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CEO Institute Australia Presentation - Business Ethics & Your Bottom Line

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The linking of ethical behaviour to reputation makes the effective management of reputational risk and ethical business conduct an integral part of what drives company success. Economic performance …

The linking of ethical behaviour to reputation makes the effective management of reputational risk and ethical business conduct an integral part of what drives company success. Economic performance alone no longer guarantees success and defaulting to what’s legal is not acceptable anymore!

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  • 1. WHY BUSINESS ETHICS MATTER TO YOUR BOTTOM LINE David Mallard david@values.com.au © Managing Values www.values.com.au © Managing Values www.values.com.au
  • 2. VUCA A 2012 IBM study of over 1,500 CEOs identified their number one concern in business as ‘Perpetual Whitewater’ characterised by global markets that are: • • • • Volatile Uncertain Complex Ambiguous © Copyright of Managing Values www.values.com.au
  • 3. Interconnected Where everything and everyone is interconnected © Copyright of Managing Values www.values.com.au
  • 4. Interconnected Where social media is the new public square © Copyright of Managing Values www.values.com.au
  • 5. Interconnected Where digitisation has empowered consumers, employees and grassroots activists to take immediate direct action © Copyright of Managing Values www.values.com.au
  • 6. Interconnected Because in an online world everything you do privately and/or within your organisation can find its way into the public domain © Copyright of Managing Values www.values.com.au
  • 7. Strategic Risk Reputation Risk © Copyright of Exploring Strategic Risk - December 2013 Managing Values www.values.com.au
  • 8. Strategic Risk ‘Reputation risk is now the biggest risk concern, due in large measure to the rise of social media, which enables instantaneous global communications that make it harder for companies to control how they are perceived in the marketplace’. Linking ethical behaviour to reputation makes ethics integral to what drives business success e.g. Starbucks & Google tax minimisation fallout © Copyright of Managing Values www.values.com.au
  • 9. Connectivity Increases Vulnerability • The internet means more people now see how you do things, how you impact on others and can tell others how you should be held accountable • Stakeholder internet retaliation - anytime for no cost and without restraint © Copyright of Managing Values www.values.com.au
  • 10. Business Ethics Context Business ethics context • Business ethics is a management accountability in US, UK & Europe • Ethical risks are known & regulators demand more than a paper trail • Australia is out of step - business ethics is often seen as a discretionary endeavour • IBM’s CEO research points to greater organisational transparency & accountability i.e. values rather than rules • Many leaders invest in ethics management systems to protect their people • Embrace increased transparency as the enabler of ethical cultures © Copyright of Managing Values www.values.com.au
  • 11. Business ethics dynamics • Employees consistently report they are working in environments conducive to misconduct • Fall out from GFC led many boards to concentrate on compliance and paper trails at the expense of managing culture • However, compliance inhibits a systemic view of how risk issues emerge • Ethical skill development promotes managerial & personal accountability © Copyright of Managing Values www.values.com.au
  • 12. Do ethical failures matter? • 2013 Leighton Holdings allegations • 2012 UBS fined $29.7m for system failures • 2012 HSBC paid $1.92billion to settle charges of money laundering • 2012 Barclay’s fined £290m manipulating key interest rates • 2010 BAE Systems pays £400m settle bribery charges • 2010 Rio Tinto employees jailed for bribery in China • 2010 Daimler paid $185m fines bribing foreign government officials • 2008 Siemens paid $1.6billion to settle global corruption case © Copyright of Managing Values www.values.com.au
  • 13. Discipline of business ethics • Focus on the institutional & contextual dynamics that shape employee behaviour • Demands that leaders move beyond ‘tone’ setting to aim higher - beyond legal minimums • To design institutional practices that encourage & reward ethical behaviour • To establish robust ladders of escalation © Copyright of Managing Values www.values.com.au
  • 14. Investing in an Ethical Culture  High integrity companies also high performing (CEB)  World’s Most Admired Companies deliver highest shareholder value (Hay)  Strong link between institutional integrity, employee engagement and discretionary effort © Copyright of Managing Values www.values.com.au
  • 15. Investing in an Ethical Culture 2011 Australian research of 78 organisations found companies that focused on culture as well as financial indicators were 3 times more profitable © Copyright of Managing Values www.values.com.au
  • 16. Investing in an Ethical Culture The Hay Groups WoMAC’s were found to have outperformed average shareholder growth, by about a quarter to two-fifths above normal returns Corporate Executive Board research shows that integrity leaders incur only one-eighth the costs of misconduct than competitors, and have 12% lower labour costs because their employees invest more discretionary effort, with shareholder returns 6% higher than the average company © Copyright of Managing Values www.values.com.au
  • 17. Culture - the root cause of business misconduct 1. Culture as much as policy and internal control, establishes the standards for acceptable employee behaviour The ease with which misconduct can be completed Pressure The motive or incentive for employees to commit misconduct 3. Cultures of integrity emphasise strong business performance obtained in a compliant, ethical manner 2. Disengaged employees are better able to rationalise antisocial behaviour targeted against an organisation Opportunity Business Misconduct Rationalisation The ability of an employee to justify an intentional act of business misconduct © Copyright of Managing Values www.values.com.au
  • 18. Culture - the root cause of business misconduct Pressure and rationalisation can be reduced by promoting a strong sense of ethical behaviour amongst employees and creating a positive work environment © Copyright of Managing Values www.values.com.au
  • 19. Top ethical risks - how well are you managing these? • Funding concerns enjoying a higher priority than ethical standards • Unaligned compensation plans • Poor management of unacceptable behaviour • Anti-competitive practices / contract violations • Harassment / Retaliation • Health or safety violations • Insider Trading/stealing • Substance abuse • Environmental violations © Copyright of Managing Values www.values.com.au
  • 20. Build organisational integrity?  Demonstrate ethical leadership e.g. remuneration that rewards sustainable practices & culture builders, not just bottom line results  Active culture measurement as well as compliance  Train employees & reinforce with visible action on poor behaviour  Design systems to promote high level of trust  Leading businesses in Asia are increasingly investing in ethical culture development to mitigate against local practices © Copyright of Managing Values www.values.com.au
  • 21. Successful businesses of the future will: • Build organisational integrity as an enabler of business profitability and success • Embrace ethics and transparency as way of flattening hierarchies & engaging employees • Step up to meet employee desire to be part of a business that seeks to enhance society as well as deliver bottom line results © Copyright of Managing Values www.values.com.au
  • 22. 1212-6 White Paper Detailed research in White Paper written by Managing Values for the Institute of Chartered Accountants Australia. Disclaimer This paper represents the opinion of the author(s) and not necessarily those of the Institute of Chartered Accountants in Australia (the Institute) or its members. The contents are for general information only. They are not intended as professional advice – for that you should consult a Chartered Accountant or other suitably qualified professional. The Institute expressly disclaims all liability for any loss or damage arising from reliance upon any information in these papers.
  • 23. 1212-6 Thank you! David Mallard Why Business Ethics Matters - to your Bottom Line Case studies and blogs available on values website www.values.com.au Disclaimer This paper represents the opinion of the author(s) and not necessarily those of the Institute of Chartered Accountants in Australia (the Institute) or its members. The contents are for general information only. They are not intended as professional advice – for that you should consult a Chartered Accountant or other suitably qualified professional. The Institute expressly disclaims all liability for any loss or damage arising from reliance upon any information in these papers. © Copyright of Managing Values www.values.com.au