Analysis: Boards face up to responsibilities of new business ethics

Published on 15/12/2010 16:25

Until recently, ethical business has been associated with so called green policies, corporate social responsibility and providing a fair deal for farmers and small producers. It has frequently been seen as a fringe issue driven by the desire to present an image to customers as a sustainable, responsible business.

A new wave of business ethics is entering the boardroom. Boards are increasingly aware that shareholders and investors will hold them accountable for the repercussions of failing to comply with the law or conduct business in an ethical manner.

Modern technology means the audit trail on a deal is more detailed than ever. Increasingly, organisations find themselves the subject of investigation as a result of whistle-blowing. Self-reporting has become a much bigger issue, not least of all in competition issues or price-fixing cases where significant benefits can be derived by organisations who make disclosures to regulators.

The board can no longer afford to turn a blind eye to unethical and even unlawful practices in the knowledge that the risk of discovery is low and the profits available far outweigh the sanctions.

The confiscation of the profits made from the contracts in question in the Weir Group case is a real and significant penalty upon an organisation which is, after all, paying for past failings having invested heavily in ensuring that such conduct cannot recur. Organisations need to ensure that ethical business practices are implemented at every level of their dealings - from the boardroom to the shop floor.

When the Bribery Act comes into force in April it will be an offence for an organisation to fail to prevent bribery. There is a defence available to an organisation to prove that it had adequate procedures in place to prevent bribery.

Good corporate governance dictates that organisations would have sufficient procedures, policies and controls in place to identify issues of ethics as and when they arise and ensure that they are subject to scrutiny, risk assessment and objective decisions taken about the appropriate course to be adopted. There are many aspects of business, which are heavily regulated, and some conduct, such as giving bribes or price fixing are obviously illegal. However, there are many other areas where the issue is not straightforward, where the real risk arises and where the robustness of the policies and those implementing them is important. The trend for greater corporate transparency and accountability that has come out of the banking crisis is set to continue and increasingly organisations are likely to come under pressure from shareholders, investors and customers to show that they are operating not only within the law but behaving in morally and ethically.

• Diane Turner is the director of business law firm Burness