Corporate Governance and Ethics: Lessons for the Corporate Responsibility Movement

It has been a year since I began working with our parent company on restructuring and implementing our internal corporate ethics program. Attending trainings and workshops, and reading manuals almost as thick as my International Law textbook, I steeped myself in ethics terminology, corporate governance regulations, and anti-corruption policies. Coming from a corporate responsibility (CR) perspective, I found myself continually asking the same two questions:

• How does the corporate governance function – also called ‘ethics’ or ‘compliance’ in the US – interact with the CR function within a company?
• What lessons can the CR movement take from decades of companies attempting to embed ethics into their systems?

A note on definitions: my favourite distinction between ethics and CR is Phillip Rudolph’s definitions that appeared in a recent article in Corporate Responsibility Management. Rudolph defined ethics as, ‘a values-based…concept…[that] help[s] people make choices in situations in which the rules are unclear, silent or off-point. Like [compliance], however, ethics tend to be inwardly focused,’ whereas corporate responsibility, Rudolph defines as ‘externally-focused ethics…embrac[ing] a far broader array of stakeholders than traditional notions of ethics typically encompass’. Rudolph also makes a distinction between governance and ethics but for the purposes of this post, I’ll group those terms together since as a function they usually fall into the same department or position.

On the first point, as far as I can tell there is very little interaction between the ethics department and anyone working on CR in a company. Perhaps this is due to ethics being traditionally perceived as a very legalese function. However, even in that case I can see an immediate connection to the job of the social compliance manager, those people we work most closely with who are responsible for the ethical sourcing of products from subcontracted manufacturing entities. Similarly, in the US, more traditional CR approaches have been in the realm of corporate philanthropy and would therefore have had little connection to the ethics office.

Current trends in ethics and CR are now, I believe, bringing these two concepts closer together. On the one hand, regulatory developments in the US are mandating that companies not only comply with the law, but also demonstrate an ‘ethical culture’. On the other hand, CR is becoming more mainstreamed within companies. For example, companies are hiring dedicated CR managers and industry buzzwords include ‘strategic alignment’ and ‘business integration’ of CR. Furthermore, the trend towards regulation (and some would say over-regulation) of corporate governance issues, which accelerated in response to the corporate scandals of the last decade, and the mandatory public disclosure (to the government or government agencies) of equal opportunity data and CEO compensation may signal what’s ahead for CR, in which case the two functions may have to work more closely together in the future. Such a convergence can already be inferred from the recent announcement of the ‘Business Ethics’ magazine – an 18-year-old, US publication – to merge with the newly created CRO, a corporate membership organisation for Corporate Responsibility Officers (ring any bells?).   

As for lessons learned, I think CR will gain from studying the tools companies have used to implement ethics programs. Firstly, internal messaging and ethical leadership are key components of both a successful ethics program and a socially responsible business. Ethics officers have experience in selling a ‘soft’ program to management and communicating it to employees. How many CR programs focus on internal communication? It’s often a big area of weakness and missed opportunities in CR. Secondly, risk analysis is often a feature of a good ethics program and since they are designed to identify potential threats to the company’s financial and reputational integrity, the same methodologies could also be applied to an analysis of internal and external sustainability issues. Thirdly, CR mechanisms such as data collection for reporting can probably utilise some of the internal ethics structures that are already in place such as the internal audit system and employee interfaces. Lastly, the structure of the ethics personnel within a company may provide a model for how to structure the CR department. Many publicly traded companies have at least one full-time staff member in charge of ethics who reports directly to the Internal Audit Committee, the CEO, or the Board.

So, if you’re working on any aspect of CR within a company, dust off the Code of Ethics and make a date in your calendar to invite the Ethics Officer for lunch – I’m sure it will be a rewarding discussion and maybe, the beginning of a beautiful partnership.

Sources:

‘Don’t Obsess About Corporate Responsibility and Governance – Corporate Culture is What Counts’, Phillip Rudolph, Corporate Responsibility Management, Volume 2, Issue 1 August/September 2005

Business Ethics Magazine: www.business-ethics.com