CORPORATE ETHICAL RESPONSIBILITY

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CORPORATE ETHICAL RESPONSIBILITY
CPD Lecture Series

• Achieving and maintaining professionalism

Niall Gallagher Galway 21 October 2009
Disclaimer The Insurance Institute of Ireland
does not endorse or approve the content of any
third party.
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Themes of the presentation

• What is Corporate Responsibility?
• What has it do with Ethics?
• Is there a problem and has it to do with Trust?
• What builds trust and what undermines it
• Why we need to rethink values in finance
• Does Corporate Social Responsibility contribute?
• What has Corporate Governance to do with Ethics?
• Leadership - establishing and maintaining ethical
  values

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What is Corporate Responsibility?

• Sustainability long term growth and
  profitability
• Serving customers and treating them fairly
• Providing fair employment and respecting the
  individual
• Obeying the law and regulations
• Contributing to society
• Doing no harm
• Corporate Social Responsibility
• Companies meaning (or seeming) to be good
• (The Economist 19 January 2008)

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What do we mean by Corporate Ethical
Responsibility?

• Ethics is the study of the moral value of human
  conduct and the rules and principles that ought
  to govern it
• Ethics in business is the study of individual or
  corporate behaviour with special attention to
  moral adequacy
• Ethics is, by its nature, obedience to the
  unenforceable and the ultimate guarantor of
  trust.
• Corporate Responsibility without ethics is a sham

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Where personal ethics, business ethics and CSR
meet

• Personal Ethics
• Business Ethics (Ethics in Business)
• Social Ethics Corporate Social Responsibility

Personal
Social
Business
Social
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Where ethics and sport meet

• The material released yesterday 25th August
  2009 makes claims of bullying and intimidation,
  deceit, connivance, sweeteners, hush-hush offers
  and a complete disregard for the supposed ethos
  of the game. Honesty is for wimps. Integrity is
  for losers. Winning is all that matters
  emphasis added
• (Mick Cleary, Rugby Union Correspondent, Daily
  Telegraph, 26th August 2009 referring to the
  Bloodgate affair)

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Where do we stand in relation to Corporate
Ethical Responsibility?

• Is there a problem?
• If so who is responsible?
• What can be done about it?
• Does it pay?
• What is the role of the Professions in building
  trust?
• What is the ideal state of Corporate Ethical
  Responsibility?

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Corporate Ethical Responsibility

• Is there a problem?

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Is there a problem?

• Yes
• Trust has gone missing

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Is there a problem? Yes Trust has gone
missing

• Trust is like oxygen vital to human flourishing
  and unnoticed until it goes missing
• Papering Over the Cracks Rules, Regulation
  and Real Trust Smith and Reeves, The Work
  Foundation (2006)
• Capitalism is a system that functions on trust
• Financial Times - 30 June 2003.

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Trust in various professions Note this is a UK
survey does it apply in Ireland?

Q. For each (profession) which would you
generally trust to tell the truth? Responses .
Source Ipsos MORI Survey (UK) November
2008
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Financial Services and trust

• Trust is the cornerstone of confidence in the
  financial services sector, and confidence is
  fragile
• Consumers must trust the providers
• Firms must have trustworthy employees and
  directors
• Regulators must trust the providers and be
  trusted by the consumers
• You cannot legislate for trust
• Trust / Integrity / are Ethical Values.

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Is there a problem?

• Yes
• Trust has gone missing
• So, where did we go wrong?

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What leads to lack of trust?

• Weak governance and controls/checks and balances
• Short-term horizons
• Inappropriate incentives
• Unchallenging internal culture
• Conflicts of interest
• Failure to understand the business and why it
  exists
• Hubris n.1. pride or arrogance (in Greek
  tragedy) an excess of pride, ambition etc.
  ultimately causing the transgressors ruin

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What are the consequences?

• Damaged reputation business/industry/individual
• High-cost internal control necessary
• Dysfunctional corporate culture
• Heavy hand of external regulation
• Loss of customer and consumer confidence
• Business failure
• Economic consequences

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What builds trust?

• principled leadership
• prudence
• freedom to speak up and challenge
• Intelligent accountability
• honest communication and disclosure
• Consistency (word and deed)
• Meeting commitments
• Professional standards
• Corporate Ethical Responsibility

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What builds trust regulation/rules or
principles/ethics?

• Fincial regulation is a mix between rules and
  principles
• Irish and UK Regulators favoured principles-based
  regulation
• US Regulators favoured rules-based, and law.
• Who has been proved right?
• A principles based approach does not work with
  participants who have no principles Hector
  Sants, CEO, FSA. March 2009

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Corporate Social Responsibility (CSR)

• Examples
• Sustainability (the capacity to endure)
• Environment and conservation
• Welfare and community activity
• Ethical investment
• Business leadership in promoting society values
• International responsibility Fairtrade/human
  rights
• CSR builds trust if it is consistent with
  business strategy and brand and is it authentic-
  not just PR and spin?
• CSR is (or should be) voluntary action

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Reputation is a consequence of corporate ethics

• Reputation is critical to long term/sustainable
  performance (and derives from it)
• Reputation is based on trust without trust.
• Good reputation contributes to superior
  performance (and brand value)
• People greatly value their personal reputation
  (integrity)

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Does Corporate Ethical Responsibility pay?

• Difficult to measure consider the opposite
  does crime pay?
• Good ethics is good business intuitively
  correct Jim Collins Good to Great (Harper
  Business, 2005)
• Research by Institute of Business Ethics (IBE),
  Does Ethics Pay? (2003, and 2007 Revisited)
  says YES . Ethics training is a key factor.
• Strong evidence of link between good corporate
  governance and good performance.
• Weak but positive links between companies social
  and financial performance The Economist January
  2008

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What can we do about it? Who is responsible?

• Personal to act with integrity
• Management to set the tone from the top lead
  by example and manage the ethical agenda.
• Board to balance stakeholder demands and
  establish appropriate governance (including
  rewards and incentives)
• Professional bodies to educate, promote and
  enforce high ethical standards
• Regulators to regulate cost-effectively and to
  serve the public interest
• Government to govern responsibly, legislate
  effectively and police fairly the public
  interest.

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What is the role of the Professions?

• What defines a profession?
• Formal education and training with examinations
  high degree of intellectual difficulty
• A concern with Ethics, usually with Codes of
  Conduct (Ethics) with enforcement procedures
  high degree of responsibility.
• The pursuit of excellence in practice high
  standards of professionalism
• How do we measure up as professionals?

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Corporate Ethical Responsibility

• Where does ethics fit in the business?
• in its submission to the regulator?
• In the 5 year plan?
• On the website?
• In the adverts?
• In the book the code of ethics?
• In the mind of the MD?
• In the job description of the Director of
  Communication?
• In the Compliance department?
• In all of the above?

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Ethics fits at the heart of business
decision-making
Society and the Environment
Legal and regulatory framework
Business
activity
CSR Voluntary Codes
Corporate Governance Regulatory
Compliance
Ethics and values
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• What would an ethically responsible company look
  like?

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• What would an ethically responsible bank look
  like?

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What would an ethically responsible bank look
like?

• You money is safe.
• You can trust us
• Our values are our most important asset

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• The bottom line on
• Corporate Ethical Responsibility?

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What is the bottom line on Corporate Ethical
Responsibility?

• Companies must earn the trust of their
  stakeholders through ethical leadership in action
• Building and retaining trust requires a
  relentless focus on values
• Ethical considerations must be at the heart of
  business decision-making
• Corporate ethical responsibility pays -long-term

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USEFUL REFERENCES

• An Introduction to Business Ethics, Chryssides
  Kaler ,
• International Thompson Business
  Press (1993)
• Ethicability Roger Steare Roger Steare
  Consultancy Ltd., (2006)
• Creating the Good Life, James OToole, Rodale
  International Ltd., (2005)
• Good to Great Jim Collins Harper Business
  (2001)
• Value Shift., Lynn Sharp Paine, McGraw Hill
  (2003)
• Just good business A special report on
  Corporate Social Responsibility
• The Economist (19th January 2008)
• Papering Over The Cracks? Rules Regulation and
  Real Trust The Work Foundation,
• Ed Smith Richard Reeves. (February 2006)
• All you need to know about Ethics and Finance,
  John Plender and Avinish D. Persaud,
• Longtail Publishing Limited (2007)
• Business Ethics and Values, Colin Fisher and
  Alan Lovell, FT Prentice Hall, 2nd Ed. (2006)
• Virtuous Leadership An agenda for personal
  Excelence , Alexandre Havard, Scepter
• Publishers inc. (2007)
• Good Value Reflections on money, morality and
  an uncertain world Stephen Green, Penguin Books
  (2009)
• A Short History of Ethics, Alasdair MacIntyre,
  Macmillan Publishing Company (1966)

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USEFUL WEBSITES

• Institute of Business Ethics www.ibe.org
• Business in the Community www.bitc.ie
• ACCA (includes Ireland news) WWW.
  ACCAGLOBAL.COM
• Institute of Chartered Accountants in England
  Wales www.iceaw.com/bettermarkets
• Hermes Pension Management Ltd www.hermes.com
• Dow Jones Sustainability Index
  www.sustainability-indexes.com
• FTSE4 GOOD Index www.ftse4good.com
• Ethical Research Services www.eiris.org
• Ethics Resource Centre www.ethics.org
• Wikipedia www.wikipedia.org/wiki/business_ethics
• Spitzer Centre for Ethical Leadership www.
  spitzercentre.org

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Corporate Ethical Responsibility?

• Discussion
• And
• Your views

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CORPORATE ETHICAL RESPONSIBILITY
CPD Lecture Series

• Achieving and maintaining professionalism

Niall Gallagher Galway 21 October 2009