For this month’s article I have decided to provide a substantial extract from a speech I gave recently to Pembroke Rotary on ethical behaviour within companies.

Today I will try to address the subject of ethical behaviour from the standpoint of companies and organisations and most importantly at their highest level, that being the board of directors or governors, and how they might create a culture of high ethical standards.

Let’s first define ethical behaviour. The definition I like is: “Acting in ways consistent with what society and individuals typically think are good values. It tends to be good for business and involves demonstrating respect for key moral principles that include honesty, fairness, equality, dignity, diversity and individual rights.”

Put simply, it is ‘doing the right thing’ which means that when we are making a decision, we consider on whom this decision will have an impact. We should further consider if our decision is fair and will it be seen to be fair by those affected, and by this we mean all stakeholders — that is, the shareholders, employees, customers, suppliers, and some may even say the community at large.

Examples some give of the things they would include in a company’s values that would encourage an ethical environment are:

• Honesty

• Integrity

• Keeping promises

• Loyalty

• Fairness

• Caring

• Respect

But I’ve also seen “obeying the law”. That surprised me because it seems to me that that should be a given. Can you imagine a company using an advertising slogan or putting in their Annual Report “we obey the law”.

And how about some of the softer issues like giving credit where it is due or perhaps more importantly, not taking credit for the work of others.

So how do we as directors encourage ethical behaviour within our companies?

Well, what you will see many companies do, is to include it within the statement of the company’s values. You’ve probably seen posters in offices saying “we are ethical”. A lot better I suppose than one which says “we are unethical”.

For me that goes in the bucket with “we obey the law”.

How about online’ ethics programmes? These walk you through a set of scenarios with questions and usually multiple choice answers, which often allow you to correct your answer if you make the wrong selection the first time. Fine, but the worst fraudster could pass this test and the company has done nothing to change his behaviour. At best, for some it has given guidance for what the company expects of you in certain circumstances.

We’ve said we are ethical and all professional employees have taken the on line course. But talk is cheap as they say. Have we created an ethical culture by doing these things? I would contend not, but a box has been ticked. The question is, do you want to drive ethical behaviour in your company through a set of rules or by creating an ethical culture?

The IOD in its courses encourages directors to consider the performance of the company on three levels — people, profit and planet. Now some of you, and you wouldn’t need to be very cynical, would recognise that companies who pursue strategies that address the human and environmental issues for purely altruistic reasons would probably not compete well against those with more mercenary strategies. However, and this is the paradox, it is now believed that in many circumstances, particularly for those companies offering consumer products and services, their sales are improved by being seen to be a company that pays attention to People and Planet as well as Profit.

So this brings us to culture.

Every firm or organisation has a culture. Many of us spend little time thinking about it but I am sure you will have worked in an organisation that you have enjoyed more than others and probably it encouraged you to be more committed.

What is a company’s ethical culture? It is that part of its culture that focuses on how people act and behave at work.

And culture is “how things are done here”.

It is more subtle than a set of rules and is apparent in:

• How we make decisions

• How we handle problems

• How we engage with customers

• How we interact with colleagues

• How performance is rewarded

• Or perhaps how poor performance is addressed

Culture is the glue of the organisation.

An important dimension of culture is the perception of your company by customers, staff and other stakeholders and it is determined by a variety of things such as how client information is kept confidential or how your products or services are sold. Through these types of things, you will engender trust and establish your integrity. This is much more powerful than what is in your advertisements or annual report.

And always remember that your reputation for integrity may take years to build but it can be lost in hours.

When talking about culture, we use the term “shared assumptions” and these operate on three levels:

• What we say in our annual reports, advertising etc

• What the staff understand about the values of the company and how they are used to achieve success. These are the things they know are important to the organisation because they have been told as much.

• And lastly, and again more subtly, it is how everyone acts.

In total, it is the alignment of thoughts, words and action, and in this regard I always think of the three C’s of communication — these being that any messages in order to be effective, must be constant, consistent and congruent. The first two speak for themselves but by congruency we mean that all decisions and actions must be in alignment with the stated values. Any departure from this destroys the whole message, or even all messages, and subsequently trust is lost.

All culture, but in particular the ethical aspects of culture are led from the top. ‘Do as I say not as I do’ doesn’t work in the modern world.

All of this to say that at board level if you want a culture of strong ethical behaviour, then the board as a whole and the directors individually must display it themselves at all times.

The message I was looking to deliver was that one has to walk the talk if one is to be believed and followed.

Roger Gillett is the chairman of the Institute of Directors, Bermuda.