The concept of ethical conduct, as well as the appropriate application thereof by boards of directors and executives, is central to the effective functioning and sustained success of going-concerns.
Ethical conduct at board and executive level is advantageous in its trickle-down effect within the organogram, eventually reflecting the entity’s maintenance of a plausible corporate culture aligned with pre-set values (generally defined within the firm’s strategic pillars). Ethics are not just fundamental cognitive and behavioural tenets that are necessary for a well-functioning organisation; they are also foundational principles of the utmost importance (beyond the boardroom and business realm) for a good, moral and upstanding society. Notwithstanding, from a corporate governance perspective, our focus will primarily be at board and executive level within corporate firms, state-owned entities and non-profit establishments. We briefly consider ethical leadership.
A general or overarching definition of ethical leadership entails individuals at board and managerial levels within the organisation acting according to a system of values and principles that are considered within the organisation as serving the common good. This then warrants an exploration of a few fundamental facets that the ‘ethical leader’ per se must bear in mind as they undertake their governance duties and meet their numerous responsibilities. These are themes of note for overall managerial oversight that also underlie strategic decision-making.
The first of these facets is Transparency. As highlighted in the International Finance Corporation’s Toolkit on Corporate Governance for Development Finance Institutions, transparency requires that ethical leaders communicate openly with all stakeholders on pertinent issues. Ethical leaders are encouraged to disclose information central to their effective functioning within the organisation, to make clear and timely financial disclosures and to accept the feedback afforded by stakeholders in this regard. Transparency in decision-making is also important and it is advisable for stakeholders – with great emphasis being placed on shareholders – to be given a picture of the organisation’s future prospects.
Another pertinent tenet where ethics are concerned is Accountability. During the strategic planning process, board members and executives may decide on just how they will gauge the ethical leaders’ responsibility for their actions towards fulfilment of the organisation’s mandate, as well as their responsibility for the actors (lower-level staff) that they lead within the organisation. This ethical aspect of accountability is closely tied to the concept of the ethical leader’s fiduciary duty which entails them acting in the best interest of those that they serve. An example may be shareholders, sponsoring government ministries or donors depending on the organisational context. It is important to be aware of the power that the leader wields as well as the duty that comes with the said power.
Integrity is another fundamental ethical facet to be considered by the ethical leader. Questions can be asked in this case about whether the ethical leader is demonstrating – in word and action – alignment with organisational values. Are they merely all talk or are they indeed walking the talk? Can the leader be trusted to act in good faith on a consistent basis and avoid conflicts of interest? Do they also exhibit ethical behaviour beyond what is simply required for legal compliance? This can be linked to issues of confidentiality within the organisation as well as data privacy. Is there assurance that our leaders can be trusted with information that has a bearing on the organisation’s longevity? Honesty must also be considered in this regard. The ethical leader must be one who fairly represents facts to internal and external stakeholders, without concealing particular information, and they are expected to be outright with respect to charitable solicitations, gifts, related entities, and improper financial transactions.
Justice (in some instances referred to as Equity) is another ethical element of import. It is necessary for all organisational actors to be treated equally without favouritism of particular classes. Inappropriate behaviour at any level of the organisational hierarchy must be dealt with accordingly and reporting/disclosure structures should be present and clear for those within the organisation who consider themselves aggrieved. Emphasis must be placed on inclusion and diversity as ethical conduct espouses the promotion of an inclusive and diverse organisational culture where governance designates ensure that their high-level decisions leave no one behind.
Overall, it is crucial for the above elements to be institutionalised and interwoven for a strong organisational culture that is enshrined in an approved Code of Ethics and/or Conduct Standards. The regular appraisal thereof by the board and governance designates is also crucial. Despite the inability of a Code of Ethics to pre-empt all possible eventualities, it provides a guide, at the least, on how board members and governance designates ought to act in varied scenarios.
We wish to take this opportunity to wish all the readers of The Business Weekly & Review as well as our loyal #CorporateGovernanceCorner followers a happy and prosperous New Year. God bless.
The views and opinions expressed in this article are those of the author, Dumisani F. Ntini – Governance and Strategy Practitioner. Contact dntini@governancegroup.org.
