Ethical engagement–beyond compliance

“We are returning to a judgement-based approach “observes Paul Tucker, deputy governor of the bank of England, describing the revised way of supervising banks. He adds there will be less reliance on rules or “box ticking”. [1]

When it comes to ethical business behaviour, Tucker could equally have been describing how companies too must rely on judgement, rather than on heavy weight codes and diligent, if often impotent compliance officials.

Write the rules, check compliance and then punish divergences may seem entirely sensible to the bureaucratic-minded. Reality though, demonstrates the gap between intention and the result.

In both banks and companies, relying on systems-based methods of governing human behaviour will always reveal constant gaps between the spirit and the letter of the intended regime.

There is something almost bizarre about the demands of leaders of large tax-avoiding companies for more clarity about their organisations’ tax obligations. Their basic argument is that if only matters were made more certain, they would of course abide by the law and pay what is required.

Meanwhile, they strive mightily to exploit every possible loophole in whatever legislation actually exists. Why would that alter, once longed for more clarity was obtained?

Underlining this point forcefully, Margaret Hodges, chair of the public accounts committee recently told Google’s northern European boss Matt Brittin that his company’s behaviour on tax was “devious, calculated, and, in my view unethical”. [2] Whether Google would act differently in the future is unknown and at least open to scepticism.

Meanwhile in Singapore the local monetary authority accused traders of attempting to manipulate various financial rates. They apparently failed, but were deemed to “lack professional ethics.”[3]

Ethical business behaviour is now firmly in the spotlight of public awareness. Wherever the beam falls it seems there are serious issues of how to get ordinary human beings to behave in ways that the rest of society regards as responsible.

Only a couple of decades ago what it meant to be a responsible business hardly featured in most company reports. Now many are stuffed with claims to be ethical, or sustainable, or positive contributors to their local community.

The challenge therefore is not to write rules, codes or clever systems for monitoring compliance. It is to develop more effective way to create ethical engagement, in which people behave responsibly without always being harried, cajoled or penalised into doing the right thing.

Engagement goes beyond compliance. It is about people do what’s right—even when no one is looking. True, it helps if there are some clear ground rules, some baselines to which people can readily refer. But these will never be sufficiently comprehensive to replace the kind of judgement to which Paul Tucker is referring.

It’s all summed up in that classic and long standing Nordstrom story. The company is an American fashion retailer dealing in top of the range goods and gives all new employees its handbook which memorably reads:

Rule no. 1: Use your good judgement in all situations. There will be no additional rules. Please feel free to ask your department manager, store manager or division general manager any question at any time.”[4]

The company which has lasted many generations goes to great length to bring to life the claim that “We trust each other’s integrity and ability.” It’s an object lesson to all those who wonder how to make compliance stick.

Ethical behaviour happens because of the organisation’s culture and because those who form it want to be ethical, not because the codes demand it.