Roundtable Ethical Issues in Buildling Markets in Poor Countries with Beverley Mirando, Nestle

Beverley Mirando, outlined Nestle's work with small dairy producers in Sri Lanka as an example of how a multi-national operates at a local level in a developing country context. Nestle's agronomists support small farmers with education programmes and technical and marketing advice to help ensure reliable supplies.

Beverley emphasised how, in developing countires, being seen as a responsible operator and employer and contributing to the local economy was critical to a 'licence to operate'.

Discussion included the understanding of "fair trade" branding, how far down the supply chain ethical responsibilities lie and what issues are government responsibility in the first instance.

Ethics in the Workplace The Duty of Care with Martin Earwicker, Chief Executive, Defence Science and Technology Laboratory

Martin Earwicker, Chief Executive of Dstl which is the largest science and engineering base in government, outlined how the organisation supports its employees in difficult situations. Dstl provides forensic and technological staff to support UK Incidents (for example 7th July bombings in London) and also deploys civilian staff to military operations (for example in Iraq). He presented a good example of how far and organisation should extend its duty of care to employees and their families. Staff may be called upon to work long hours in dangerous and traumatic situations.

Dstl supports its staff in a number of ways, from training to flexible working arrangements and support from occupational health and welfare specialists and line management. Risk assessments are considered an ethical necessity inorder to protect staff. Dstl considers all its decisions in the light of its ethical values: excellence, partnership and integrity.

Discussion included how these lessons can be applied to corporate context in light of recent challenges from terrorist attacks and the threat of avian flu. Questions arose as to how much employees themselves can risk balance, and how much an organisation can request from them (for example to be immunised). Transparency was seen as a key tool to managing employee expectations, from interview onwards.

Speaker Lunch Combating bribery and otherforms of corruption:the BP experience with Ian Mullins, Compliance Manager Europe, BP plc

Ian Mullins spoke about BP's anti-bribery policies within the context of global operations and anti-bribery regulation. BP takes a very firm stance towards bribery and corruption and expects its employees across all their operations not to engage in any forms of bribery.

Ian stated that for an anti-bribery policy to be effective an organisation needs to have clear written standards, communicate the policy to all employees and provide training, have effective reporting procedures in place, enforce the policy globally and consistently, and review the policy on a regular basis. Top management should instigate and support the policy.

Discussion included dealing with facilitation payments and the application of anti-bribery policies to third parties and joint ventures.

Open Discussion
Practical Approaches to Tackling Corrupution: Can Multi-Stakeholder Initiatives Work?
David Murray, Formerly Deputy Chairman of Transparency International UK

Speaker Lunch The Responsibilities of Ownership with Peter Montagnon, Head of Invetsment Affairs, ABI

The theme of the lunch was the ethical responsibilities of ownership. Peter Montagnon of the ABI discussed the useful role of venture capital and the independence of choice and conscience they enjoy. Regarding institutional investors, he suggested that a paramount principle was an overarching obligation to act in the interest of beneficiaries. Different beneficiaries have different interests and different time horizons and may wish to qualify their interest by imposing an ethical override on the activity of their agents. However, collective ownership brings some collective responsibility towards the company invested in and its stakeholders - and ultimately this responsibility is the owner's and not that of their agents. He suggested that ethical considerations are relevant when institutions are thinking of selling holdings to venture capitalists.

Peter referred to the draft principles on shareholder responsibilities drawn up for consultation by the International Corporate Governance Network.

Discussion topics included:

• The significance of the short term investment in discussion of responsibility
• Whether responsibility kicks in only after a certain period of ownership
• How investing agents can know the interests of their beneficiaries
• That companies usually have a better perspective on ethical issues and the business case for them than do investment analysts
• That investment analysts and boards of companies need to understand better each other's expectations.
  
  

Ethics in the Workplace Fraud in the workplace: learning from fraudsters with Mike Adlem, Protiviti

Michael Adlem, Managing Director, Protiviti UK has twenty years of experience investigating employee fraud and offering risk management solutions to help combat it. He outlined the findings from a report commissioned by Protiviti: "Learning from the Fraudsters" by Martin Gill.

16 men convicted of fraud and in prison were interviewed for the study, many of whom were first time offenders and had been senior employees, in a position of trust. Employee fraud is a big problem and these interviews highlighted many issues as to why fraud is committed.

In general, the fraudsters felt that their whole company was corrupt, and Mike underlined the need for codes of ethics which set the standard throughout the company of what is acceptable behaviour. The culture of the company was seen as a contributing factor to the fraud. Personal pressures, for example debt, loss of status, blackmail and divorce also contributed. Once the opportunity for fraud arose, it was found to be easy to commit, and the perpetrators were locked into a cycle.

Drawing upon personal experience of investigating fraud and working with companies, Mike outlined ways to reduce the opportunity for fraud in companies.

• Develop and implement an ethics policy to help improve the culture of the organisation
• Prosecute fraudsters. Many companies do not and, although the fraudster may be dismissed, they go on to work in other companies and commit fraud. Organisations fear bad publicity, but in reality this can be managed and customers can be encouraged by the organisation's transparency.
• Encourage openness and employees to discuss problems and issues for example debt, offer help.
• Be sensitive to HR issues such as people over-looked for promotion or company restructuring, as these can lead to a grievance which can manifest itself as fraud
• Consider alternatives to a targets or bonus-driven structure which can encourage 'fiddling of figures'.
• Ensure that a whistleblowing policy is in place, and that it is operating effectively, is well-managed and provides anonymity.
• Hold employee workshops to encourage people to talk about areas of weakness within the company's systems
• Improve Internal Audit systems which were often perceived by the fraudsters as weak and ineffectual, with poor investigation skills and no experience of the business.

In the discussion: issues of gender, the difficulties of screening new staff, the possibility of offering a fraud amnesty, the addictive characteristics of fraud and the different types of fraud were raised.

Subscriber Roundtable Narrative Reporting: What Next? with Seamus Gillen, h2glenfern

Seamus Gillen outlined the challenges for business following the proposed introduction of the Business Review. Changes in narrative reporting will transform the way that companies disclose information and, through disclosure, corporate behaviour will change.

Governance and disclosure
Because of the rules-based, and increasingly inflexible, nature of the US regulatory system, typified by the enforcement of Sarbanes-Oxley, many companies are now coming to the UK to list. The UK principles-based governance model is becoming favoured; but it will only remain so if it is not discredited by non-compliance. It is therefore in UK companies' self interest to perform well and ensure the new narrative reporting regime works.

A related issue is the fact that global capital markets and governance systems are converging. Since the narrative reporting regime is primarily for the benefit of investors, UK companies who anticipate these reporting rules, and become accustomed to disclosure involving greater levels of accountability and transparency, will find themselves at a competitive advantage.

In that respect, it doesn't matter that the mandatory OFR was abolished - the level playing field it was designed to create will actually now be market-led rather than regulation-led.

Corporate responsibility issues
The Business Review holds significant opportunities, and challenges, for corporate (re)positioning in its requirement that only business-critical information be included. Companies will therefore have to consider the materiality of their corporate responsibility reporting.

Despite safe harbour provisions, directors remain concerned about being liable for information reported, so there may have to be greater emphasis on process and due diligence so that information included in the Business Review can withstand scrutiny and auditing. There is the possibility that some levels of corporate responsibility reporting may not be of the standard of robustness required for inclusion in the report. The Accounting Standards Board has stated that failure to report meaningfully on non-financial issues will be considered equal to a misstatement of the accounts.

Challenges in the Business Review

• measuring the materiality of non-financial issues so that the CR community can present the business case for its activities;
• delivering compliant Key Performance Indicators, which reflect the stronger statutory underpinning of the new system;
• forging the link between social capital and financial capital, and describing them in the same 'currency' inside a company.

As part of the process of producing a compliant Business Review, CR reporting may have to change. Investors will be increasingly interested in understanding the business relevance of the issues being disclosed in the new narrative format, and a different CR reporting approach may be needed.

In discussion:

• The role of conventional auditors versus specialist assurance for non-financial issues - auditors' role is limited to ensuring there is consistency between the Business Review and the numbers in the accounts, while assurance of the non-financials in the Business review will require different skills, since judgement will be needed in assessing impacts, benchmarking and verification of non-financial data;
• If ethics are critical to business, and should be reflected in the Business Review, this may change the nature of CR reports, although they are for different audiences and produced for different reasons;
• How to you decide business criticality? There can be a vacuum between the CFO and CR communities, and assessments of materiality can help close the gap;
• Tension between good behaviour, and what it costs; if a company's principles mean losing money, how will investors react?
• A company's ethics and reputation are the foundation of strategy. Talking in terms of sustainability make it easier to understand these issues in terms of materiality;
• If an issue is not considered sufficiently material to be included in the Business Review, will a company be covered in the event there is an insurance claim - what are the links between material risks and insurance cover?

Approaches will differ depending on business (ie product, sector)

In summary:
Research (conducted by Erasmus/Maastricht University) on the major corporate collapses in EU Member States over the last 25 years has identified fraud as a major factor, probably due to an absence of ethics driving the control systems. Including ethics in the Business Review will reassure investors that an organisation's governance is robust and that their ethics culture is strong.

Even though governments have primary responsibility for human rights, transnational companies are increasingly expected to respect, uphold and promote human rights. Particularly the UN Norms on Human Rights for Business Enterprises emphasise the need for companies to monitor their adherence to human rights laws and commitments.

Paul Watchman, an expert adviser on social and environmental issues, gave an overview of the core requirements of the UN Norms. He outlined the potential benefits for businesses if they do take human rights issues into account in their operations, but also provided a critique of the UN Norms based on John Ruggie's Review. He argued that the Norms are too vague, too ambitious, too broad and too prescriptive.

Paul suggested taking a more practical approach to addressing human rights. Companies should identify human rights issues that are relevant to their operations, formulate and implement a human rights policy and find effective ways of monitoring the policy. Paul pointed out that people inside the company who are allowed to ask 'awkward' questions are a particularly effective internal control 'system'. Furthermore, he recommended that companies engage in dialogue with stakeholders and civil society (including responsible NGOs), have a panel of human rights consultants, and enter into dialogue with rating agencies and investors on the company's approach to human rights.

Discussion topics included how social and environmental issues are increasingly framed as 'human rights' issues and how a human rights policy can be effectively embedded.

Caroline McCarthy-Stout provided some interesting insights into the Kingfisher experience of doing business in China. Kingfisher is a global home improvement business that operates in 16 countries. It currently has 54 DIY store outlets in China and also sources a range of products from Chinese companies.

After giving an overview of how Kingfisher developed their business in China, Caroline outlined the various ethical trading policies and processes that they have in place. Kingfisher's Social Responsibility Policy covers twelve key issues, ranging from the handling of timber to factory working conditions to product environmental and social impacts. The policy commitments are implemented in the operating companies through a so-called 'steps' management system. It sets out specific actions that the operating companies must take as well as three levels of progress: minimum action, policy target and leadership position. It is Kingfisher's aim for all operating companies to achieve at least the minimum action level.

Kingfisher requires all operating companies to demonstrate a commitment to labour and environmental standards and requires compliance with nine critical failure points including forced and child labour, harassment and adherence to local and national environmental legislation. Kingfisher also holds factory managers workshops, in which managers are trained in ethical standards. Caroline stated that one of the main challenges for Kingfisher is to have one code of conduct, one set of key performance indicators and one monitoring process across the whole company to make adherence to Kingfisher's ethical commitments easier.

Discussion topics included:

• the problem of suppliers having to adhere to different standards set by different companies and the use of shared databases such as Sedex as a possible solution
  
• some issues specific to China, such as corruption, freedom of association and HIV in the workplace
  
• the importance to develop relationships with the Chinese government
  
• the issues around operating in a country that has a poor human rights record - seeking to create change by introducing high ethical standards
  
• the tension between buying practice (price driven) and corporate responsibility commitments
  
• opportunities through the development of 'green' products