When is a Business Ethics Programme worth the effort for a SME

AMCHAM with Richard Joseph & Alex Kravatzky

by Axel Krsvstzky,PhD

Principal Consultant, Syntegra Change Architects

As the owner, board member or CEO of a small or medium size enterprise (SME), You are personally committed to ethical conduct – is that not enough? Ethics programs are only relevant to larger companies, aren’t they? It is not worthwhile for a small or medium sized company to expend its most valuable resource – attention of board and executives – on developing an ethics programme. Or is it?

You are probably aware at the periphery of your attention that you should develop a code of ethics for your company – or if you have one, that you need to find a way to implement it and live it consistently.

But times are hard and there always seem more pressing issues – like preparing for the next busy season, ensuring adequate cash flow and returns to shareholders, dealing with motivation and basic skills at the board, executive, and operations levels, and of course…putting out all those fires. How much more can you and your company take on, you ask. Is this really necessary and worth the effort?

In this article we reveal the key factors you need to take into account in order to determine the risk, benefits, and costs involved. You’ll find that the answers depend on the effect that three recent trends have on your company.

First, the legal and regulatory environment for companies has become much more stringent in Trinidad and Tobago, as well as in the countries that we trade with. This means that the risks of non-compliance (including ethical non-compliance) have increased considerably. At this very moment, financial sector companies in Trinidad and Tobago, including the insurance industry and credit unions, are feeling the impact of these tightened regulations, increased risks and costs. The latter include dramatic increases in fines for non-compliance as well as the costs of education for directors, executives, and staff, and stipulated process requirements – both at the Board level and at the operations level. For many SME’s, hidden costs and risk are incurred as they end up having to increase the number of independent directors on their Boards in order to form the necessary committees for oversight and become compliant. And where do you get directors with the necessary skills and competencies, and who are willing to take on the increased personal risks of working with a company that might not have its systems in place?

The second trend relates to changes in technology and globalisation. You have spent years building up your company’s reputation and your own good name, but in today’s increasingly more and more networked world, the potential impact from deliberate or even inadvertent ethical missteps by you or any one of your employees has increased dramatically, as news and rumours spread almost instantly, like wildfire both locally and internationally. Trust and reputation take time and a lot of effort to build up, but they can be destroyed in an instant. What is frequently overlooked in relation to this risk is that in the age of the web, this memory is never erased – years from now when people search for your name or that of your company they will find everything that has ever been said about you – because nothing gets deleted from the cache of the search engines in the cloud – ever!

The third trend relates to a growing consensus that values, culture, processes, system, skills, competencies and economic returns are all inextricably linked. The challenge of finding motivated employees is increasing, competition is increasing, and the importance of having the right processes at work that enable you to delegate and grow with accountability is increasing as well. Often the biggest challenge for you and your board is finding and retaining a CEO and COO who share your values, to whom you can entrust the company that you have nurtured and built up through such hard work. The CEO must be able to ignite passion and motivation in every employee, as well as create efficiency, transparency, and accountability at every level. Only in this way will there be high performance, leading to high customer satisfaction, resulting in high revenues and profit, which in turn lead to high returns to shareholders, and – very importantly – to an increase in the value of your company. What will the value of your company be when you pass it on to the next generation? What will your family name be associated with? How will potential buyers of your business assess your company? Will you find local, regional, or international joint venture partners with whom you can scale up to levels you did not even dare dream about? You cannot do any of this alone – you will always need to align with the best people through efficient, effective, and transparent systems and processes that foster accountability. What you decide to do about this is the one thing that is within your control. Your staff, your family, your customers, and even your investors – all closely follow what you do – what examples do you set?

The questions that emerge in view of these trends are: how exposed are you and your company? How high are your business ethics risks? The answers to these questions should determine what you are going to do about your Ethics Programme. To help you assess your risk, you can draw on the work of the Ethics Resource Centre who defines business ethics risk as the incidence and reporting of misconduct. Misconduct itself is defined as “acting against the law or the voluntarily adopted values of the company” and it is important to note that the latter form can be at least as damaging as the former. Low risk means that misconduct happens rarely and if it does, it is reported. High risk is a combination of frequent misconduct and failure to report.

As a board and executive of the company, in order to manage business ethics risks you need to (i) reduce the reasons and possibilities of misconduct; (ii) know what is really happening – at all levels and in all parts of the organisation, at all times, not only when things go wrong (by which time it is arguably too late) but more
importantly you need to know where pressures are building up and what could help to reduce them; and (iii) develop and implement a Business Ethics Programme.

For your Business Ethics Programme to be effective, you need to ensure that three parts are custom designed for your organisation and working well. The first is a written statement of what you as a board and CEO are committed to. This statement should leave all employees and stakeholders in no doubt that you are personally committed and accountable, what you are committed to in relation to different stakeholders, and what processes and systems are in place for implementation and follow-through. The next is a system for implementation: an awareness, training, and communications plan and system for all members of the organisation that enables each member to sign that they understand what the commitment is and are willing to hold themselves accountable to it. This implies the need for an ethics committee that spans both the operational and board levels, with clear terms of reference and processes for work, as well as ensuring that all managers and supervisors have an ethical support and compliance function as part of their job descriptions. Finally there is need for an accountability process through which you as a board and executive can verify whether your stakeholders agree that you are living up to the commitments you have made.

Once you decide that the benefits of ethical integrity outweigh the costs and also recognise that success requires both Board and CEO attention and leadership, there is one more factor you must be aware of: If you do not implement well, you may actually increase your risk! Making a public commitment and then not following through, will leave your stakeholders wondering what is going on, and have them paying even more attention to any potential misconduct and what you are doing about it.

We can go even further. Good implementation means not only having all processes and structures in place – Enron had all the ‘bells and whistles’ – but also what is the underlying intent of it all? What is your personal intent as a leader? This is what determines your ethos and what effect you are able to achieve.

The American Chamber of Commerce of Trinidad and Tobago (AMCHAM T&T), the Caribbean Procurement Institute (CPI), Syntegra Change Architects Ltd, the Trinidad and Tobago Chamber of Industry and Commerce (TTCIC); and Trinidad and Tobago Transparency Institute (TTTI) have come together to form the Ethical Enterprise Partnership (EEP) with support and funding from the Inter-American Investment Corporation (IIC) as part of their FINPYME- Integrity Programme, the Republic of Korea and the Korean Chamber of Commerce.

The aim of the EEP is to encourage and facilitate the growth of a robust and transparent business environment for SMEs, within Latin America and the Caribbean. Our joint effort will serve to create awareness and to provide support to Board members and executives for the development and implementation of a Business Ethic Programme within SMEs.

A total of four (4) days of workshops and ten (10) hours of coaching sessions will be provided between October to November 2011 to fifteen (15) companies in this pilot phase. The programme structure is based on:

  • Awareness Training to introduce participants to core concepts
  • Diagnostic Assessment to identify the gaps that should be filled for effective programme implementation
  • Structured Workshops to train company facilitators in the preparation of procedures and manuals based on templates that will be providedCoaching by individual consultants to resolve any implementation difficulties that might arise from the company’s particular circumstances

The consultants working on this programme (see picture above) are Mr. Richard Joseph (Chair TTTI), Ms. Melanie Richards (Chair CSR Committee, TTCIC), Mrs. Desiree Gobin- Seecharan (Executive Director, AMCHAM), Dr Axel Kravatzky, (Principal Consultant, Syntegra Change Architects Ltd), the Hon. Senator Helen Drayton, and Ms. Mavrgaret Rose (Executive Director CPI).

To find out more, you can speak to any one of the consultants visit our website and download the brochure here: http://tiny.cc/5k1wi

 

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