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Financial Times: No excuse for absence from lessons in right and wrong

By Alison Maitland
Published: March 7 2008 02:00 | Last updated: March 7 2008 02:00

Cases such as BP’s safety lapses in the US, the collusion between British Airways and Virgin Atlantic Airways over fuel surcharges and the corruption scandal at Siemens are not only damaging by themselves but feed cynicism about the wider effectiveness of companies’ ethical codes and controls.

In an effort to ensure codes are followed, companies are stepping up training programmes, according to a survey* published yesterday by the Institute of Business Ethics. Seven out of 10 large companies in the UK now train employees in how to apply their codes of conduct. Four years ago, less than half had such training programmes. In the US, the Ethics Resource Center reports a similar increase in training.

This is a positive trend as far as it goes, says the institute, a charity which is supported by corporate and individual membership. A rise in ethics training should be good for the bottom line: companies with both policies and training programmes perform better financially than those with policies but no training, a research study by the institute found last year. Yet big gaps in training remain.

“Things are improving, but there’s a long way to go,” says Simon Webley, the institute’s research director. Many boards are taking a direct interest in ethical issues, but training programmes in most companies do not extend to senior managers and the board. Only 35 per cent of survey respondents report having executive-level training.

“Most codes are couched in terms of ‘This is what we want you, the employees, to do’,” he says. “There isn’t enough training at board and senior level. It is not a topic that receives much attention at senior management conferences. Unless the chairman of the board and CEO give a strong lead, the topic is delegated to a function or manager. Ethical acumen is crucially important for boards to consider the ethical dimension of policy and strategy.”

This apparently selective approach is also found in “ethical sourcing” codes, another growing trend for large companies. Such codes place a wide range of ethical and environmental demands on suppliers but contain “relatively vague commitments” to principles such as fairness towards suppliers, says Lutz Preuss of the School of Management at Royal Holloway, University of London, who examined the codes for the institute.

Earlier this week, a league table revealed that some of the UK’s biggest companies took up to 99 days to pay their suppliers. In its report, the institute notes that only a small minority of ethical sourcing codes express support for small businesses or recognise the need to pay suppliers promptly.

“Not a single document discusses pricing issues, although . . . suppliers see themselves subject to two, often conflicting demands, namely price reductions and greater flexibility on the one hand, and ethical requirements on the other,” Mr Preuss says.

“It is noticeable that large corporations are more willing to impose ethical standards on their supply base than they are to acknowledge the consequences of an uneven power distribution in the supply chain.”

A third gap highlighted by the report lies in the nature of ethics training. On the plus side, companies understand the need to monitor the effectiveness of their ethics programmes. Four out of five now say they do this, compared with just over half three years ago. Common ways of monitoring are reports to the board about cases of misconduct; help lines and other reporting mechanisms; and ethics questions in staff surveys.

On the minus side, fewer than one in three companies offer training in resolving ethical dilemmas. Experience indicates that this, together with case studies and videos or “games”, is the best way to involve staff and ensure they understand the relevance of values and ethical standards, Mr Webley says. “Developing a policy and its accompanying code is a comparatively easy exercise compared with communicating them in a way that makes a lasting difference to the way an organisation and its staff do business.”

Some companies have adopted eye-catching – even gimmicky – methods to keep employees’ attention. Royal Dutch Shell’s business in the US handed out magnetic mirrors to employees with the inscription: “You are looking at the person responsible for Ethics and Compliance at Shell.” PwC, the professional services firm, uses Post-It notes, each with a different ethical reminder, Mr Webley says. One example reads: “Ethics is: putting yourself in someone else’s shoes”, while another says: “Ethics is: navigating the grey”.

Posco, the South Korean steelmaker, came up with an unusual way to drive home awareness of its code, he adds. When employees turn on their computers on certain dates, an animated figure pops up with an ethical dilemma for them to solve, based on training they have done. Until they find the right answer – somewhat tricky when ethics contains so many grey areas – their computers will not start up.

Frustrating it may be, but it makes employees focus on the issue. “People argue in the office until they get it,” Mr Webley says, adding that the company has seen “a real difference in people’s understanding of ethical behaviour”.

* Use of Codes of Ethics in Business: 2007 survey and analysis of trends

Copyright The Financial Times Limited 2008

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