Acting Ethically is the Key to Long-Term Business Success — Ignore it at Your Peril

With the recent Volkswagen emissions scandal, it’s no wonder that trust in businesses is at an all- time low, which is precisely why companies that act ethically are going to stand out.

By Tanya Barman, CiMA

 

As I write, it is one month since automotive giant Volkswagen revealed they had knowingly fitted 11 million cars with software that duped regulators in to believing that the level of dangerous —sometimes deadly — emissions of nitrogen oxide were lower than they were. This set off worldwide industry panic and government investigations, and they now find themselves at the heart of one of the biggest scandals the industry has known.

 

The reaction to this ethical transgression only serves to emphasise the vital importance of responsible business practices to the long-term success of an organisation. In our interconnected world of unprecedented levels of data, extended supply chains and increased scrutiny, it is more important than ever for a business to have rigorous ethical standards. In fact, according to our recent Chartered Global Management Accountant (CGMA) report, 2015 Managing Responsible Business, 93% of the largest companies have a code of ethics.

 

Volkswagen, a brand that was positioned on values, naturally had a code — which publicly highlighted “it is our conviction that sustainable economic success can only be safeguarded by following rules and standards. In our daily business we advocate honourable and honest behaviour that complies with the rules.”

 

However, as has now been seen, how that code is put in to practice is a different story and words alone do not suffice. Culture matters — embedded throughout the organisation. Although there is a general consensus that acting ethically is imperative to business success, more respondents to our research report feeling under pressure to compromise their firm’s ethical standards than three years ago. Added on to that is the fact that only 36% of the 2,500 respondents collect ethical information that could inform their business strategies. And given the complexity and relative recent interest in the issue, 90% admit struggling to get any valuable insight from this data.

 

This is a problem because acting in an unethical manner is damaging to the relationship business has with the society in which it operates. Corrupt practices deplete national wealth, hinder the development of fair market structures and distort competition. It is a sobering fact that, according to the Edelman Trust barometer 2015, trust with business is at an all-time low. In an era when responsible business means more than just getting a product to market, and customers increasingly engage with organisations that act ethically, it is vital that we regain this confidence.

 

Long-term thinking is vital to this. Those companies that understand that putting short-term commercial interests before issues such as climate change or child labour will suffer huge reputational risks, as well as affect the bottom line.

 

It is fundamental that organisations create an operating environment that promotes and instils good practice through a combination of processes and behaviours — something that must be undertaken by the leadership team and board. They must ensure that acting ethically is at the heart of their business strategies and activities, as well as those in their wider value chain, by setting an ethical tone from the top. Having clarity on what is business critical will also help decision makers to prioritise where to direct their attention.

 

Businesses that use and analyse ethical data by incorporating it in to their strategic planning processes will be able to pre-empt risks and even enable innovation.

 

Management accountants, with their role as business partners, are ideally equipped to navigate this arena, providing the relevant insight to manage the risks as well as innovations that come with ethical scenarios.

 

And while the Volkswagen story unfolds before our eyes it serves as a timely reminder: ignore acting ethically at your own peril.

 

 

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