Wednesday, October 18, 2020

Boardrooms spending more time and energy on ethics compliance

I wonder if I'm the only person whose heart sinks when he reads a headline like this (from Management Issues): Boardrooms spending more time and energy on ethics compliance:
More corporate boards are becoming actively involved in providing oversight into their organisation's ethics and compliance programmes. A report by The Conference Board of 225 companies and the design and implementation of their compliance and risk assessment programme found board involvement in ethics and compliance programmes had jumped from 21 per cent in 1987 to 96 per cent in 2005.
This is turning ethical thinking and behavior into a matter of following the rules. Ethics live in the heart and mind: to be ethical means to follow a set of beliefs and values because they are right, not because someone tells you to do it. It's not about "risk assessment," it's about doing business in a civilized way.

Business leaders should behave ethically because it's the right think to do. If they don't, they should be shunned as pariahs in a civilized society.
You shouldn't refrain from theft, rape, murder, and child abuse because they are illegal. You shouldn't do any of these things because they are wrong! True ethical behavior is internalized, so people act and think and speak ethically all the time, even when there is no risk, no one is watching, and there is no penalty if you don't comply. Once you allow ethics to be confused with rules, you can bet someone will start to find ways to appear to comply, while actually doing something else. The world is full of specialists in assuring "compliance," managing risk, and the like, all the time finding new ways to weasel around any "compliance issues" that don't suit their purpose.

Let's put an end to nonsense about compliance. Business leaders should behave ethically because it's the right think to do. If they don't, they should be shunned as pariahs in a civilized society. That would be a far better "punishment" than being found not to be "in compliance" with some abstract set of rules or guidelines.

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Dang, I just can't agree with you enough. You are so spot on with this.

It is amazingly similar to Jesus taking on the Pharisees in the New Testament (how little we've learned in 2000 years!). They created a bunch of rules to follow to make people "holy", but had completely forgotten the root basis of compassion, service to others, and humility before God. Jesus reminded them (and everyone) that no amount of rule following was sufficient, that it was their hearts that had to change.

You're on a role, I've been enjoying your posts quite a lot.
Thanks for your comment, John, and the compliment. I'm glad you're enjoying this site.

I think a mistake that nearly all organized religions make is to wrap up their teachings in rules and dogma. It pretty much emasculates them, so the radical challenges to personal conduct at the heart of nearly all the world's religions are turned into dull rules to be checked off.

Ethics is about thinking, reflecting on problems, and reaching conclusions that become part of who you are—not following some list of prescribed "dos" and "dont's."
Super incisive again.

...but let's be clear, choosing compliance is a commericial decision that is viewed as more cost effective than litigation.

every publicly held company is legally bound to maximise profits for share holders and so every decision, EVERY decision is always made with this foremore in the mind. To do otherwise leaaves Directors & Exec open to charges of negligence.

This renders them unable to make ethical decisions ahead of commercial ones - unless we reach a point where the ethical decision is more profitable.

Is this possible ? Well we see small pockets emerge....sometimes.......but its a very very long game ladies and gentlemen. A very long game.
I'm sure you are right, Jason, in strictly legal terms. However, in practice, directors have much more leeway over what actions they take. As with all matters legal, it comes down to interpretation in the end.

Do you maximise short-term profits and risk long-term ones? Or do you serve shareholders best by creating the greatest value for them in the longer-term? What constitutes risk, and how do you balance the need to take some risks (to maximize profit?) with the requirement to be a sound steward of shareholders' funds?

Even within a fairly clear legal famework, directors and executives have a wide range of freedoms to act as they think best, so I don't really see there being too much of a limitation on acting ethically—always provided that what they do isn't so wildly at odds with turning a profit that the shareholders are clearly put at a disadvantage.

After all, if directors truly wanted to maximise shareholder returns, as legally obligated, they would refuse their mega-million dollar salaries and stock options, wouldn't they?
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