Annoying as it might be, my reflection on the relationship between governance and ethics starts with pondering other questions. Peter Drucker is attributed the phrase: “Management is doing things right; Leadership is doing the right things”. Therein Mr Drucker distinguishes between management and leadership. With a little extrapolation, we might apply the same train of thought to the difference between process and the exercise of discretionary judgement. Management and leadership; process and judgement; governance and ethics?
What then is governance – really? Ask any number of persons, one normally gets the same number of definitions in return. A practical definition is that it is a framework designed to enable an organisation to achieve its stated objectives in an efficient and effective manner. This covers a multitude of processes, ranging from the extraction of all necessary information from within the organisation, and the external environment in which it operates. Governance further provides the platform to organise and analyse information retrieved and should allow a reasoned evaluation and debate in a full and transparent manner, leading to the point of decision – and finally framing the taking of the decision itself.
Notwithstanding the need for the entire governance process to be one upheld by high standards of integrity, it is only at the point at which leaders are required to exercise their discretionary judgement in the choice between legal alternatives that ethics is instrumental in the chain of events. Where does this ethical standard come from, and can it be legislated for?
Ethics implies a consciousness of right and wrong and is a product of values. Values are derived from social or religious convention, from observed behaviours, myths and stories – all subject to the influences of immediate needs and temptations. If we are asking for more ethics in governance, what does this imply, and how can it be done? Julia Casson’s report suggests that this is a question that has vexed the very many wise and experienced authors of the various codes of governance existing throughout the EU without any clear and obvious answer. There is, it seems, no “one size fits all” solution.
Like people, organisations have their own complexities and contradictions. Once we try to analyse and manage the ethical backdrop within an organisation, we have to look at workplace psychology and dynamics. MoralDNA© is a concept and series of studies developed by Roger Steare. He has observed that as we, as individuals move from our private environment, surrounded by family, friends and social peers, and enter a hierarchical organisation, there are two discernable changes of behaviour taking place. Firstly, our tendency to obey hierarchy increases, as our willingness to challenge abates. Secondly – we care less about the consequences of our actions, presumably as we perform them on behalf of another, higher authority. Our sense of empathy towards those who endure the consequences of those actions is reduced. It is only a logical conclusion therefore that the main thrust of ethical behaviour and standards in the organisation comes from that hierarchy which exercises such increased influence over our behaviour – the leadership; or that so over-used phrase: “Tone at the top”. Might this then be the “missing link” between governance and ethics, sought by so many wise people who have drafted countless numbers of governance codes? Does EU governance then need more leadership? And if so, how can governance codes influence that leadership to act ethically, or even just responsibly?
If we wish for a more ethical leadership in our businesses, there are a number of qualities we might wish for in our executives. We need our business leaders to exhibit higher capacities such as:
- A greater awareness of different perspectives of their own organisation and of the environment in which it operates.
- A consciousness of the direct and indirect impact and consequences of personal and corporate decisions on those who are associated with the organisation – an empathy with its stakeholders.
- The courage to face the question of identifying the values of the organisation in open and transparent debate, advocating and applying them to the dilemmas and choices facing the firm in a consistent manner.
- The willingness to accept ownership of the responsibility of one’s actions, and the determination to impose a culture of accountability on the organisation and its staff.
If we believe that the best path to higher levels of ethics in an organisation is through the leadership, but are restrained by the absence of any “one size fits all” solution, then how can codes of governance improve matters? And do they? I would argue that indeed they do, if properly applied.
Latest governance guidance now includes requirements for a Diversity Policy, leading to broader perspectives in decision-taking. Modern guidance points to greater inclusion of stakeholder interest in the formulation of a policy, some for clarity on corporate responsibility, leading to greater empathy and care for those impacted by the organisation. Director’s duties include the establishment of clear and transparent nomination procedures, even the creation of nomination committees to ensure proper profiling and definition of the roles of the type of people we want in our leadership; and board evaluation requirements that seek to determine the effectiveness of board composition, leading to the promotion of a responsible leadership. A statement of values, even a code of ethics, is considered best practice in governance code guidance with their reserved space on the board agenda. Finally, by way of actions underway at the level of the EU Commission, we seek to enhance a culture of accountability through greater shareholder engagement, with the requirement of voting policies and publication of voting decisions.
There is then a link between governance and ethics; but perhaps not as direct a correlation as might be suggested by the initial question facing the panel: Does EU governance need more ethics? Perhaps the question should rather read:
Does EU business ethics need better governance? One might answer: Yes