Values and ethics define an individual – as well as families, societies, and culture in general. Everyone puts a stake in the ground as to what is important to him or her and what is not. We interact with others based on our values: which acts much like two magnets. If the right polarity exists the magnets attract each other, if the wrong polarity exists then the magnets repel each other.
Corporations have values and ethics as well – which are either formally defined and managed or are left to be defined by a variety of pressures and influences. From a legal perspective a corporation is an entity – it can be interacted with, sued in court, and even taxed (depending on the type of corporation) just as an individual can.
Who defines the corporation’s values and ethics? The answer really stems from the corporation’s overall culture – but that too has to be modeled and defined somewhere.
There are several places that a corporation can have its values and ethics molded for it, these are:
- Directors and executive management. Ultimately the board and management have a key stake in establishing the culture, ethics, and values of the organization. It is at this level that code of conduct should be defined and enforced from the top down. The board also plays a key role in establishing risk appetite and tolerance levels that impact how an organizations takes and manages risk. This is what is meant by tone at the top.
- Employees. If executives fail to define and communicate an organization’s culture, ethics, and values employees are left to define it. Even when executives have defined and communicated values it is employees that mold, shape, and make it reality or fiction. People tend to hire and relate well to those that have similar interests – political, religious, social, etc. The discussion in break rooms, meetings, and even interviews often acts like a magnet to attract similar systems of belief and value.
- Business partners. An organization is no longer an entity unto itself – it is impossible to define where the culture and boundaries of an organization start and stop. The extended enterprise of business partners, supply chain, outsourcers, service providers, contractors, consultants, temporary staffing, and customers all influence and mold the values of an organization. Organizations, particularly in this era of corporate social responsibility, want to make sure they are doing business with other businesses that share the same values. No organization wants to be in the spotlight of media for partnering with unethical business – those that engage in such things as child labor or corrupt practices.
- Customers. Ultimately an organization exists to provide value. For commercial organizations this is financial value and not just ethical value. In order to achieve financial value it is necessary to attract customers. Customers obviously want to achieve value in quality and service from the organization – though they are also becoming more selective in doing business with organizations that share the same ethical and social values.
- Governments. Through regulation, legal liability, and plain old pressure, governments are able to extend great influence on the culture and values of the organization. This current economic crisis has given us many examples of government’s influence and control over entire industries as well as practices within those industries (e.g., salary & bonuses).
- Non-government organizations. Non-profits, lobbyists, and associations all influence power over an organization and how it defines its culture, value, and ethics. NGO’s are quick to wield great political, social, and media pressure upon organizations to manipulate them to the purposes they value.
The net result of all of this – an organization is going to have its values defined somewhere. Either management is going to lead this charge or other pressures will influence it. Where values and ethics are not centrally defined and communicated as a part of corporate culture – the organization risks going in a direction it never intended. Additionally, an ad hoc approach to defining corporate values leaves the door wide-open for corruption.
Values and culture also influence risk management through how the organization and its employees take risk and stay within boundaries of risk tolerance and appetite. Without sound values defined the organization can and most often will enter reckless risk taking and poorly defined boundaries of acceptable and unacceptable risks (the financial crisis of the past few years are a great example of reckless risk taking and willingness to put aside defined boundaries of risk tolerance and appetite).
The area of corporate values and ethics is very real to me. I left a former employer because of a significant difference in values. Management allowed one group in the organization to move forward with a conference that included a keynote speaker from an organization branded for adult entertainment (I do not want to use specific words that I feel better describe this so this post is not blocked by filters). I spoke up stating this was a slap in the face to the women of the organization. I also expressed that there are many people within the organization that have had families devastated by this industry – something I can speak personally to in my extended family. My voice to management fell on deaf ears and I was brushed aside. They ignored the issue and allowed this group in the organization to further define the culture and direction of what was acceptable. Though a top performer (and I had recently received an award for this) I resigned.
Organizations need to define their values from the top down. In this day and age you are not going to appease everyone. The pressures of conservative, liberal, environmental, social, and other factors are real and significant upon the organization – and can even be in conflict with stakeholders.
If this topic interests you – and you want to know how to make culture, values, and ethics defined, managed, and monitored in your organization – I would point you to the Open Compliance & Ethics Group (OCEG) Red Book 2 and the GRC Capability Model™. This delivers the only full framework that I am aware of that drives an organization toward Principled Performance™. Later in August I am delivering a multi-day bootcamp specific to this topic – GRC Strategy & Red Book 2 Bootcamp. This is directly followed by another bootcamp aimed at using technology to enable a culture of ethics, compliance, and risk management – Developing Your GRC Technology Improvement Bootcamp.
Please reply back with your feedback and thoughts. How do you see/recommend that an organization define and communicate its values, culture, and ethics? In today’s complex business environment a failure to get an enterprise perspective on this is a recipe for disaster.
“To understand the religion of a people is to understand the people. For their religion expresses what they take to be the ultimate values of human life, underlying their whole attitude to everything else.”
J. Geddes MacGregor (1909 – 1998)