Lack of ethical imperatives across EU and member states

Lack of ethical imperatives across EU and member states: should Corporate Governance legislation include more ethics.

Extract from recent Institute of Business Ethics Press Release:

Questions of ethics, or the ‘right way to run a business’, are inherent in all aspects of corporate governance, including the way the board conducts itself.  Ethical choices are relevant to the business strategies that boards pursue and the way that they direct and structure the business to achieve them.

A new report – A Review of the Ethical Aspects of Corporate Governance Regulation and Guidance in the EU recently published by the Institute of Business Ethics, in association with ecoDa, the European Directors’ Association, examines corporate governance policy debates and frameworks.  Its findings draw attention to a notable lack of explicit reference to ethical imperatives, and so raise questions about why this is the case, whether this should be addressed and how.

This Occasional Paper explores the extent to which, in legislation, frameworks and codes for corporate governance across the EU and within its member states, there are explicit statements or requirements for business to be governed in line with ethical principles or commitments.

Julia Casson, author of the report, said: “We began this report wanting to understand whether there was guidance for companies in governance policies, at national and EU level, on ethical business practice.  Although we did find similarities in corporate governance requirements around practice and certain issues, there seems to be a general lack of ethical language in corporate governance provisions.  This is in spite of the fact that boards are expected to set the values which will guide their company’s operations.”

For some key governance issues that boards have been expected to address, the explicit driver is most often given in terms of what is ‘good for business’ rather than engagement with any moral imperative.  This is the case even though what is generally viewed as unethical behaviour, including at the most senior levels, has led to business failure on numerous occasions.  The link has yet to be explicitly made in corporate governance discourse that what is ethical is very often good for business, or at least that what is unethical generally impacts negatively on business.

At the member state level, the beginnings of a greater focus on board behaviour and conduct can be seen, especially in guidance for directors.  Some governance codes contain ‘various rules of conduct’

( i.e. commitment, leadership, discretion, independent judgment, integrity, acting in the corporate interest and acting in the interests of stakeholders) and refer to behaviours required by boards.

Patrick Zurstrassen, Chairman of ecoDa said: “The purpose of governance can be said to be to encourage companies to make robust decisions, manage risk properly and account to those that provide their capital.  To complete this approach, it is essential to get individual board members with a great sense of ethics and a collective mindset in line with the company’s values”

Philippa Foster Back OBE, Director of the IBE said: “Attention to ethics is increasingly a core feature of boardroom agendas.  Many companies recognise business ethics, sustainability and social responsibility, and also boardroom ethics, as characterising the right way to run a business as well as being essential for long term success.  This is in spite of the apparent lack of explicit engagement at EU level with ethical principles in corporate governance guidance, and the limited requirement, or indeed encouragement, that boards operate with high ethical standards,.”

For further information, contact Philippa Foster Back, IBE Director: +44 (0)20 7798 6040  info@ibe.org.uk

More … http://ibe.org.uk/userfiles/pressreleases/corpgovineu.pdf