Economy puts a damper on ethical performance

Some 52% of people observing business misconduct do not report it…

While awareness of corporate ethics codes has increased, there has been a drop in the number of persons reporting ethical misconduct. This is probably because South African companies are investing fewer resources in improving their ethics performance and, as a result, ethical business practices are still not well-embedded into the organisational culture of corporate South Africa.

That is one of the key findings of the fourth South African Business Ethics Survey, just released by The Ethics Institute at the 6th Annual Ethics Conference. Amongst others, Public Protector of South Africa, Adv. Thuli Madonsela and Auditor General of South Africa, Thembekile Kimi Makwetu will share personal reflections on ethical courage. King IV Project Lead, Ansie Ramalho, will also discuss the King IV vision of ethical organisations at the conference’.

The main culprits behind these results are probably the global economic situation and the poor performance of the local economy, says Professor Deon Rossouw, CEO of The Ethics Institute.

Pressure making people push the boundaries
‘Organisations have ethics codes in place, and people know about them, but the pressure to meet unrealistic financial targets is probably to blame for many unethical actions,’ he says. ‘At the same time, it seems as though weak trading conditions are reducing budgets for ‘non-essential’ programmes like strengthening formal ethics programmes aimed at embedding ethics in organisational culture.’

The 11% increase since the previous survey in 2013 in the number of employees who observed misconduct (to 25%) may also be related to the country’s weak economy, which is reducing disposable incomes and increasing the financial burden on everybody. However, the main reasons that people do not report misconduct are a belief that the company would not take action and a fear of victimisation. 42% of those who did not report observed misconduct were motivated by fear of victimisation at work.

This increase in observed misconduct, combined with the fact that 16% fewer employees are reporting it than in 2013, is extremely worrying, Professor Rossouw argues. Organisations can only respond to unethical behaviour if they know about it. ‘Above all, organisations should guard against giving the perception that unethical behaviour, especially in pursuit of financial or other organisational targets, is acceptable,’ he says.

Key findings of the Survey include:

  • Awareness of formal interventions aimed at promoting ethical business practices remains constant, and employees generally (79%) find that corporate values are a useful and clear guide to behaviour. 
  • However, only two-thirds of employees consistently consider corporate values when making decisions, and only 35% indicated that employees consistently adhere to them. 
  • Insufficient attention is paid to how employees reach their targets or fulfil their roles. The Ethics Institute recommends that alongside measuring what employees do, companies begin to measure how they do it. Otherwise, the Survey notes, employees might receive a bonus for achieving an unrealistic financial target despite the fact that they did so by transgressing organisational ethical standards. 
  • The percentage of employees who agree that their companies expect its employees to do what is right for clients/customers (customer service) has decreased significantly by 30% from 2013 and 34% from 2009. It seems as if companies do not yet understand the impact of unethical behaviour on customer service, and thus on customer loyalty and brand equity.

Perhaps one of the most disturbing central conclusions of the research is that a significant proportion of corporate South Africa is still not serious about integrating ethical behaviour into its culture, and that the focus remains merely on compliance with laws.

‘In other words, it seems as though companies’ real focus remains the short term financial bottom line, instead of sustainable value creation,’ concludes Professor Rossouw. ‘We must hope that the forthcoming launch of the Fourth King Report on Corporate Governance (King IV) will strengthen efforts to embed ethics into the way we do business, and make the correlation between sustainability, which is founded on ethics, and financial performance much clearer.’

Download the full report.

Source: The Ethics Institute