Business ethics and the role of HR

The Institute of Business Ethics defines business ethics as the application of ethical values (such as fairness, honesty, openness, and integrity) to business behaviour. Are colleagues treated with dignity and respect?  Are customers treated fairly? Are suppliers paid on time? Does the business acknowledge its responsibilities to wider society? Put simply, business ethics is about how business is done, and doing the right thing because it is the right thing to do.

Business ethics applies to all aspects of business conduct, from boardroom strategies, employment practices and sales techniques to stakeholder relations, accounting practices and issues of product responsibility. It concerns discretionary decisions that organisations and their employees make in the day-to-day situations they face.

Establishing high standards of business based on ethical principles requires organisations to put in place ethics programmes – policies, codes, training, support, and so forth – and actively nurture an open and ethical culture. The CIPD describes this as going beyond being values-based, and argues that organisations should articulate what ethical principles mean in day-to-day practice and support employees in embracing them.

Reputations are based not only on an organisation’s delivery of its products and services, but on how it values its relationships with its staff and stakeholders, and how it demonstrates responsibility and accountability towards them. Few will deny the importance of trustful relationships with employees, customers, suppliers and the community. Indeed, the success of any organisation depends on it. 

The Institute of Business Ethics (IBE) and the CIPD believe that all organisations should ‘do the right thing’ because it is the right thing to do. The IBE’s research supports this view, and demonstrates the following benefits businesses can enjoy when they take their ethical values seriously:

• An open culture improves morale.
• Good relations with customers lead to an enhanced reputation.
• Ethical companies outperform their peers financially in the long term.

Serious risks can occur when a company’s actual culture is at odds with its stated ethical values. The ‘say/do gap’ – where leaders say one thing but do another – is harmful to their credibility and leaves employees cynical and disengaged. As a result, the organisation is susceptible to ethical lapses and risks to its reputation. Leaders should be clear on what the organisation’s ethical values are and set expectations with employees so that they reflect these values in their behaviours. In their Purposeful leadership report, the CIPD investigates what business ethics means for business leaders at various levels of the organisational hierarchy, and the extent to which these leaders can help organisations articulate and embed ethical values.

HR has a responsibility to the organisations they work for to contribute to organisational objectives, and a responsibility to their profession to contribute to the public good. Providing leadership in upholding ethical standards in organisations is therefore a critical element of professionalism. However, professionals in any context will inevitably experience situations where there is conflict between professional and organisational ethics. Developing a strong sense of purpose and identification with the HR profession can equip them with the courage to challenge unethical organisational practice.

Ethical dilemmas can arise in many day-to-day ways and at all levels within organisations, from those related to strategy and policy in the boardroom to those faced by managers or individuals in the course of their work.  

The boundaries of right and wrong as defined in law are clear. However, behaving ethically is discretionary. Dilemmas arise when what’s right and wrong are not clear; for example, when an individual is faced with a choice between the least wrong options, or when the needs of different stakeholders are in conflict.

As more reports of ethical scandals emerge in the media, it’s vital for organisations to demonstrate how they conduct their business. The IBE’s annual survey of public perceptions towards business indicates that in 2016, for the first time in four years, less than half the British public believed that British business was behaving ethically.

Ethical values are the compass by which we live our lives. They are what is important to us. For example, is it important to you that you give an honest quote, even if that means losing out to the competition (who may not be so honest)? Would you stand up to your boss if you felt they were asking you to do something unethical?

Core values exist in most organisations, whether they’ve been consciously created through many years of leaders behaving in a certain way or left to chance. They may be implicit rather than explicit, but even though they aren’t always formally articulated, these values underpin ‘the way business is done around here’. Whatever policies and programmes are in place, it’s the organisation’s values that provide the framework for the company’s culture and decision-making. These core values will be the foundation of any ethics programme.

The personal values of employees may or may not align with organisational values, therefore organisations may need to provide support for employees in how to deliver them. Some organisations provide employees with 'ethical tests' to help them make decisions in line with broader ethical values and principles. These might involve a series of questions, such as:

• Is it legal?
• Is it consistent with the organisation's code of business ethics?
• What would my mother think?
• How would I feel about it being on the front page of tomorrow's newspapers?

The IBE’s Good Practice Guide: Ethics in decision-making contains examples of corporate ethical tests.

The term ‘ethical culture’ refers to the way business is done, how ethical values are brought to life day to day. So, for example, a company may have ‘excellence’ as a business value. But how is excellence defined in that organisation? What does it look like? How is it achieved? Is it with integrity, or is it at the expense, for example, of child labour or poor working conditions?

To do business ethically, a company or organisation needs an ethics programme to support and bring its values to life, with the complexity of the programme being tailored to its size. It should include a code of ethics as the key element. If values are a compass to guide behaviour at work, then a code of ethics is a map that helps individuals navigate ethical dilemmas in the workplace. It reflects the organisation’s values and is a useful tool to guide staff in decision-making by helping them handle day-to-day dilemmas. When done well, a code articulates expected behaviours and brings alive the organisation’s values.

You can view the elements of an effective ethics programme in the attachment below. These may be formal or informal programmes depending on the size of the organisation, but whatever the style, HR has a powerful role to play.

Communicating ethical values is an important part of employee engagement, an essential ingredient for organisational success, and a keystone of HR’s role. Talking internally about values and ethics will also enhance the employer brand with employees. 

Communicating the organisation’s values indicates a long-term strategic commitment to building and maintaining an ethical culture. Where there has been an ethical lapse or scandal, communications can help rebuild internal trust by revitalising the commitment to behaving ethically. 

Where different cultures have merged (for example, in an acquisition), internal communications of ethical values can help develop cohesion, consistency in behaviours, and common purpose. Global companies will find this approach helpful as it supports the task of uniting different cultures in the corporation behind one set of values. A great way to do this is to nominate ethics ambassadors and obtain case studies from each business area.

HR professionals play a central role in supporting a workplace culture where the motivation for 'doing the right thing' is because it's the right thing to do. Sometimes, that may mean compromising performance in the short term. Ethical businesses support that, because of the benefits in the long term.

HR professionals are also the main points of contact for all staff within an organisation and have unique access to staff throughout their career – from induction training to exit interviews. They should encourage decision-makers to review the ethical dimensions of business decisions and support ethical practice.

HR may not have responsibility for the ethics programme per se, as this depends on the size and structure of an organisation. However, HR will be involved in implementing the programme and embedding its message in a number of ways. HR can help senior leadership monitor how well ethical values are embedded by reporting on culture and ethics to the board.

The CIPD’s Profession for the Future strategy sets out what HR should do to meet its potential to champion better work and working lives for the benefit of individuals, businesses, economies and society. Best practice is increasingly irrelevant for making ethical decisions, particularly when the situation is new or uncertain. The CIPD has developed a set of fundamental principles to guide people management decisions and create sustainable value. The principles are underpinned by a programme of research testing various 'moral lenses' that can be used in making ethical decisions, and examines how these lenses are applied in organisational practice.

The CIPD's new Professional Standards Framework will place the principles for better work and working lives at its core, clarifying what the institute stands for as a profession and defining the standards for people professionals at every level. It includes a strong focus on ethics in professional people management and development practices.

Key systems

HR is responsible for the key systems and processes underpinning the effective delivery of an organisation’s ethics messages. Through the actions of HR, ethical behaviours can gain credibility and become 'business as usual' for the way organisations run. With its expertise in change management and internal communications, and by working in partnership with those responsible for ethical performance within their organisation, HR can help to integrate ethics into the following organisational processes:

• Recruitment and induction
• Diversity and inclusion
• Performance management
• Reward, including bonuses and incentives

HR departments can also introduce specific activities to familiarise staff with ethical issues. These can include anti-bribery and data protection training, as well as procedures for dealing with instances of unethical behaviour.

Finally, HR professionals should ensure they understand the governance structure of the organisation and enable full transparency by implementing confidential ways for employees to raise concerns.

Assessing and reinforcing ethical behaviours

In addition to establishing and communicating ethical values, organisations should assess and reward ethical behaviours. Management appraisals require commitment to organisational ethical values, and should look for ways in which employees and their departments have supported these values. As with other performance measures, these can demonstrate how staff have contributed to the organisation’s ethical performance and can be included in decisions regarding bonuses or promotions.

Assessing employees’ application of ethical values can encourage them to behave ethically, and monitoring the effectiveness of the ethics programme allows organisations to see where further training should be focused. HR and senior leaders should agree on the extent to which ethics are core expectations of the organisation's employees and representatives, and the consequences which might arise if these ethics aren't upheld.

Developing a rewards system which promotes ethical behaviours is another way of encouraging and reinforcing expectations. For example, this could include ethics awards,  or remuneration and promotion based on ethical behaviours. Any incentives system should reward employees who demonstrate ethical behaviours.

Contacts

Institute of Business Ethics

Business in the Community

The B Team

Books 

INSTITUTE OF BUSINESS ETHICS (2014) The collaboration between the ethics function and HR. Briefing 40. London: IBE.

STREDWICK, J. and KEW, J. (2016) Human resource management in a business context. 3rd ed. London: Chartered Institute of Personnel and Development

Journals

COVENTRY, P. (2016) A question of ethics: what went wrong at VW? HR Monthly. February. p12.

VAN PROOIJEN, A-M. and ELLEMERS, N. (2015) Does it pay to be moral? How indicators of morality and competence enhance organizational and work team attractiveness. British Journal of Management. Vol 26, No 2, April. pp225-236.

CIPD members can use our online journals to find articles from over 300 journal titles relevant to HR.

Members and People Management subscribers can read articles on the People Management website.