time that many fail to include protections for those who “raise concerns”, or whistleblowers, and added that a code should be the “cornerstone” of any organisation.
“Any business without a code available for public scrutiny needs to up its game or risk the loyalty of both staff and customers,” Peters said.
A matter of principle
The FRC has one eye on culture in the current proposals for a revised version of the UK’s Corporate Governance Code, currently under consultation. In a “principle” on remuneration, the new code says: “Remuneration outcomes should be clearly aligned to company performance, purpose and values and the successful delivery of the company’s long term strategy, including environmental, social and governance objectives.”
IBE’s newly published guide for boards highlights a number of areas for close attention. These include boards leading by example; using ethical behaviour at a criteria in judging performance; and ensuring stated values and purpose are reflected in a company’s strategy.
IBE also calls on board members to go through induction programmes on the company’s values, purpose and codes of conduct. Remuneration policies, the IBE warns, should not “inadvertently create incentives for unethical behaviour”.
“An ethical business culture is best sustained and strengthened by recognising, rewarding and promoting individuals who consistently display integrity, respect and moral decency in their behaviour and business judgement,” the guidance says.
Governance is in a state of transition with new emphasis on ESG and ethics as part of re-establishing the role of business in society. It is a contested issue, but under way nevertheless. IBE’s intervention will be a useful addition to its development.