Jun 09, 2015

    Companies should have moral code - and live by it

    AN EXAMINATION of corporate disasters over many decades raises the question: "Is humanity capable of learning lessons from failures?"

    In a culture that says "get over it and get on with it", the answer seems to be "no". Most crises - from financial scandals to sinking ferries - are caused by leaders seeking short-term gains rather than long-term sustainability.

    The temptation to yield to unethical decisions for short-term rewards is great. Chief executives under siege rationalise this as ensuring survival - albeit mostly their own, together with preserving their big bonuses. This lack of foresight often backfires, putting a company in an even less sustainable situation.

    Fortunately, not all is doom and gloom. Debates about finding a kinder and more equitable form of capitalism are under way.

    Shareholder activism keeps boards and senior managements somewhat in check, ethical investing has been widely promoted, and leading think-tanks and academic institutions are making the business case for sustainable development.

    It makes sense for businesses to not only develop a moral code of ethics, but also to live by it.

    How can they do this?

    One best practice is to operate within the law. However, there are two reasons why this does not always happen.

    First, some laws and regulations are so complicated that it is difficult to understand them, let alone comply with them. Second, threats of fines against companies are fairly empty as the people who pay them are often customers and shareholders, not the executives.

    Good corporate governance goes beyond obeying the law. Companies are micro-societies, where behaviour, both within the company and externally, is governed by the rules of decent societal behaviour.

    Social media has a role to play in disclosing bad corporate behaviour, but the effect of that role is diminished when malcontents publish lies.

    Transparency is the single biggest policeman of corporate governance. When companies are made to disclose their behaviour to shareholders, governance is largely self-defining. "Do we want questions about this?" is a tight rein on a chairman.

    Boards of directors are beginning to understand that they are there to do more than simply support the CEO until he fails, and then to fire him.

    One compelling reason for more women to be directors of companies is that they generally make more society-based judgments than men, and often have wider perspectives as well.

    The moral DNA of a company is often set by a few key people, so it does depend on their personal values. Our own test for instilling ethical behaviour has always been: "Would I teach my children to behave this way?"

    The journey is difficult. It takes at least three to five years to bring about a culture change. Exhortation and education alone will not fundamentally change our present capitalist culture, because the remit by shareholders is still seen as performance before behaviour.

    A study of how taxation and other incentives can be geared to making profit-seeking compatible with a sustainable planet - and one that is decent to live in - is badly needed.

    Perhaps a Singapore group with the support of a university could lead the way? It would be a big step for sustainability and acceptability - as well as for Singapore.


    The writers are mentors with Terrific Mentors International.