Magazine article Stanford Social Innovation Review

Untangling the Confusion over Organizational Ethics

Magazine article Stanford Social Innovation Review

Untangling the Confusion over Organizational Ethics

Article excerpt

A wave of ethics transgressions underlines the importance of comprehensive ethics oversight for organizational success, by susan liautaud

Last year, 2012, was in many regards a step forward for proponents of ethical action. Roger Gifford, the Lord Mayor of the City of London, one of the world's financial capitals, declared business ethics a priority and critical to the City's economic success. François Hollande published a Code of Ethics within 11 days of becoming president of France. And the new Chinese premier, Xi Jinping, highlighted the ongoing danger of corruption to economic and social development as a central part of his election discourse.

Despite this focus on ethics among world leaders, overall, failed ethics was the leitmotif of 2012. The media, particularly in the United Kingdom, were rocked by ethical failings. At the BBC there were allegations that now deceased on-air personality Jimmy Savile had sexually abused hundreds of childrea And at Rupert Murdoch's News Corp. there were charges that his now-defunct tabloid News of the World regularly hacked the phones of prominent people it was covering.

The business world saw numerous examples of ethical transgressions. Raj Rajaratnam, founder of Galleon Group, and Rajat K. Gupta, a former director of Procter & Gamble and former head of McKinsey & Co., were convicted of insider trading. And Barclays Bank, UBS, and Royal Bank of Scotland paid fines for their role in conspiring to manipulate LIBOR interest rates. Nonprofits haven't fared much better. The United States Navy Veterans Association is charged with scamming close to $100 million from thousands of US donors. Pennsylvania State University was engulfed in a widespread coverup of a now convicted pedophile.

What is clear from these examples is that ethics oversight is essential to success for all organizations, whether corporate, nonprofit, governmental, multi-lateral, or academic. Classic notions of governance, or the governance-accountability-transparency trio, are insufficient. Calls from world leaders are important but just the start. Regulation and self-regulatory efforts are essential, but they require ethics analysis in tandem. And last, although corporate social responsibility (CSR) has evolved into an important strategic tool, it too must operate within broader ethics oversight.

What does successful ethics have to do with governance, legal compliance, and CSR? The following framework suggests an approach to untangling the persistent confusion about this question.

First, let's take a step back and consider a real-world definition Of ethics. My working definition of ethics in my ethics consulting practice is "an ongoing determination of moral principles guiding conduct, taking into account all relevant information, values, and current and future impact on all stakeholders (including society at large)." Ethics first and foremost requires high-quality decision-making. Implementation of decisions and vigilant ongoing oversight of conduct must follow.

Now for the framework. Ethical rules do not dictate absolute right or wrong, but they are absolutely about determining right and wrong within the context in question. Ethics extends beyond governance, the law, and CSR but should be integrated into an organization's approach to all three.

Ethical standards do not guarantee perfection | Ethics does not seek or require perfection. For example, as acknowledged in the recently revised Resource Guide to the U.S. Foreign Corrupt Practices Act, neither the US Securities and Exchange Commission nor the US Department of Justice holds organizations or their leaders to a "standard of perfection." Even outstanding ethics oversight does not protect completely against intentional wrongdoing-a rogue trader, such as UBS's Kweku Adoboli, or minor accounting fraud. Nor does ethics guarantee good outcomes of all decisions. Ethics positions organizations and individuals to make decisions that, when we look back from a future point in time and irrespective of outcome, reflect good decision-making in accordance with the definition above. …

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