Open Discussion
'What you don't know, won't harm you' - The ethics of corporate disclosure
Discussion led by IBE's Simon Webley and Nicole Dando based on a presentation by Sarah Wilson, Managing Director of Manifest

With the Business Review enshrined in the new Companies Act, there are greater expectations of narrative reporting made by companies. At the same time, a number of companies have recently been accused of covering-up operational and other problems which were potentially and actually harmful for others. These issues raise the important question what responsible disclosure of information involves. How much should be disclosed, when and how? The participants of the discussion event debated various issues around the ethics of corporate disclosure and suggested good practices that companies should adopt.

The discussion topics included:

• The role of regulations driving disclosure
  It was felt that the statutory requirements of new legislation for corporate disclosure, such as the EU Transparency Directive and the revised Companies Act, are still considered a cost-factor by corporations rather than a strategic opportunity. An organisation could use the new legal provisions to report on future prospects in a strategic way, as a means to build up trust and reputation.
  
  A related argument was that a number of organisations may adopt a compliance approach, whereas others might adopt - in a more positive way - a principles-based approach. The issues arising here, of course, are the risk of 'misleading' statements (deliberate and accidental), how organisations can be held accountable to aspirational statements, and that reporting might become problematic if things are not going so well. The question was raised whether the Annual Report is the right place for sensitive disclosure and it was suggested that one should look at the totality of what the companies report and adopt a balanced approach in the Annual Report.

• What should be disclosed and when?
  Several suggestions were made as to what should be disclosed. It was proposed that those risks that are material to the organisation's operations should be reported and that these risks should be identified, among others, through engagement with stakeholders. A number of participants felt it was important that shareholders know that competent people and processes are in place and that they can be sure that if incidents that might cause harm occur, they will be dealt with and not ignored. Processes and systems should be published by the organisation. It was further suggested that scenario planning should be one such system, as this is a forward-looking tool and is able to anticipate risks instead of just dealing with incidents after they have occurred. Nevertheless, it was also suggested that companies should publish in their reports what they have learned from 'negative' incidents. This again could form part of their strategic reporting.
  If the organisation carries out risk assessments on key risk areas, it should also publish how the risk is assessed.
  
  
• The importance of an ethical culture
  A number of participants emphasised the need for an ethical corporate culture, which will enable the company to efficiently deal with actual or potentially harmful incidents. The way Johnson and Johnson dealt with the Tylenol crisis (by making a public announcement and swiftly recalling the product) was cited as a positive example. Attention was drawn to the fact that the quality of people working for the company and the ethos embedded in the corporate culture enabled the organisation to swiftly react to the problem. This is in stark contrast to how other organisations have dealt with problems. For example, some organisations have in the past waited for legal advice instead of taking initiative, with potentially disastrous effects for both the wider public and the organisation itself. Indeed, the cover-up of malpractice might be more problematic than the misconduct itself.
  
  
• The importance of internal reporting and internal controls
  A number of participants emphasised the role of internal reporting and controls, to make top management aware of risks that they might otherwise overlook. This, however, also requires top management to ensure that internal disclosure can take place.
  
  
• Quality of governance
  The event closed with a discussion of the quality of governance in UK based corporations. It was pointed out that the Combined Code on Corporate Governance talks about applying principles and values as well as complying with provisions. Companies, however, tend to "comply or explain" in terms of the provisions alone so that a principles-based approach has been somewhat neglected in favour of a more compliance-based approach. It was further stated that the UK approach of governance provisions being enforced by the market and not by regulators is potentially problematic.

Ethics in the Workplace
Questions on business ethics in employee surveys: what do the replies tell us?
Dr Stephen Harding, ISR (International Survey Research)

Drawing on his wide-ranging expertise on organisational culture research, Dr Harding gave a presentation on how a company can utilise employee surveys to 'take the temperature' of its ethical culture.

He first outlined some drivers of creating and maintaining an ethical workplace: company image, sustainability and regulations, as well as improved financial performance and employee engagement (i.e. motivation to perform better). With regards to the latter two, Dr Harding provided some evidence based on research undertaken by ISR: 1) Employee perceptions of an ethical workplace were correlated with superior financial performance 2) Two key drivers of employee engagement in the UK were 'clarity of company values' and 'monitoring high ethical standards'.

Next, he introduced the three critical components that - according to ISR's research - drive perception of ethical performance and which companies could measure to monitor and assess risk. They should form the basis for questions in staff surveys.

• Company values
• Internal policies
• External relationships

Dr Harding further outlined different types of surveys that a company can carry out to find out about the organisation's ethical culture. He recommended that ethics items ideally be part of broader employee opinion/employee engagement surveys. A survey that focuses on ethics only could create a so-called context effect, which might bias the employees' responses. Staff surveys should not be a one-off, but carried out on a regular basis.

He then moved on to explain how staff surveys might be analysed and introduced ISR's framework for classifying internal culture. Along the dimensions of 'favourability' ('high' ethical culture) and 'agreement' (the spread of opinions within one member group), ISR has defined four types of ethical culture: secured (high favourability/high agreement), vulnerable (high favourability/low agreement), exposed (low favourability/low agreement) and flawed (low favourability/high agreement) - with the latter most likely at risk of an ethics scandal.

In the final part of his talk, Dr Harding presented two case studies which showed how the results of staff surveys can form the basis for an action plan to improve an organisation's ethical culture. For example, the ISR classification scheme can be used for identifying ethical culture 'types' in individual departments, which will help to draw up a targeted and effective action plan.

Discussion topics included:
- Cultural variations in the understanding of 'integrity' and implications for staff surveys, particularly in multinational companies
- Whether national cultural differences explain differences in staff survey results (e.g. Japan)
- How staff survey results might lead to further questions and research (e.g. focus groups, critical incident research)

Ethics in Public Affairs

A day-long seminar designed to develop further the role of ethics in public affairs Guest speakers including, Sir Alistair Graham, Chair of the Committee on Standards in Public Life and Lord Turnbull, former Treasury Permanent Secretary and Sir Kevin Tebbit, former Permanent Secretary of the Ministry of Defence.

full programme here >>

Roundtable
Evolving issues in the diversity debate
Harish Bhayani, principal at Proactive Reputation Management

Harish Bhayani led the Roundtable discussion on diversity policies in organisations. He said there is an increasing business case for diversity. Businesses need to meet legislative requirements and also respond to demographic changes if they are to be sustainable. Diversity can be regarded as a strategy within a Corporate Responsibility policy.

The speaker argued that a compliance-based, tick-box approach to diversity was not going to be effective. He suggested taking a values-based approach instead that clearly defines what diversity means for the organisation. It has to be consistent, have the commitment of senior management and be clearly communicated throughout the organisation. Furthermore, there should be a balance between the different diversity 'strands' (age, race, gender, disability, sexual orientation, religion and belief) - even though a diversity definition should go beyond these strands. It was pointed out that diversity does not only concern employees but should encompass other stakeholder groups as well. As an example, the speaker mentioned that in the public sector, supplier diversity is now a criterion that needs to be taken into consideration in procurement processes.

Discussion topics included:

• The challenges of monitoring and measuring diversity - particularly if one adopts a broad definition of the term. Data should come from a variety of sources, including stakeholders, and it should include qualitative methods (e.g. anecdotes)
  
• The challenges concerning supplier diversity, particularly when it conflicts with an organisation's aim of having efficient procurement processes. A tier-based supply chain was suggested as a possible solution to the problem.
  
• Distinction between diversity and inclusiveness. One participant suggested that diversity is about the differences that people bring with them, whereas inclusiveness is about making people feel valued and part of the organisation. Following from this, the focus in a diversity strategy should not just be on recruitment but also on retaining staff.
  
• The question as to whether workforce diversity should reflect the make-up of the local community was raised but not agreed.
  
• The practical implications of employee diversity, such as the challenge of making flexible working arrangements available.
  
• Coping with clashes between different personal values among the workforce (e.g. religious beliefs vs. sexual orientation) and how they can be resolved within a company context.

Speaker Lunch
"The ethical issues for private companies running public services"
Gary Sturgess, Executive Director, Serco Institute

Gary Sturgess, Executive Director of the Serco Institute, a research institution established by the international public service company Serco Group plc, sought to address a number of issues and concerns. He drew on historical case studies, Serco Group's experience in running public services and research carried out by the Serco Institute.

The first question he addressed regarded the tensions between the need for profit for shareholders and the delivery of services not linked to market forces. The speaker argued that profit can be aligned with the public good if the government asks contractors "to do a job better" and ensures that contracts include performance measures that require the contractors to deliver a quality service. However, the tool of competition is often used by government to drive down prices without sufficient reference to quality and innovation. As a result, cost targets are often achieved by lowering working conditions and other cost-cutting measures, which in turn affects service performance. Also, contracts need to be monitored in order to ensure the desired outcome. The right company and people need to be chosen for the job. The government should favour companies that take a long-term view and have a high public service ethos over firms that are short-term and high-profit focused and have a rather low public service ethos.
The speaker said that public service companies have formed an industry association which provides a platform for them to discuss problems arising from public-private contracts with the government. He argued that the current high level of out-contracting public services will only remain high if services are provided at high quality levels.

The second question regarded the transfer of staff from public sector to private employment. The TUPE regulations stipulate that such transfers cannot be used to change working terms and conditions. The speaker argued that it should be in the interest of a public service company to retain a good workforce, and therefore the company should make every effort to resolve arising problems, for example, by working with trade unions.

Finally, the speaker responded to the question of how public service providers can bring a diverse and disparate workforce together behind one set of corporate values. He argued that this depended on the company's culture; i.e. the stories that are told within the organisation about the people that are honoured as heroes. He gave the example of Serco's Chairman's Recognition Award, where outstanding service performance is honoured and recognised.

The speaker concluded his talk by saying that public sector markets are not free markets and therefore governments are entitled to demand from their contractors a quality service and ethical behaviours and to allow them to make reasonable but not exorbitant profits. In turn, public service providers should recognise their obligation not to strive for unreasonably high profits and seek contracts that do the right thing rather than just seek to drive down prices.

Discussion topics included:

• The negative public image of profit-making activities in the public sector
• Accountability of managers arising from private sector structures
• Partnerships with the voluntary sector
• Differences between government departments
• The importance of good contracting

Open Discussion
Cooking the books - Rigging the numbers: Why do things go wrong?
John Plender, Financial Times feature writer and non-executive Chairman of Quintain plc

The speaker began by outlining why business ethics matters. He said that on the macro-economic level, a high degree of trust and integrity is advantageous as, for example, it reduces transaction costs and helps to avoid onerous legislation. On the level of the company, he suggested that ethics acts as an informal internal control, enables managers to act more decisively and helps to attract high-quality employees. Furthermore, he said values hold organisations together, which can be advantageous when the company is confronted by external shocks. Ethics is also important in terms of public perception of business: Practices that are perceived to be unethical behaviour, such as excessive boardroom pay or 'rewards for failure' often cast an unfavourable light on businesses.

The speaker then pointed to a paradox that has been occurring over the last few years: the business ethics 'industry' has seen an unprecedented boom whilst at the same time the business world has been riddled with widely reported scandals. He went on to examine the reasons as to why scandals occur despite corporate insistence on high standards of business ethics.

First, he argued that the ethics industry in the United States had a fundamental flaw from the beginning: Ethics was seen mainly as a response to the Sentencing Guidelines, as a way to reduce litigation. This has led to the development of a compliance culture. Ethics is primarily handled as a problem and 'outsourced'. Codes of Ethics are not embedded, but responsibility is shuffled around and put into the 'silo' of compliance.

Second, he pointed to some problems particularly arising from the Anglo-American business model: The principal-agent problem leads to rewards being tied to equity. This provides an incentive for chief executives to make business decisions which will drive up the share price. At the same time, CEOs and CFOs are put under pressure from the capital markets to 'hit the numbers': a missed profit forecast will have a knock on the share price.

With regards to board room pay, the speaker argued that remuneration has become a formalised, compliance-led process, and more transparency has actually done harm: chief executives might now compare their compensation with that of their 'greediest' peers in their sector.

John Plender pointed to problems with the 'gate keepers' of the system, the auditing profession. He pointed out that 'traditional' auditing firms have now turned into growth-orientated multi-service conglomerates. This change in business model has left the auditing function neglected, as it delivers less revenue than consulting services.

The speaker concluded that despite legislative responses, such as the Sarbanes-Oxley Act in the US, scandals still continue to happen because legal efforts have mainly concentrated on 'sticks' and not 'carrots'. Existing reward systems are still detrimental to ethical behaviour.

In the final part of his talk, the speaker made some suggestions as to what can be done to prevent corporate malpractice. Firstly, board room pay should be made less complex; it should consist of basic reward systems and equity incentives should be restricted. Such changes require investment institutions to play a constructive role. Secondly, there is a need for ethical leadership in corporations. Top-management should encourage a culture of integrity, which does not confine ethics to a compliance 'silo'. Furthermore, the 'hitting the numbers' problem should be addressed, particularly as real economic damage can be done through excessive short-term focus. Also, the existing audit model needs to be changed and improved, so that independence and objectivity is ensured. Finally, the advantages of cultivating and enhancing an ethical culture need to be widely communicated.

Discussion topics included:

• Ethical issues around private equity (no principal-agent problem but less transparency and accountability).
• The impact of change in ownership on an organisation's ethical culture.
• The often short-term focus of institutional investors and the role of progressive organisations such as the 'Enhanced Analytic Initiative'. This organisation tries to get institutional investors to take extra-financial risks and intangibles into account when making investment decisions.
• The need of organisations to punish unethical behaviour.

Publication Launch:
Ethical Due Diligence by David Lascelles

Wendy Harrison, Compliance Strategy and Development Manager at Shell, introduced the topic by talking about how Shell, throughout their corporate history, have considered ethical due diligence an important part of doing business.

Then, David Lascelles gave an overview over his 'Ethical Due Diligence' publication, which covers the following aspects:
- What is ethical due diligence (EDD)? What does it cover?
- How does it relate to regular due diligence?
- Why do EDD? When do it?
- How to do EDD
- EDD - voluntary or essential?

Discussion topics included:
- the usefulness and power of the label 'Ethical Due Diligence'
- Which function(s) in a corporation should carry out EDD?
- the problem of subjectivity in due diligence/assurance processes
- To what extent can existing frameworks (e.g. risk management frameworks) and processes be used?
- How reliable is information that is available in the public domain (e.g. company websites)?

Ethics in the Workplace
Religious Diversity in the Workplace: Challenges and Opportunities
Dr Georgette Bennett, Tanenbaum Center

Dr Bennett addressed a range of relevant issues, drawing on the Tanenbaum Center's experience of working with organisations on religious diversity in the workplace.

She first set out the case for an active engagement with the issue. First, certain demographic trends suggest that the issue should be taken seriously. Western economies rely more and more on migrant workers, and these bring with them religious faiths other than Christianity or unfamiliar expressions of the Christian faith. There is also a growing business case: disregard for and disrespect of employees' religiousness may result, among others, in lower productivity, higher turnover and an increase of employee grievances. Furthermore, organisations need to comply with EU legislation on Employment Equality, which includes the protection of religion (including 'non-belief') and outlaws direct and indirect discrimination, harassment and victimisation.

Common themes related to religious diversity are: work required on religious holidays, lack of respect for religious customs (e.g. dress, diet, prayer, icons), and interference with recruitment, hiring and promotion.

The speaker provided some practical suggestions on how such matters might be addressed in an organisational environment. She particularly focused on the pros and cons of employee faith or affinity networks and suggested that the organisation should have clear guidelines on this.

Finally, Dr Bennett pointed out that organisations that seek to actively embrace religious diversity may face a certain amount of backlash, particularly from the incumbent 'Christian' majority. Objections should be taken seriously and handled sensitively.

Discussion topics included:
- Does secularism imply religious bias?
- Religious extremism vs 'genuine' religious belief
- Religion as a source for ethical business practice
- Religion vs spirituality

Roundtable
Ethical Issues in the Financial Services sector

This was the first Sector Roundtable held by the Institute of Business Ethics. Representatives from a range of financial services organisations - banks, investment companies, auditing firms, professional bodies -discussed ethical issues relevant to the sector. The following three broad themes emerged, following short introductions by IBE staff members.

1) Customer satisfaction and trust

• Product mis-selling and hard-selling
• The importance of the FSA provision to 'treat customers fairly'
• Financial education for citizens

The participants pointed out that some products such as pension schemes, are very complex in nature and therefore customer should be given good advice to enable them to make the right decision. However, because of liability concerns, fewer and fewer product providers are willing to give such advice. The question was raised as to whether financial education would help to tackle the problem; it was pointed out that this might unduly shift responsibility to the customer. Other suggestions included the provision of independent advice with limited liability when advice is given, simplification of products, and targeted government action (e.g. the Australian government makes it compulsory to deduct automatically pensions contributions from salary).

• Privacy of information

The participants discussed the security of financial service organisations' IT systems and whether it was acceptable to have relevant but confidential information on a customer influence the dealings with another.

2) Wider social and environmental impacts - Corporate Responsibility

• Responsible lending: the Equator Principles and project finance

One participant, whose organisation has been heavily involved with this initiative, reported how the Equator Principles have produced a step-change in thinking in project finance. Lenders are required to assess the environmental and social impact of a project and require the recipient to implement measures to minimise and mitigate negative effects. A revised version of the Principles includes a reporting requirement, which needs to be incorporated into the loan contract. Some NGOs criticise the initiative, as it has no overarching ombudsman. Nevertheless, the initiative has had a considerable ripple effect, particularly for environmental and legal consultants. Driver for this initiative are the International Finance Corporation's performance standards.

The principles and processes underlying the Equator Principles might also be extended to other forms of loans.

www.equator-principles.com

• Responsible investment

One representative of an investment company pointed out that for them the position of the client was important; the provider should offer clients a choice but not impose their own ethics. Another participant suggested that their investment decisions were influenced by whether the corporation had good governance principles and practices (e.g. proxy voting). The conflict between the fiduciary duty of fund trustees to maximise returns and responsible investment, shareholder engagement, and well-known investment 'scandals' such as Caterpillar and Palestine were discussed.

• Financial Inclusion

The question was posed whether everybody has the right to have a bank account and easy access to banking facilities. The problem of door step lending led to the question as to whether it would be better to have corporate providers offer such services rather than leave the business to loan sharks. The final discussion topic was financial products geared to minorities (e.g. financial products that comply with Shari'a law or micro-finance). Some participants pointed out that these products were regarded as part of strategy and a way to gain competitive advantage, rather than a 'charitable' undertaking.

3) 'Internal' matters

Discussion topics included:

• Remuneration policies, in particular bonus structures that could lead employees and managers only to consider short-term gain.
• Employee engagement, particularly community involvement as a means of motivating staff
• Managing conflicts of interests

The following themes were suggested for future Financial Sector Roundtables

• 'Chinese Walls' - how porous are they?
• The quality of customer service - is the only measure a nega
  

Publication launch
Does Business Ethics Pay? revisited: The value of ethics training by Kaodi Ugoji, Nicole Dando and Lance Moir

John Swannick, public affairs manager at Lloyds TSB, opened the event. He explained how his organisation has researched the business case for Corporate Responsibility. One interesting finding in his research was that 1% rise in staff satisfaction at his bank was linked to a 3% sales growth.

Then, Kaodi Ugoji, the main author of 'Does Business Ethics Pay? - revisited', outlined the findings of her study on which the IBE publication is based. Focusing on FTSE 350 companies, the study compared the financial performance of those companies that had a code of business ethics and provided ethics training with those that had a code of ethics only. It was found that the former significantly outperformed the latter on four financial performance measures (Return on Capital Employed, Return on Assets, Total Return and Market Value Added). The findings suggest that having an embedded corporate ethics policy is profitable. The study also found that accounting-based measures are more influenced by business ethics training than market-based indicators.

Discussion topics included:

• financial measures as a 'test' for good (and ethical) management
  
• the relevance of accounting-based measures
  
• the need to get a better understanding of the drivers of share value
• the increasing relevance of reputation risk management
• the quality of ethics statements and ethics training

Good Practice Workshop: Making Your Speak Up Policy Effective
Workshop for corporate subscribers only

Topics discussed were:

Procedures
Those present outlined their procedures which ranged from:

• A Confidential help policy, approved by the board and in existence for over 10 years. The Confidential help policy defines how to use the lines, the roles that will be played and details how investigations take place. This policy is on the intranet, and operates alongside the general advice lines. There is no one catch all line, but a tiered approach. The policy outlines what is covered by the line. The policy also covers face to face, internet, email and postal concerns, not just telephones.
• A suite of help lines is in place - HSE, Risk Management, Compliance and the Whistleblowing helpline (previously called the Ethics helpline) is seen as the place of last resort. The policy is decentralised and staff are encouraged to deal with issues locally. Because of the implementation of ISQC1 (International Standard on Quality Control issued by the Auditing Practices Board) auditors are require to have whistleblowing channels available to staff and clients of third parties and these calls are dealt with here.
• A speak up policy in place for four years, but the help line has been in operation for longer as a HR/raise your concern point. There is also an internal Code of Ethics helpline and an external helpline run by Public Concern at Work. Staff are encouraged to talk to their line manager, then to someone else, then the internal helpline, before the external helpline.
• Ethics helpline sits within the Ethics Programme which consists of the Code, Helpline and Training. There are policies for escalating concerns, but the helpline is not just a place of last resort. Anonymity is provided, with caller ID removed from phones and a limited number of call takers. All staff are trained in the code of ethics. There is a separate money-laundering line and these tools are reinforced in training.
• A whistleblowing system is sited in another country, and that department is responsible for maintaining global standards

Communication
Consider what your policy, programme and help line is called and develop it with the user in mind, in order to encourage internal dialogue and develop a culture of raising concerns. Q&As make the policy user-friendly.
Publicise it in the code of ethics, even if it is just a sign post to another policy. Let callers know what to expect and what will happen. This will give them confidence.
Staff are offered training, e-learning packages, and the policy is on the website and in booklet form.

Remember it takes courage to make a call. Gimmicks can help with awareness raising. Own internal newsletters can run case studies and disseminate cases and the message that "every call counts". This establishes confidence which in turn reinforces a positive open culture. Reporting in CR reports - dismissals, call analysis etc, is useful for external purposes and trends. Newsletters reach the internal audience. Reporting successful outcomes helps employees see that the policy does work. Regular advertising equals more calls. The phone line is only one aspect. Need to know how to reach employees who do not have access to the internet or phone portal - one way to reach employees is to advertise on payslips.

Anonymity/Confidentiality
Communication must emphasise confidentiality. This means giving your name but that it will not be revealed to anyone else without permission. There is often confusion between the two terms anonymity and confidentiality.

Anonymity. It was acknowledged that there is a cultural problem if staff feel they remain anonymous. Anonymity makes concerns hard to investigate, and can be open to abuse. Anonymity undermines trust, but anonymity needs to be an option if sought as it feels safer. Brown envelopes on the chairman's desk do reveal issues. An allegation needs evidence. Also you cannot legally be protected if you are anonymous.

EU issues on privacy. The EU Directive Section 29 recommends not promoting anonymity as the main methodology. Extra data protection rules are in place to stop data leaving the country. This creates a problem for global businesses.
An example of anonymous reporting is of retail businesses where shop floor theft is high. With a high turnover of staff who have no access to the internet anonymous/reward reporting is offered.

Training
Participants outlined some of the training they do on this issue.

Managers have online mandatory training which is monitored by compliance and refreshed every two years. The staff job title determines the level of training accreditation required.

An online training system can give a consistent message across the company rather than individual or face to face interpretations. Organisations need to know that facilities are consistent throughout the group whilst maintaining awareness of cultural differences, and ways of awareness raising.

Cultures can change with new managers. Managers need to be trained that if staff go above them, that's OK. It would be a good question for a staff survey or in an annual appraisal.

Encourage staff to see speaking up as an important aspect of management of a company. Your people help you by raising their concern - rather than it being viewed as a 'complaint'. Those raising concerns are witnesses, rather than victims. The Public Interest Disclosure Act (PIDA) is there to keep people safe.

Dealing with difficult calls
Training is also required for staff receiving difficult calls.
Where there is one line which fields many issues it can be helpful to have training where to direct calls, for example if not an ethics issue, direct them to the Risk Management helpline etc.
It was suggested that the various lines available to these third party calls could be outlined, and the call takers trained in sign posting them.
It was important to treat a call as a concern, rather than a complaint.

Investigations
Investigation procedures should be clearly documented; e.g. a template for handling concerns, from the call to setting up the investigative team and feedback of the concern.
Communication of time frames helps give assurance; e.g. an initial response will be given within 4 days; post investigation there will be a report within six weeks. This gives comfort to anonymous reports

Culture
There are concerns that the culture of the company makes it difficult for staff to raise concerns. How do we know it is working? "Doing the right thing" can be deviant behaviour in an organisation.

A staff survey can give indications as to levels of confidence in raising concerns.

Many believe that whistleblowing means losing your job. It is seen as a victim word. However the person who blows the whistle is often not the only one who knows about the issue. Talking and sharing with colleagues is to be encouraged. A culture of 'constructive challenging' developing an 'anti-fear' culture, is what organisations want to encourage. Seeing that the company will work at putting things right helps with this.

Looking at who do staff already go to, and encourage them to be spokes people for the policy. An Ombudsperson may be helpful in this instance.

What does success look like?
In terms of what to expect, Shell has as a KPI 7-20 calls per 1,000 employees.

However, the number of calls is not a reliable measure of an open culture. A better measure would be survey results on confidence in speak up procedures, and verbatim feedback from managers in appraisals.

The number of unethical practices detected is possibly the best measure of success.

In summary - only a small minority of staff may not live up to ethical standards, with a larger group being advocates of ethics. However, a there is perhaps a majority in the centre who are positively disposed but need to be reminded of their ethical obligations. Awareness raising of Speak Up Procedures needs to be aimed, therefore, at the centreground, but companies should always consider the risks from the minority who may not live up to the ethical standards.

Colin Melvin began by suggesting that ethical issues in public equity are linked with issues around ownership. At present, shareholders usually only have little, if any, influence on company policy and practice. The speaker pointed out that along the chain of ownership, opportunities arise for short-term transactions, which benefit those who set these transactions up but which threaten the long-term value of the shareholdings.

He argued that shareholdings should be looked at from a 'universal owner' perspective. Shareholders should oppose irresponsible corporate behaviour as the resulting 'externalities' will be picked up somewhere else in the economy and everyone becomes a loser.

The speaker provided numerous examples of how his organisation seeks to engage with companies on environmental, social and governance issues on behalf of pension funds. He stated that to bring about change they preferred dialogue and discussion to a 'complain and campaign' approach. He also referred to the UN Principles of Responsible Investment, which his organisation helped develop and which is considered a good basis for auditing funds.

With regards to Private Equity, Colin Melvin argued that this ownership model is regarded as more suitable for direct shareholder engagement. He said that the failure of public companies to interact with their shareholders has allowed the private equity model to thrive. However, he also pointed out that there should be more joined-up thinking, as much private equity will eventually be sold back into the public market.

Discussion topics included:

• Openness and transparency in Private Equity
• The influence of corporate responsibility initiatives such as GRI and UN Global Compact on investment
• Short-term vs long-term perspective in investment
• Different types of shareholder engagement depending on the respective market (e.g. regulatory level vs company level engagement)

Neil Makin provided some insights into how Cadbury Schweppes seeks to combine and reconcile ethical and commercial considerations in its business. He began by giving an account of how the founders of the chocolate manufacturing business, Richard and George Cadbury, set out ethical values for their company and sought to show themselves socially responsible.

This Quaker heritage has raised high expectations in stakeholders as to how Cadbury Schweppes should be conducting its business. The speaker said that standards are judged by actions not intent, particularly in a time when companies are subject to intense scrutiny by the media and NGOs.

The company has drawn up some formal ethics guidelines within which it aims to live and work as an organisation. However, this does not mean the company seeks to establish a rules-based culture; rather employees are encouraged to use their judgment to make choices based on the company's values. A commitment to ethical standards has also been expressed in a number of statements by past and present company leaders, such as Sir Adrian Cadbury's "The character of the company" and Todd Stitzer's commitment to "stewardship and performance". Cadbury Schweppes has established a number of processes designed to ensure an ethical culture, including a speak-up hotline. A board committee called 'Corporate and Social Responsibility Committee', and chaired by Lord Patten, has also been set up.

The speaker concluded his talk by explaining how Cadbury Schweppes has sought to counter specific challenges:

• With regards to sourcing, the company has put processes in place to ensure that there is no harmful child labour in their cocoa supply chain. They also work with NGOs such as the International Cocoa Initiative and Earthwatch to ensure the sustainability of cocoa.
• Cadbury Schweppes has pledged not to advertise to children under the age of 8, with additional voluntary restrictions until age 12, which also partly counteracts the accusation that the company's products contribute to child obesity.
• Civil society demands from chewing gum manufacturers that they clean up the mess that consumers of their products leave behind; and Cadbury Schweppes supports initiatives that seek to tackle the problem.
• The recent 'Salmonella recall' has led the company to review and revise their quality assurance processes.
• Restructuring and cost efficiency considerations have led to the closure of manufacturing plants in the UK. Cadbury Schweppes offers early consultation and generous retirement packages to laid-off workers. It also gets involved in projects designed to improve employment prospects for young people in the community.

However, he also pointed out that some challenges pose real dilemmas, where the choice is between 'right' and 'right'. For example, should the company strive to cut down on 'food miles' or continue to support farmers in developing countries? Or, should the company push more 'fairtrade' certification, which could mean that the company needs to cease trade with the great majority of farmers who benefit from the business with Cadbury Schweppes?

Discussion topics included:

• Rewards and sanctions for (un)ethical behaviour
• The role of public shareholding in maintaining ethical standards
• The importance of sensitising lower and middle managers to the reputational impact of 'technical' business decisions
• Challenges of doing business abroad (e.g. corruption)
• Independent assurance of ethical performance
  
  

Ethics in the Workplace
Ethics in Public Life with Sir Alistair Graham

Sir Alistair Graham gave an insightful talk about ethical issues in the public sector, drawing from his wide-ranging experience of chairing numerous public sector bodies, particularly from his tenure with the Committee on Standards in Public Life.

He posed three questions to the audience for debate:

1) Does the effect of maintenance of high ethical standards improve performance of an organisation?

2) Has there been too much emphasis on institutional change rather than cultural change? In other words, may it not be more effective to try to improve the culture of existing institutions rather than creating new ones?

3) Is trust between the public sector bodies and the public a worthwhile and achievable objective?

Sir Alistair pointed out that the government's focus on improving performance through meeting targets had unintended consequences: people in public sector organisations would often 'cut corners' to meet targets. He asked whether this was good performance, and proposed that there should be more of a focus on maintaining ethical standards to achieve high organisational performance.

He also argued that trust has become a central political issue; with the Brown government making the restoring of trust between people and government a central objective.

Sir Alistair referred to the work of the Committee, which set out the 'Seven Principles of Public Life' (Nolan Principles). The Committee carried out extensive research, seeking to engage with people about the Principles, and found that there was an intense interest and desire for high ethical standards in public life. It was also found that people tended to trust those people in public life more with whom they had had some personal interaction (GPs, head teachers, local councillors, local MP) rather than politicians and government ministers.

The speaker explained that the collapse of the 'good chaps' ethic in the 1990s led to the development of codes of conduct in the public sector to judge the behaviour of individuals. However, ministerial codes of conduct were found wanting by the Committee. For example, politicians in senior posts did not have to declare conflicts of interests to the same extent as parish councillors. These issues, which touch on equity and fairness, can severely undermine the public's trust into politicians.

Finally, Sir Alistair pointed to the importance of leadership in the creation and maintenance of an ethical culture. He said that boards of organisations should ask themselves "When was the last time the board considered an ethical issue and as a result drew up guidance for the organisation?" and "Would the lowest paid employee be able to report unethical behaviour without fear of losing employment?"

Discussion topics included:
- the 'fit' between ethical standards and performance
- the issue of corruption
- what constitutes 'performance'
- discussion of the 'selflessness' Principle (Nolan Principles)
- the importance of communicating ethical principles throughout organisation and the ethical 'environment' of an organisation