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  • 1. Developing a statementof business ethics A guide to building ethical business relationships between NSW public sector organisations and the private sector
  • 2. 2 Developing a statement of business ethics This publication is available in other formats for the vision impaired upon request. Please advise of format needed, for example large print or as an ASCII file. ISBN 1 920726 61 6 © May 2004 – Copyright in this work is held by the Independent Commission Against Corruption. Part III, Division 3 of the Commonwealth Copyright Act 1968 recognises that limited further use of this material can occur for the purposes of ‘fair dealing’, for example; study, research or criticism etc. However, if you wish to make use of this material other than as permitted by the Copyright Act 1968, please write to the Commission at GPO Box 500, Sydney NSW 2001. This publication and further information about the Independent Commission Against Corruption can be found on the Commission’s website at www.icac.nsw.gov.au
  • 3. A PRACTICAL GUIDE 3ContentsCommissioner’s foreword 4What this guide is about 6Who this guide is for 7Benefits of using this guide 7Why are statements of business ethics important? 8What are the core elements of a statement of business ethics? 9How do whole-of-government codes relate to organisationcodes of conduct and statements of business ethics? 10When should statements of business ethics be used? 12How to develop your own statement of business ethics 13Sample statements of business ethics 18Further resources 19
  • 4. 4 Developing a statement of business ethics Commissioner’s foreword Strong working relationships with the private sector are important in maintaining the efficiency and cost-effectiveness of the public sector. All levels of the public sector in NSW, from state agencies to local councils and universities, draw on private sector skills and resources to support the services they provide. In addition, many services previously provided by public organisations are now outsourced to the private sector. While these relationships provide clear benefits for both sectors, the ICAC’s research and experience indicates that there are important differences between the two sectors in terms of their responsibilities, principles and goals. These differences have the potential to undermine public sector/private sector business relationships unless they are explicitly recognised and factored into the terms of the relationship. Simply put, a failure to recognise and manage such differences can mean that a private sector supplier of goods or services may be working at cross purposes to the public sector organisation it is supplying, and vice versa. A number of ICAC investigations have revealed that a lack of understanding by private sector contractors of core public sector values such as integrity, accountability and objectivity can be extremely damaging, not only for the project outcomes but for the reputation of the organisation concerned. Conversely, the better the understanding of public sector values and practices the contractor has, the better the outcomes tend to be. The ICAC’s corruption resistance resource materials have consistently advocated the importance of ethical partnerships between NSW public sector organisations and the private sector. This latest publication is designed to help public sector organisations ensure that their business relationships with the private sector are fair and productive for all concerned. We believe that a statement of business ethics provides an excellent vehicle for communicating core public sector values and practices, particularly at the beginning of a business relationship when establishing mutual expectations is critical.
  • 5. A PRACTICAL GUIDE 5The release of this guide is timely. Community expectations of public sector governancehave risen and organisations increasingly draw on private sector knowledge, skills andservices in long-term contractual relationships. In this context, government agencies needto ensure their ethical values are reinforced at every opportunity.Internationally, the new United Nations Convention Against Corruption(which Australia signed in December 2003) specifically recommends the developmentof codes of conduct to regulate private sector business dealings and contractual relationswith the public sector.To be effective, any statement of business ethicsmust be tailored to specific organisation needs.Consequently, this guide is not prescriptive, “ … any statement of businessnor does it have any legislative status. Rather, ethics must be tailored to specificit provides general information about such organisation needs.”statements as well as a guide to help organisationsdevelop their own specific statements.A statement of business ethics will only beof benefit for organisations that already have policies and procedures in place to ensureall staff have a strong sense of ethics and core values. Consequently, this guide supportsprevious ICAC publications that encourage organisational ethics, including: Codes ofconduct: the next stage (2002) and The first four steps: building organisational integrity (2001).This guide could not have been developed without the comments and advice providedby local councils throughout New South Wales, the State Rail Authority, the Roads andTraffic Authority, the Department of Commerce and a number of other interested parties.The ICAC wishes to acknowledge these contributions and thank those organisations andindividuals involved, in particular staff from the Department of Commerce.I hope you find this publication of benefit to your organisation.Irene Moss AOCommissioner
  • 6. 6 Developing a statement of business ethics What this guide is about The purpose of this guide is to help NSW public sector organisations establish and maintain ethical business relationships with the private sector. Business ethics and their role in building partnerships between the public and private sectors is a complex subject and no two organisations have identical circumstances and needs. However, there are some fundamental principles all organisations should address when developing policy and practice in this area. This guide is intended to assist in this process. A statement of business ethics can be an important tool for raising awareness about doing business with the public sector and the respective responsibilities of public officials and private sector suppliers, contractors, consultants, tenderers and partners. Of course, building ethical business relationships requires much more than a statement of business ethics. Sound, strong and transparent policies and procedures, the right leadership, training, vigilance and continuing commitment are all necessary. Nevertheless, a statement of business ethics will often be the first contact in any business relationship between the private and public sectors. As the statement can set the tone of the entire relationship, it is important to get it right. This guide answers the following questions: Why are statements of business ethics important? What are the core elements of a statement of business ethics? How do whole-of-government codes relate to organisation codes of conduct and statements of business ethics? When should statements of business ethics be used? How does an organisation develop its own statement of business ethics? This guide is not exhaustive. It is designed to assist you to begin the process of developing a statement of business ethics. Further information can be found in publications produced by the ICAC, the Department of Commerce and the NSW Audit Office as well as relevant legislation. There is a list of relevant resources on page 19.“ … there are some fundamental principles allorganisations should address when developingpolicy and practice ...”
  • 7. A PRACTICAL GUIDE 7Who this guide is forThis guide is designed for the following people: Chief Executive Officers, General Managers of local councils, University Vice- Chancellors and heads of other public sector organisations Procurement Officers Business Managers Staff involved in tendering and procurement.Benefits of using this guideThe ICAC encourages organisations to use this guide to develop their own statements ofbusiness ethics because this will assist in: Building and maintaining ethical relationships with the private sector Encouraging transparency and accountability in all dealings with the private sector (including tendering, contracting, supply of goods and services and business partnerships) Ensuring private sector partners understand your organisation’s public duty obligations Managing the potential risks and misunderstandings that can occur in business transactions between the public and private sectors Maintaining corruption-resistant, ethical work practices.
  • 8. 8 Developing a statement of business ethics Why are statements of business ethics important? Strong working relationships with the private sector play an important part in today’s public sector environment. The public sector increasingly draws on private sector knowledge, skills, products and services. In addition, many services previously provided by public organisations are now outsourced to the private sector. Public sector/private sector business relationships have many benefits for both sectors. However, important differences between the responsibilities, principles and goals of each sector have the potential to undermine the relationship. ICAC research1 indicates that private sector contractors who understand the public sector’s core values are more likely to: Have a positive attitude to working with the public sector Support public sector contracting and ethical policies See the ethos of public duty as relevant to them. The ICAC has also found that private sector contractors who do not understand core public sector values are more likely to: Perceive the public sector as ‘rule-bound’ and ‘inefficient’ Believe ‘red tape’ gets in the way of doing business Ignore or attempt to subvert public sector policies See the ethos of public duty as irrelevant. The ICAC’s findings make it clear that there are many benefits to ensuring private sector contractors or partners understand core public sector values. These potential benefits include: More positive relationships with the private sector Increased private sector support for organisations’ contracting policies Improved private sector perceptions of public sector efficiency and flexibility Reduced likelihood of corrupt conduct. A statement of business ethics can be an excellent tool for raising private sector awareness of public sector values and reaping these benefits – particularly at the beginning of a relationship with a private sector contractor or partner when establishing mutual expectations for the future relationship is critical. Adopting clearly defined principles of conduct will also enhance your organisation’s reputation for integrity and professionalism. You should be aware that having a statement of business ethics is not a substitute for strong internal policies and leadership. Rather, the statement is a reflection of your organisation’s values and systems of accountability – a blueprint showing how good ethical practice can be achieved in daily business activities. 1. ICAC, Private Contractors’ perceptions of working for the NSW Public Sector (ICAC: Sydney, 1999), p.3.
  • 9. A PRACTICAL GUIDE 9A statement of business ethics will only be of benefit to your organisation if you alreadyhave policies and procedures in place to ensure all staff have a strong sense of ethics andcore values. Making the decision to produce a statement presents a valuable opportunityto review your organisation’s codes of conduct, procurement policies and other relevantprocedures. Several resources useful for such a review are available from the Department ofCommerce and are listed on page 19 of this guide.What are the core elements of astatement of business ethics?There is no set format for a statement of business ethics. The statement should instead betailored to the specific requirements of your organisation. Whatever the requirements, goodstatements tend to be simple, short (no more than four to six pages), and in plain English.A good statement will usually contain a written statement from the organisation’s headoutlining the organisation’s commitment to the statement of business ethics, and providinginformation on: Key public sector values or business principles the organisation adheres to and that are relevant to the organisation’s work (e.g. impartiality, fairness etc.) The organisation’s expectations of its staff and private sector contractors Who to contact about the statement and how to report unethical behaviour.Additionally, a good statement should also deal with the organisation’s position on thefollowing issues: Gifts and hospitality (including entertainment and meals) Travel and accommodation Conflicts of interest Sponsorship (if relevant) Confidentiality Ethical communication between private sector service providers and your organisation’s staff (where relevant) Secondary employment and post-separation employment Your organisation’s expectations of all contractors and sub-contractors.Further information on dealing with each of these issues can be found on pages 14 to 17.A number of NSW public sector agencies and local councils have already producedstatements of business ethics. Links to examples can be found on page 18.
  • 10. 10 Developing a statement of business ethics How do whole-of-government codes relate to organisation codes of conduct and statements of business ethics? Most organisations will refer to a number of different guides and codes of conduct in their day-to-day work and in general dealings with the private sector. A statement of business ethics presents in one document all the important elements of these guides and codes as they relate to the organisation’s business relationships with the private sector. For example, the NSW Government has a Code of Practice for Procurement and a Code of Tendering for Procurement, with companion Implementation Guidelines for NSW Government Procurement. The Department of Local Government also provides guidance on these issues for local government authorities (see the resources section on page 19). These codes set out the broad expectations for public organisation relationships with the private sector and the expectations of behaviour for all parties in the procurement process. Most organisations also have their own code of conduct. Codes of conduct help to define how public officials should behave in their day-to-day work. However, organisations’ codes of conduct are internal documents. While they are generally publicly available, they are not principally designed to communicate public sector values to the private sector. A statement of business ethics is a document that sets out ground rules for doing business with the NSW public sector, based on relevant policies and codes. The statement shows the private sector what to expect when doing business with your organisation. While its focus is external, it also helps to reinforce to your staff their obligations under your code of conduct and the Government’s broader codes of practice for state agencies and local councils.
  • 11. A PRACTICAL GUIDE 11The following diagram illustrates the relationship between these three documents: Code/Statement Primary audience Provides information on Developed by Government All public sector organisations Broad Government expectations of Government codes of practice and private sector behaviour in public sector/private sector relationships and Organisation’s Organisation’s staff Organisation’s expectations of Organisation code of conduct staff conduct and The type of business relationships your organisation has with the private sector inform Statement of Private sector service providers Organisation’s expectations of staff Organisation business ethics and private sector service providers, and conduct of overall business relationship“A statement of business ethics is a documentthat sets out ground rules for doing businesswith the NSW public sector ...”
  • 12. 12 Developing a statement of business ethics When should statements of business ethics be used? A statement of business ethics can be used in any situation where your organisation deals with private sector suppliers of goods or services. The use of such a statement is a simple means to establish ground rules for ensuring mutual understanding of public duty obligations when beginning work with: Suppliers Contractors Consultants Tenderers Business partners (e.g. in joint ventures or alliance arrangements). A statement of business ethics is also useful in the context of community consultations. Situations where there is significant investment of public resources in joint ventures and business relationships with the private sector will often be open to public scrutiny. In such cases, a statement of business ethics informs the public of the position taken by your organisation to ensure public resources are managed in an ethical, accountable and transparent manner. In a tendering or selection process you should consider incorporating a mandatory requirement that tenderers or applicants acknowledge that they have read and accept the statement of business ethics. Your statement should therefore be included in tender and bid documents, and may also be given out with rezoning applications, made available at all your agency’s points of contact with the general public and provided on your website. The ICAC has recommended on a number of occasions that organisations include references to their statement of business ethics in contracts with the private sector. However, such references need to be supported by sound and clear contractual conditions. Your organisation should obtain legal advice as to the pros and cons of using a statement of business ethics as part of a contractual arrangement. Contexts in which references to a statement of business ethics may be appropriate in a contract include: If your organisation deals with a private sector company in a business partnership, alliance or joint venture arrangement, the relevant heads of agreement or deed could include a commitment to abide by the statement of business ethics For large projects, organisations could include a requirement that the principal contractors should take responsibility for ensuring all employees and sub-contractors understand the requirements of the statement of business ethics.
  • 13. A PRACTICAL GUIDE 13How to develop your own statementof business ethicsThis section expands on the information provided above and focuses on the issues you needto consider in detail when developing a statement of business ethics.Whether you include all elements suggested below will depend on the context in whichyour organisation works. You might consider adding, removing or substantially modifyingsome of the suggested elements so that they are relevant to your organisation’s operation.This section provides ideas and suggestions to assist you in developing a document thatreflects your organisation’s own values and business rules.Before beginning the process of developing a statement of business ethics, you shouldconsider the following documents: Relevant NSW Government or Department of Local Government codes (e.g. the Code of Practice for Procurement and the Code of Tendering for Procurement available from the Department of Commerce or the Competitive Tendering Guidelines from the Department of Local Government 2) Your organisation’s code of conduct Any of your organisation’s relevant internal policies on tendering, procurement, partnerships with the private sector etc. Specific legislation that may relate to your organisation’s work (e.g. the Local Government Act).These documents provide you with information on the core issues you will be including inthe statement you develop. A list of other documents that may be useful to review can befound at the end of this guide.The following elements are provided in the order ICAC believes is likely to be most useful.However, you may decide that the format of your document requires a different order.2. Currently under review (March 2004)
  • 14. 14 Developing a statement of business ethics 1. A statement from This section should: the head of your Introduce the statement and explain that it sets out your organisation’s organisation detailing expectations of its staff and the requirements for private sector parties when doing the organisation’s business with the organisation. commitment to the statement of business Explain how all private sector parties doing business with your organisation need to ethics. be aware of the ethical standards expected of your organisation’s staff Explain that the statement provides guidelines on what private contractors should expect from the organisation and the mutual obligations, roles and constraints that apply to all parties involved in the business partnership Explain why ethical partnerships are good for business Ask that the responsibilities of your organisation’s staff be respected Explain what the consequences of not complying with the requirements of the statement can be for public officials and private sector personnel. 2. Business principles This section should: State your organisation’s commitment to ethical business practices based on public duty principles Articulate your organisation’s identified business principles. The relevant principles should be identified by your organisation. For example, you might include statements about value for money, transparency, impartiality and fairness. Other relevant business principles can be added if required. Your organisation should also ensure the statement explains these requirements in practical terms (rather than just stating the principles). For example: Fairness means being objective, reasonable and even-handed. It does not mean pleasing everyone. If some people are adversely affected by a particular decision, that may be unfortunate but is not necessarily unfair. We strive to be fair by ensuring that our processes are appropriate and demonstrate this by being open and accountable, wherever practicable. This does not mean that we will always go to open public tender or that we will call for bids for items of low monetary value. We only deal exclusively with parties in exceptional circumstances and where we can demonstrate there are valid reasons for doing so, based on sound probity principles. 3. What to expect from This section should tell readers or potential partners what they can expect from your organisation staff organisation’s staff. The detail for this section could be drawn from the Government’s Code of Practice, the Department of Local Government’s Competitive Tendering Guidelines or your organisation’s code of conduct. This section is likely to include statements such as: We expect our staff to abide by the law and all relevant policies and procedures. Our staff are accountable for their actions and are expected to act in the public interest. Our staff should always act with due care and diligence. Other detail can be added as required.
  • 15. A PRACTICAL GUIDE 154. What your organisation This section should outline your organisation’s expectations of its private sector asks of its private sector partners. These expectations should be consistent with relevant legislation and other partners government codes of practice and might include: Respect for the obligation of public officials to act in accordance with the statement. Commitment not to exert pressure on your staff to act in ways that contravene the business ethics or code of conduct of your organisation. Commitment to not offer your staff inducements or incentives such as money, gifts, benefits, entertainment or employment opportunities. Other expectations relevant to the context in which your organisation operates can be added as required.5. Why should the private This section should outline the reasons why it is important for private sector sector comply with the contractors or partners to comply with the statement. You should outline the positive statement? consequences of compliance, such as the opportunity to bid for public sector work on a level playing field and enhanced capacity to undertake public sector work with similar compliance requirements in future. You should also state the consequences of not complying with the principles of business ethics as outlined in the statement. (These principles are likely to inform the conditions of any formal contract entered into by your organisation; see page 12.) These consequences can be significant both for public officials and people doing business with the organisation and this needs to be made clear. Consequences for public officials include investigation, disciplinary action, dismissal or potential criminal charges. Consequences for private sector contractors/partners include investigation for corruption or other offences, which could result in possible loss of work, damage to reputation, termination of contracts and loss of rights (such as loss of operating or trade licences or loss of development approval). The ICAC Act defines those engaged as consultants or contractors by a public authority as ‘public officials’. Your statement could remind contractors and consultants that when they are contracted by your organisation they are subject to the ICAC’s jurisdiction and are considered to be public officials for the purposes of the ICAC Act. In addition, any individual can be found corrupt by the ICAC (even if they are not a public official) if they try to improperly influence a public official or public authority’s honest or impartial exercise of their official functions.
  • 16. 16 Developing a statement of business ethics 6. Incentives: gifts, This section should explain your organisation’s business rules for accepting gifts benefits, hospitality, and benefits. meals, travel and Providing gifts, benefits and incentives is common practice in the private sector. Your accommodation statement should recognise that many people offer incentives to those they want to do business with as a way of promoting their company or their particular interests. However, public sector employees are usually constrained by strict gifts and benefits policies as well as legislation. A statement of business ethics should reinforce the principle of merit that applies to the awarding of contracts and partnerships with the private sector. There is no need or place for gifts or incentives when doing business with the public sector. If your organisation has set limits on the value of gifts and benefits that an employee can receive, this should be included in the statement. There should also be a clear definition of what is meant by ‘nominal’ or ‘token’ gifts if these are allowed under your policy. A clear statement should be made that gifts must not be given in connection with any prospective business dealings and that public officials are not permitted to ask for any reward or incentive for doing their job. 7. Conflicts of interest In this section you should explain your policies on managing conflicts of interest. We suggest you include a definition of conflicts of interest relevant to your organisation’s main areas of operation. This section should also outline when these conflicts might occur, who is responsible for managing them and to whom complaints can be made about a conflict of interest situation. 8. Sponsorship and If this section is relevant to your organisation, you could include a statement that related practices explains your sponsorship policy. (if relevant) The statement could also explain that your organisation will not ask for, entertain or enter into any sponsorship or similar arrangement that is not open and transparent or if such sponsorship creates a perception that it could be part of an attempt to improperly influence any organisational decision-making process. 9. Confidentiality and It is important to include information on confidentiality and intellectual property intellectual property rights (where relevant) in your statement. Issues to consider including are: rights When and what information will be considered to be confidential. What confidentiality obligations apply to the organisation’s public officials and private sector contractors or partners. Advice on the Freedom of Information Act 1989 as a means of accessing information. A statement that intellectual property rights will not be assumed and must be negotiated before being recognised. Details of any limitations on acquiring intellectual property rights as a result of doing work with the organisation.
  • 17. A PRACTICAL GUIDE 1710. Ethical communication In most situations, where communication between public and private sector parties deals with ordinary matters that are not highly sensitive or controversial, specific communication protocols are not usually necessary. Your organisation should, however, state that as a general principle communication should be clear, direct and accountable. You should emphasise that all private sector suppliers have an obligation to ensure that their communication with your organisation and its staff abides by these three general principles in order to minimise the risk of inappropriate influences being brought to bear on the business relationship. Some communication might need to be confidential for commercial-in-confidence or other reasons. Similarly, interaction with a private sector supplier might require specific limitations. In either case, these controls should not preclude proper accountability and your organisation should be able to explain the reasons for instituting specific communication protocols or keeping some communication confidential. It is important to remember that the public perception of inappropriate influence can be extremely damaging to the reputation of both parties, even if nothing inappropriate has occurred. Your own organisation’s policies and experience should inform the information provided in this section.11. Secondary employment This section should provide advice about your organisation’s policies on secondary and post-separation employment or post-separation employment, including any possible constraints. employment) This advice might include: Information on post-separation employment conditions your organisation may impose on your staff (i.e. the circumstances where private parties doing business with your organisation can make offers of employment to your organisation’s staff). A statement to the effect that your staff will need approval from their supervisors to enter into any secondary employment arrangements and that secondary employment will not be approved if it has the potential to create a real or perceived conflict of interest between the staff member’s public official role and their private interests.12. Expectations of This section should outline your organisation’s expectations of contractors and contractors and sub-contractors. In particular, you should emphasise that your organisation will expect sub-contractors all contractors to make any sub-contractors they employ aware of your statement of business ethics and the consequences of breaching it.13. Who to contact about You should include in your statement advice on where to obtain further assistance on the statement any issue related to the statement. One example of this advice is as follows: If you are concerned about a possible breach of this statement, or about any conduct that could involve fraud, corrupt conduct, maladministration, or serious and substantial waste of public funds, please contact [insert details for the relevant contact person in your organisation].
  • 18. 18 Developing a statement of business ethics Sample statements of business ethics The ICAC statement of business ethics provides guidance on ethical standards expected of private sector suppliers of goods and services to the ICAC and what can be expected from the ICAC when doing business with us. Contact the ICAC for a copy on 1800 463 909, write to us at GPO Box 500, Sydney, NSW, 2001, or look on our website at: www.icac.nsw.gov.au/files/pdf/StateBusEthics.pdf The Roads and Traffic Authority (RTA) statement of business ethics sets out the standard of ethical conduct expected of those tendering for RTA contracts and of RTA employees assessing tenders. Contact the RTA for a copy on 1800 043 642. The State Rail Authority (SRA) statement of business ethics sets out the SRA’s ethical requirements for private sector service providers and partners. Contact the SRA for a copy on 1800 047 731. The Department of Defence brochure Defence and industry: an ethical relationship, produced as part of the DEFAC campaign (Defence Ethics and Fraud Awareness Campaign), is available at: www.defence.gov.au/dmo/id/publications/def_ind.pdf
  • 19. 19 Developing a statement of business ethics Further resources Further resources that may help you develop a statement of business ethics for your organisation are listed below, with internet links where available. From the Independent Commission Against Corruption Independent Commission Against Corruption 1999, Private contractors’ perceptions of working for the NSW Public Sector: an ICAC survey of consultants and contractors –– 1999b, Private contractors’ perceptions of working for the NSW Public Sector Summary Report: an ICAC survey of consultants and contractors –– 2000, What is an ethical culture? Key issues to consider in building an ethical organisation – summary report –– 2001, Taking the con out of contracting: issues for local government procurement and contract administration – Discussion Paper These publications are available from the ICAC website at: www.icac.nsw.gov.au/pub/index_pub.cfm From the Department of Commerce Department of Commerce 1999, Policy statement for NSW Government procurement: A whole-of-government framework –– 1999, Code of Practice for NSW Government Procurement –– 1999, Code of Tendering for NSW Government Procurement –– 1999, Implementation Guidelines NSW Government Procurement These publications are available from the Department of Commerce website at: www.dpws.nsw.gov.au/Government+Guidelines/Goods+and+Services+Procurement/ Goods+and+Services+Procurement+Publications.htm From the Department of Local Government Department of Local Government 1997, Competitive Tendering Guidelines [NB: these guidelines are still available at time of printing but are under review by the DLG] –– (forthcoming) Procurement User’s Guide The first of these publications is available from the Department of Local Government website at: www.dlg.nsw.gov.au/Files/Information/compten.pdf