Update Summer 2014

It's time to change behaviour not the rules

The problem with rules is that there are never quite enough of them. This is particularly the case in business where situations often evolve before the rule has been invented, leaving regulators to play catch-up, while those caught out restore tarnished reputations.

Regulators on both sides of the Atlantic are busy tightening the rules, but if all this does is create more tick-box compliance, experience tells us that little will change. Scandals will emerge and businesses will find themselves exposed when staff make the wrong decision, often in a situation the rules haven’t reached.

Instead of asking “is this legal?”, businesses should be asking “Is this right?”. After all, if it’s right, the chances are it’s also legal. A shift in focus away from rules but towards behaviour is needed.

Strong core values running throughout an organisation will strengthen any compliance programme, be it antitrust as we see below or Adequate Procedures to prevent corruption. Many of the companies we work with, that have invested substantially in strengthening adequate procedures, are now asking themselves how they can ensure that when the difficult situation arises, staff really will do the right thing?

The answer lies in establishing a strong code of conduct based on ethical core values. Senior management need to set the tone, communicate expectations, incentivise good behaviour and monitor what is actually happening on the ground.

Regulators, industry bodies and governments should be looking at how to encourage this more effectively. Sarbanes Oxley and the US Federal Sentencing Guidelines already require companies to promote honest and ethical conduct. However, from the scandals that continue to emerge it is clear that honest and ethical are narrowly defined as legal, following the letter rather than the spirit of the law.

It’s time to shift the emphasis towards encouraging good conduct – it’s how people behave that really makes the difference.

Can an ethical culture prevent anti competitive practices?

This was the question we posed to senior executives at our Business Ethics Debate in May, attended by the Competition and Markets Authority.

The discussion began by examining why establishing an ethical culture can be harder than it sounds. It can cost time and money  to establish; can result in a loss of profit if the only ethical solution is to turn business away and it can create ‘first mover disadvantage’ for firms seeking to introduce an ethical culture into a market where ethical behaviour may not be apparent.

However, although these arguments may sound convincing, they should not be used as a reason to avoid business ethics. They merely show why for some, business ethics can remain in the ‘too difficult’ box.

On the contrary, over the medium to long term, an ethical culture provides a competitive advantage, building reputation, consumer loyalty and trust. In a highly competitive market, a sense of strong core values can act as a real differentiator.

Even more importantly a strong ethical culture directs behavior and provides reassurance that staff will know what to do when faced with difficult situations – particularly those not governed by rules.

With the regulators being both pressurised and empowered to act, establishing a strong ethical business code should be the first step towards avoiding reputational damage.

Read the summary in full

GoodCorporation launches Antitrust Framework

Changes to UK competition law resulting from the Enterprise and Regulatory Reform Act 2013 have had an impact on all areas of competition law. That together with the launch of the newly empowered Competition and Market Authority, mean that companies face increased regulatory risk.

To help companies in this heightened regulatory environment, GoodCorporation has launched an Antitrust Framework designed to help companies minimise competition risks by ensuring that they have the right ethical culture and relevant practices firmly embedded.

The Framework can be used for internal self-assessment or for independent external assurance. It follows the methodology employed by our Business Ethics Standard creating an assessment process that gathers evidence for each practice and awards grades against a four-point scale.