Floating on an ocean of ethics

As phrased by the Ethics Institute, ethics is neither an optional add-on to normal business nor is it a soft issue. All business strategies have an ethical dimension that we cannot escape, as we cannot escape our own shadow.

Ethics holds enormous risks for companies, but equally important, it creates trust, reputational and competitive opportunities.

The foundation of compliance

Essentially what this definition means is that ethics is the foundation of compliance. In order for compliance to function effectively in an organisation, it is necessary for it to form part of an underlying ethical culture.

Even though compliance and ethics are two distinct concepts, compliance cannot exist without ethics. The two must co-exist in harmony.

Compliance refers to acting in accordance with legislation while ethics refers to doing what is regarded as right, regardless of what legislation stipulates.

Compliance is therefore something that the law or regulations require you to do or refrain from doing, while ethics is a moral consideration.

Acting accordingly

In the corporate environment, it is important to implement policies and procedures to ensure that all employees act in accordance with the law. This should be done in conjunction with the promotion of an ethical culture within an organisation.

To simplify, employees should not just obey the rules out of a fear of discipline, but should also want to do what is right. This ethical behaviour should filter down from the board and top management to all layers of the business, ultimately creating an ethical culture.

This ethical culture is emphasised by Principles 1 and 2 of the King IV Report on Corporate Governance for South Africa, 2016 (“King IV”). The report states, respectively, that the governing body should lead ethically and effectively, and the governing body should govern the ethics of the organisation in a way that supports the establishment of an ethical culture.

It is therefore evident that ethical leadership is regarded as fundamental in realising an ethical culture within an organisation.

Good citizenship
Principle 13 of King IV continues further: the governing body should govern compliance with applicable laws and adopted non-binding rules, codes and standards in a way that supports the organisation being ethical and a good corporate citizen.

From this citation, the relationship between compliance and ethics is evident.

King IV places a considerably higher amount of emphasis on ethics than its predecessor, King III.

Even though compliance is a mandatory requirement in King IV, there is a higher emphasis on displaying compliance through evidencing the desired outcomes as a substitute for following the mere tick box approach to compliance.

King III called on companies to apply or explain the principles, but King IV goes further by assuming application of all the stated principles and requiring organisations to explain and demonstrate how these principles are applied in practice.

Adjusting actions

Organisations will have to adjust the way they are currently operating. It is no longer sufficient to show mere compliance with legislation by ticking the boxes.

Laws and regulations are put in place to yield specific outcomes. Organisations are now required to show that these outcomes have in fact been achieved by adhering to the spirit and objective of these laws and regulations.

Organisations need to instil a system of ethical values and ethical culture, which drive decision making processes if they want to thrive not only in the eyes of the law but also in the eyes of their clients and the public at large, as well as its bottom line.

Vivek Wadhwa once said: Corporate executives and business owners need to realise that there can be no compromise when it comes to ethics, and there are no easy shortcuts to success. Ethics need to be carefully sown into the fabric of their companies.