THIRD PRINCIPLE

Encourage ethical behaviour Incentives and discipline

Including ethical conduct as a measure for promotions and rewards demonstrates to the company’s employees, existing and potential business partners, investors and industry peers that the company is serious about ensuring that ethical business standards are practised throughout the company from board-room to the supply room. It is a best practice that brings tangible benefits for the company’s bottom line. Incentives are proven to be the most effective management tool for influencing desired behaviour. At the same time, companies should take into consideration the impact of appropriate disciplinary measures for employees and leaders who violate the company’s ethics and compliance standards. Such measures may provide a good example and send a clear and resolute message about the company’s compliance culture.

5 SIGNS FOR RECOGNISING “ROTTEN APPLES”:

1. URGENCY AND FEAR

(we have to cheat if we want to succeed, financial objectives pressure only)

2. ISOLATION

(geographical remoteness, fragmentation of teams, leadership)

3. FRAGMENTATION AND PLAUSIBLE DENIABILITY

(complex organisation, unclear roles)

4. SUCCESS AND IMPUNITY

(those who have good business results get a pass)

5. IN-GROUP LANGUAGE FOR NAMING CORPORATE CRIME

(using sport metaphors, for example, for bribery)

(Source: 5 Signs your Organization Might be Headed for an Ethics Scandal”, Alison Tylor, Harvard Business)

The price of Apple stock grows after a shareholders’ meeting at which an answer by the CEO to a shareholder makes headlines. At a shareholders’ meeting of the US corporation Apple at the end of February 2014, the then still relatively new Chief Executive Officer Tim Cook said that shareholders who expected that he would work for the bottom line only should sell their Apple stock. Answering the request from the shareholder NCPPR that Apple should only invest in projects which bring a bottom line profit, Tim Cook said: “If you want me to do things only for ROI reasons, you should get out of this stock.”
(Source: The Guardian, Forbes, Fortune, The Independent)

Recommended indicators for the third principle

Indicators proving that the principle is implemented in business operations:

  • The company has introduced at least three initiatives for promotion of ethical conduct as part of performance rewarding system, in particular for leaders.
  • The implementing documents feature a table with various types of violations critical for the company, with various levels of seriousness, to which a certain form of disciplinary measure is assigned in advance, regardless of who is the violator.
  • The company keeps a record of violations and measures taken (these are usually HR and legal records, etc.), with violations, their seriousness and measures taken description. In this way the company may demonstrate that it responds to violations consistently, proportionately, fairly and systematically.

Indicators proving that the leadership is making progress in implementing the principle in the company’s business practices:

  • Do you detect signs of improvement in overall corporate culture and engagement (*everybody prefers to work for an ethical company). Are there internal surveys for monitoring this?
  • Are the statistics from human resources showing improvements regarding misbehaviour and violations?
  • How are leaders setting an example in order to actively encourage good behaviour?
  • Is there a clear correlation between promotions and bonuses and corporate behaviour (or in negative way: are leaders or other employees rewarded or being promoted despite not being a good example in terms of personal and professional integrity)?