The Role of Finance in Business Ethics
Companies are increasingly trying to demonstrate that they do business responsibly. More and more are adopting codes of ethics (or similar documents), and a growing number report publicly on their corporate responsibility.
The UK’s Institute of Business Ethics (IBE) conducted a survey in 2008, which showed that 71% of companies with an ethics policy provided training on its application. Other IBE research indicated that those who seek to embed their codes in this way financially outperform those that do not.
A loss of trust between a business and any of its stakeholders (such as employees, customers, investors, suppliers or civil society) impacts negatively on business performance. Conversely, in a time of reduced economic activity, a reputation for integrity may help maintain the loyalty of staff and customers.
Although the importance of an ethical culture and a responsible reputation is being recognised, we still hear in the media of organisations being criticized because of ethical failings.
Whether it is accusations of high-risk trading strategies by banks, extractive companies accused of environmental degradation or allegations of slave labour in the factories supplying Western supermarkets with clothes and toys, almost every sector has been touched by an ethics scandal.
The purpose of the CIMA-IBE research, "Managing Responsible Business," was to identify how businesses are responding to ethical challenges and what this means for the finance function. It looks at the contribution accountants currently make to their organisation’s management of ethical performance, and asks whether this role is likely to develop. It also explores what the most important ethical issues are for companies today and how these will change over the next few years.
We examine whether companies are using the skills finance professionals have in collecting and analysing management information to help manage ethical performance and meet ethical commitments. If their skills are not being used in this way, do finance professionals have a different part to play?
The results of this survey have wide implications. Companies will need to consider whether they are adequately managing their ethical performance, and whether they are able to assure their boards of this. They will also need to decide whether the finance function is contributing sufficiently to ethical management processes.
There are implications for those responsible for educating management accountants, too. They will need to consider whether they are adequately equipping them to contribute to the ethical culture and performance of a company. CIMA is already leading the way in educating finance professionals in business ethics: it is a fundamental element of the CIMA syllabus and an important part of continuing professional development.
The challenge for business
Many organisations are addressing their ethical responsibility by adopting a code of ethics. 72% have a code of ethics or similar statement of business values, showing that they recognise the importance of responsible business practice. The number putting codes in place has been steadily increasing: research into UK companies in 2005 found that 65% of workplaces had one. It is a shrinking minority that have yet to see the importance of guidance for their staff on ethical matters.
Despite the increasing number of codes and policies, many organisations remain exposed to ethical risk because they are not backing up their written statements with action. Only 46% of those in this survey provide ethics training, and fewer than one in five offer incentives to staff for upholding ethical standards.
While many organisations have recognised the need for a code, far fewer are doing anything to embed it (see Exhibit 1). A gap exists between what businesses are saying and what they are actually doing to bring their ethical values to life.
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Exhibit 1: Ethics advice/services provided
The IBE suggests that, in addition to training, codes need to be backed up by other initiatives to support an ethical culture, such as exemplary leadership, awareness raising, speak-up mechanisms, incentives and ethical assurance programmes.
Respondents are noticing their organisations’ failure to reinforce ethical values. Almost four out of ten (38%) agree or strongly agree that ethical standards are not fully monitored or evaluated in their workplace. Companies that adopt business principles without embedding them risk damaging their credibility in the eyes of employees.
So what are the key areas that companies should be taking action on? ‘Security of information’ and ‘safety and security’ are considered to be the most important, and will remain so in the future.
On a scale where 1 is ‘not at all important’ and 5 is ‘very important’, these issues received mean scores of 4.52 and 4.48 respectively. Around half of respondents (51% and 49%) think these are more important now than they were a few years ago and many (51% and 41%) expect them to become even more important in the next few years.
This trend is possibly a reflection of the heightened perception of the threat of terrorism which has been a feature of recent times. This receives a high profile in the media, pushing issues of personal safety to the fore. Advances in technology and fears for global security also mean that more information is stored, and that it is of a more sensitive nature, than ever before.
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Exhibit 2: Importance of ethical issues to UK finance professionals
Security of information is more important to UK finance professionals than it is to the companies in the FTSE350 (see Exhibit 2). While these companies also believe that ‘safety and security’ is the most important issue, they do not rate ‘security of information’ as highly as other issues including environmental impact, bribery, whistleblowing and discrimination. So why is security of information so important for finance professionals?
This is perhaps due to their role as guardians of commercially sensitive information. Finance professionals often have greater access to confidential data than others. They are responsible for information and for ensuring its integrity, and so they understand the importance of maintaining its security.
Almost half (43%) say work/home balance will become more significant in the next two to three years. These issues are considered the least important now, with a mean score of 3.56 (where 1 is not at all important and 5 is very important).
Only a third (31%) think that work/home balance issues have become more important in the last few years. However, work/home balance is in the top three issues predicted to grow in importance, after environmental impact (68%) and security of information (51%).
There is overwhelming evidence that environmental impact is fast becoming a key concern for business. Although it is not as important as other issues now, the highest number of respondents – over half (57%) – feel it has become more important in recent years. Even more (68%) see it continuing to grow in the future.
Companies need to understand that environmental performance is becoming a key issue, and would be well advised to prepare themselves to manage it appropriately.
About the Author
CIMA, the Chartered Institute of Management Accountants, founded in 1919, is the world’s leading and largest professional body for management accountants, with 183,000 members and students operating in 168 countries, working at the heart of business.
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