As part of SAICA’S month-long focus on ethics in October last year, The Ethics Institute contributed valuable insights during a webinar on how a good ethical culture is the enabling environment for every activity of the enterprise, how it enhances the quality of all resources, and how it is the regenerative source for an organisation’s trust capital.
It starts from the inside out
Professor Deon Rossouw, CEO of The Ethics Institute, depicted the image of two cultures. One is fear-based while the other is based on the convictions held by its members. In a black and white, maze-like image, every route of discovery begins in and leads to a corner. In this culture, ‘somebody is always watching us’ and we must look around the corner to make sure that we don’t get caught. In this rule-based culture, Professor Rossouw explained, creativity is stifled, and employees are less bold in their problem-solving.
The other culture could be thought of as a colourful landscape where the eye is led to a horizon of possibility. This type of culture is one in which ethical values are promoted and its members have developed strong convictions about them, said Professor Rossouw. In this environment, a culture’s members embody the values while ‘nobody is watching’, and those who excel are acknowledged. As ‘the way we do things around here’, culture is the way that relationships and behaviour set the tone for how an organisation carries out its main tasks.
From ‘the smartest guys in the room’ to the most ethical people at the top
Professor Rossouw further explained the importance of effective governance in building an ethical culture. He referred to Steinhoff’s annual corporate governance report for the years 2011−2016 showing that the board ‘had not established a formal process for obtaining assurance on ethical awareness and ethical compliance throughout the group’. Since the term ‘accounting irregularities’ came into the South African consciousness in 2017, the need for organisations of the 21st century to expand their scope of interest beyond the singular focus on financial capital has significantly increased.
The annual Edelman Trust Barometer adds ‘trust capital’ to the growing balance sheet which organisations need to manage. As this value comprises competence and ethics, it is already incorporated into the King IV report and codes of corporate governance, explained Professor Rossouw. The latest iteration of governance standards has also expanded the range of resources to include manufactured, human, intellectual, natural, and social and relationship capital. With its focus on organisational leadership, King IV argues for the application of ethical values in the key activities of decision-making and the ordinary conduct of directors, who must leverage relationships to achieve organisational objectives, said Professor Rossouw. This creates the fertile ground within which an organisation can achieve its governance responsibilities, including its performance objectives. In this kind of environment, the chief executive officer is also the chief ethics officer.
Towards an ethical framework
Building a new structure requires scaffolding. The framework presented by Fatima Rawat, Associate Subject Matter Expert at The Ethics Institute, indicates that a sturdy framework requires people on the ground to play an oversight role. These team members make sure that those who are scaling heights are able to make the necessary adjustments, ensuring that the overall vision is achieved. The ethical framework described by Rawat includes leadership commitment, governance structures, ethics management processes and independent assessment and external reporting mechanisms.
Noting that a 2020 survey of ethics practitioners indicated that for 68% of respondents the ethics function does not form part of their key performance indicators, Rawat drew attention to the need for oversight to guide the actions of organisational leaders. For those who are positioned at the dizzying heights of the organisation, the details of day-to-day actions within organisations are not readily visible and this creates the need for attentive ethics management structures. The key component for this is the institutionalisation of ethics, an ongoing process which is significantly dependant on the organisation’s philosophy on ethics. In the maze of rules, members of an organisation’s culture are navigating consequences – preventing, detecting and correcting them. This is a necessary component of an ethical culture, but a vision, a focus on the horizon, enables members of a culture to navigate ethics more broadly. Viewing it as an important factor for the entire journey of its members, from recruitment to embodying the values in leadership roles, makes the ethical journey a supportive and proactive one for an organisation.
The street view
Standing at the ground-floor entrance of an organisation’s headquarters, the person on the street cannot see its leadership who occupy the top floor of the office space. This is how Dr Paul Vorster, Senior Research Specialist at The Ethics Institute, described the ethical leadership which comes to represent an organisation. Noting that ‘what we don’t say’ is often more significant for how an organisation’s ethical culture is perceived by others, Vorster drew attention to the identity of organisations and how this affects all levels of its culture. He described a domino effect for sustaining an ethical culture where non-management level employees are more significantly impacted by middle management’s commitment to ethics than by that of the people responsible for the tone at the top. This brings into focus the direct relationships that are significant for the embodiment of ethical values throughout the organisation. Noting that ‘middle management is where the penny drops’, Vorster explained that proximity to the highest levels of an organisation’s hierarchy creates the incentive for those situated in the middle to engage in the actions which they deem necessary to advance.
The way we do things every day determines whether we can achieve our vision
A focus on the importance of ethics for each level of an organisation’s structure indicates that it is not the ‘soft’ competency which it is often portrayed to be, concluded Vorster. It is key to the achievement of organisational objectives and an effective strategy. As organisations consider where they are and where they want to be, they also consider the opportunities available to them and the risks that can keep them from arriving at their destination. Ethics is the tool that they must use to calibrate their strategic compass if they mean to steer their vehicles with all of their crew pulling in the same direction.
SAICA dedicated the month of October 2020 to Ethics to align with Global Ethics Day which took place on 21 October. SAICA held a series of complimentary webinars, all addressing different aspects of Ethics in the accountancy profession. The webinars have been recorded and can be viewed on SAICA’s Ethics website: https://saicaethics.co.za/book-now/