The Ethics Study 2021 - Business leaders on translating aspiration into action - Principia Advisory (2023)

The Ethics Study 2021Business leaders ontranslating aspiration into action

Contents Foreword Foreword3 Over the past twelve months, the COVID-19 pandemic has forced leaders to make tough judgement calls in the most challenging About the research 4 of circumstances. As attention begins to turn towards recovery, there is widespread demand for Introduction 5 business to address complex and rapidly evolving societal, political, and ethi- cal issues. Simply following the letter of the law is no longer seen as sufficient. Instead, companies are expected to demonstrate how their values and principles Executive summary 6 are integrated into the decisions they make. At the centre of this debate is a renewed focus on ethics. At its most simple, 1. A new era of ethical business 17 organizational ethics means the ability to do the right thing: discerning the right course of action and making a commitment to act in line with what is known to be right, just, and proper. 2. Integrating ethics 22 Over the past decade, discussions of ethics, responsibility, and the right thing to 3. Shifting systems, culture, and mindsets 34 do have been embraced by many of the world’s largest companies. The financial crisis exposed the limitations of an approach centred on what companies could do and forced leaders to think instead about what they should do. And an increased 4. Driving transformative change 47 focus on sustainability, encompassing environmental, social, and governance issues, has encouraged leaders to consider the impact of their companies beyond the bottom line. Despite this growing acceptance of the need to do business better, translating intent into impact is not straightforward. Many leaders, while highly visible in com- mitting to ambitious agendas for greater societal impact, still struggle to embed ethics into the long-term strategy and day-to-day operations of their organizations. Against this backdrop, we hope that the Ethics Study will offer a unique insight into how leading companies are responding to new challenges. By exploring lead- ing-edge approaches to embedding ethics into business, the study aims to help In collaboration with: leaders better understand how they can translate intention into action. We are grateful to Clifford Chance, the International Chamber of Commerce, GlobeScan, INvolve, and the Institute of Business Ethics for their partnership in this important endeavour, as well as to the business leaders who generously gave us their time and perspectives to inform the Study. David Rodin Founder & CEO, Principia2 3

The Ethics Study2021 About the research Introduction The Ethics Study draws on two principal streams of research conducted between Over the course of this first Ethics Study, conducted by Principia in partnership with June 2020 and February 2021. Clifford Chance, the International Chamber of Commerce, GlobeScan, INvolve, and the Institute of Business Ethics, we have had the opportunity to speak one-to-one First, a series of one-to-one interviews with more Throughout our research, we have endeavoured than 80 business leaders across industries and to include a broad and diverse range of voices. with some of the world’s most prominent business leaders to explore their perspec- geographies, together with conversations with We are grateful to our partners for opening up tives on the role of ethics in business, and on what it will take to usher in a new era of academics, researchers, non-profit leaders, and their networks to ensure that our interview series responsible, ethical capitalism. others interested in the evolution of ethics in busi- and survey benefitted from contributions across ness. Some conversations were conducted as industries and regions, and for helping to make As with every other interaction in our professional Ethics also gives us a route to an honest account- on-the-record, video interviews — highlights can connections to leaders from underrepresented and personal lives throughout 2020, these con- ing of benefits and harms: What is the purpose be seen at principia-advisory.com/ethics-study — groups – especially women and leaders from versations took place online. And whether driven of our organization? What benefits do we create and others as confidential discussions with lead- black and ethnic minority backgrounds, who by interacting with leaders in their home environ- for society? What risks do we impose — and how ers on the most significant challenges they face in remain significantly underrepresented in senior ment, or by a deeper shared sense of grief for the can we minimise societal harms? integrating ethics across their organization. leadership roles — in order to assemble a diverse past and uncertainty on what the future might range of perspectives. As they reflect on their experience of the pandemic, bring, the discussions were characterised by a Second, a quantitative survey of 750 business thoughtful, reflective tone: this was not a group of coming at the end of a decade in which business leaders across 90 countries, with representa- We owe sincere thanks to all those who have par- leaders reading from briefs prepared by corporate has made limited progress in scaling up its impact tion across regions and industry sectors. Survey ticipated in the research; any insights are theirs, communications teams. on the UN’s Sustainable Development Goals, lead- respondents were drawn from the executive net- while any errors are our own. ers see a pathway to translate frustration into works of our partners, the International Chamber Instead, our interviewees offered broader reflec- action. Faced with increasingly complex deci- of Commerce, GlobeScan, and the Institute of tions on the purpose of business and the future sions in determining the right thing to do, leaders Business Ethics, as well as clients of Principia of the corporation; the contribution that business are looking to ethics as an approach that can drive and Clifford Chance. can make to pressing societal challenges; the consistency and transparency in decision making. difficult decisions and dilemmas that leaders have faced through the pandemic, and their sense And if, in the words of Matthew Taylor of the Royal of personal responsibility to do the right thing; and Society of Arts, “the faultlines of crisis can be the the role of ethics, values, and principles in giving foundations for change,” this year’s Ethics Study leaders a roadmap to navigate the crisis. offers both solace and hope. Business leaders are clear on the need to integrate ethics into their Why launch a new research study focused on organizations, seeing both a moral imperative ethics in business? In a landscape of overlapping and an opportunity to reorient their business to studies of business leaders’ attitudes towards better tackle the challenges of tomorrow. environmental, social, and governance issues, sustainability, and responsible business, what But they are equally realistic about the scale of additional value is to be gained through a focus the challenge in ensuring that purpose, values, on ethics? and principles are genuinely lived across their organizations. We hope that this Study offers a In a volatile, uncertain environment, ethics gives contribution to leaders seeking to make their own us a lens to ask: What is the right thing to do? difference by embedding a revitalised spirit of How should we balance our responsibilities to purpose, values, ethics, and responsibility into those who rely on us? How should we navigate every interaction and every decision, every day. complex dilemmas where the answers are not determined by law? Marta Ciszewska & Rob Hayward Study Leads4 5
(Video) The Ethics Study translating aspiration into action

The Ethics Study2021 Executive summary Business leaders are increasingly facing difficult decisions on the right thing to do Business leaders are looking to a new era of ethical and responsible business, in which the right thing to 97% feel a personal responsibility to ensure that their company Business leaders are turning to ethics as an alternative lens for decision making In our conversations with business leaders, many expressed frustration with the pace of change. do must be routinely informed not only by the law, does the right thing Despite conviction and commitment from the but by their companies’ own values and principles. leaders of some of the world’s largest compa- nies, leaders believe that progress has been slow In our survey of 750 business leaders around the in scaling up the private sector’s contribution to world, 97% told us they feel a personal respon- development priorities. With the business case sibility to ensure that their company does the for sustainability increasingly focused on the right thing, while 96% believe that doing the right materiality of environmental, social, and gover- thing means following their company’s own nance (ESG) issues to business success, leaders values and principles as well as applicable laws believe that the pace of change in the structure and regulations. of global markets has often acted as a brake on more ambitious action. An era of radical transparency is raising the stakes for organizations in being able to explain In the absence of market signals that can consis- their decisions, their motivations, and the pro- tently guide action, leaders are turning to ethics cesses by which decisions are made. As leaders and values as an alternative lens for decision navigate rising stakeholder expectations, and pur- making. Leading companies are already moving sue bolder ambitions to reorient their companies, in this direction: 95% of the leaders we surveyed they feel that they are increasingly encountering believe that ethics provides actionable guidance difficult decisions on the right thing to do. on the right thing to do. Crucially, many leaders believe that simply fol- Crucially, leaders are moving away from the notion lowing the letter of the law is no longer seen as that any action must be justified by an immediate acceptable; companies are expected to articulate win-win for society and for the bottom line: in our their own set of values and to demonstrate how survey, 92% of leaders believe that companies these values are lived in every decision they make. should follow their own values and principles even when it means sacrificing financial returns. But leaders are increasingly conscious of the 92% 96% scale of the challenge, and of growing soci- As leaders look to the scale of the challenge in etal impatience — and even latent anger — for believe that companies rebuilding the global economy after the pandemic, business to step up and translate positive inten- should follow their own the stage is set for morality to take back its place tions into action. believe that doing the right values and principles even alongside materiality. thing means following their when it means sacrificing company’s own values and financial returns principles as well as applicable laws and regulations6 7

(Video) From Aspiration to Action: Making DEI business-as-usual

The Ethics Study2021 Leaders see the COVID-19 crisis creating opportunities for transformation Leaders see the COVID-19 pandemic intensifying the focus on responsible business. From the way in which companies have treated their workforce to how they have made use of government-funded initiatives such as furlough and employment sup- port schemes, leaders believe that their decisions Leaders see integrating ethics as an imperative for action – and an opportunity for competitive advantage Leaders know that forging a new era of pur- pose-driven, ethical and responsible business will require urgent action. Fully 96% of leaders surveyed believe that integrating ethics — building capabilities that enable them to pursue a purpose beyond profit and to embed values and principles 93% believe that integrating ethics will be essential to the future success of their business have been subjected to unprecedented scrutiny. into decision making — will be essential to their company’s ability to do the right thing. But while intense scrutiny may create discomfort, many leaders see an opportunity for transformation. It is also clear that leaders see these issues as As attention turns to rebuilding the economy, important not simply for their own sake, but as business leaders are beginning to think differently an increasingly important factor in determining about how they lead their organizations and how industry winners and losers: 93% of business lead- to shape a more ethical, responsible, and inclusive ers surveyed believe that integrating ethics will be 84% global economy. essential to the future success of their business, and 84% believe that this integration will provide Many feel a sense of personal responsibility to a route to competitive advantage in their industry. play their part, seeing promise in a new gene- ration of leaders more comfortable discussing But leaders also acknowledge that they are at the ethics, responsibility, and morality. As discuss- beginning of their journey. While many companies believe that this integration will ions of ethical business become mainstream, have developed statements of purpose, mission, provide a route to competitive leaders are embracing these conversations as values, and principles, every organization faces sig- advantage in their industry a chance to accelerate a new, more empower- nificant challenges in integrating these aspirations ing agenda. into decision making and action, as well as embed- ding ethics into the culture of the organization. 79% are already planning to invest further in integrating ethics into their company’s operations8 9

The Ethics Study2021 Building new capabilities for action Leaders realise that taking advantage of opportunities for transformation will demand Shaping an inclusive, ethical culture new capabilities, mindsets, and cultures that enable their people to translate intention into action. 5. Ensure an inclusive culture that creates opportunity for all: With more attention than ever on issues of diversity, equity, and inclusion, 94% of business leaders see an imperative Leaders see a range of capabilities that will define what it means to be an ethical to ensure that their companies shape an inclusive culture, shifting the discussion from business in the coming decades: representation and towards a clearer understanding of equity and inclusion. 6. Shape, monitor, and track a culture that enables people to do the right thing: Embedding purpose, ethics, and values into strategy and decision making 97% highlight the ability to shape, monitor, and track a culture that enables people to do the right thing. Leaders believe that this will require a new approach to giving their people clear responsibilities and helping them develop the right skills and capabilities, as well as 1. Pursue a purpose beyond profit: 90% of leaders surveyed believe it is essential for the structuring appropriate incentives and moving beyond a rules-based environment to one in ethical organization to pursue a purpose beyond profit. As the weight of evidence grows which every individual can consistently do the right thing. for the role of purpose in shaping the way a company and its people behave, leaders are placing greater emphasis on crafting a common narrative that explains why their company exists and how it creates value for society. The integration of purpose into the Maximising positive impact and preventing societal harms company’s operations is seen as one of the most critical challenges to address as leaders seek to integrate ethics across their organizations. 7. Prevent products and services being used to cause harm: 94% of leaders believe that 2. Anchor decision making in values and principles: A critically important capability in preventing their products and services being used to cause harm is critical to being an translating purpose into action, highlighted by 96% of leaders as an essential element of ethical organization. Leaders know that doing business responsibly is not simply about the ethical organization, is the ability to anchor decision making in the values and princi- having their own house in order, but about the company they keep. For leaders under ples of the company. In our conversations, leaders faced with difficult decisions about the intense pressure and scrutiny, articulating guiding principles for ethical use will help to right thing to do during the pandemic often spoke of a “moment of clarity” in which their make, explain, and justify difficult decisions as they take steps to ensure that their scope of purpose and values stepped forward to guide action in the most difficult of circumstances. responsibility does not stop at the factory gate. 3. Equip all employees to consider ethics in decision making: 96% of respondents also 8. Build assessment of societal impact into innovation and design decisions: Leaders also highlight the importance of the ability to train and empower employees to consider ethics in see a need to integrate ethics into innovation. Some 91% of leaders surveyed believe that it decision making. Increasingly, leaders see their people asked to address decisions that require will be essential to incorporate assessment of societal impact into innovation and design moral and ethical judgement, where the right thing to do cannot be determined by the rules decisions. Leading companies are developing new approaches to responsible innovation, alone. Building this shift into approaches to training, learning, and development is seen as embedding the capacity to address questions of ethics and responsibility throughout the a critical step in enabling employees to consistently do the right thing. innovation lifecycle and anchoring every decision in the organization’s purpose and values. 4. Track non-financial metrics of success and societal impact: Leaders are also 9.Take public action to address societal injustice: Business leaders feel a growing respon- committed to developing new measures of success: 85% believe that tracking sibility to exert their influence on broader societal challenges, from climate change and non-financial metrics of success and societal impact is essential to becoming an eth- deforestation to racial and gender inequity. Increasingly, leaders believe that deferring to gov- ical organization. In keeping with Drucker’s maxim that what gets measured gets ernments is no longer acceptable. Companies are increasingly expected, by employees and managed, leaders believe that in order to ensure that purpose informs day-to-day consumers alike, to demonstrate how their actions contribute to a fairer and more just society: decisions, new measures of societal impact must stand alongside traditional metrics more than three-quarters of leaders surveyed (77%) believe that taking action to address of financial success. societal injustice is an essential characteristic of the ethical organization. 10. Take a public position on controversial societal issues: Nearly two-thirds of leaders surveyed (64%) believe that taking a public position on controversial societal issues is a hallmark of the ethical organization. Just as businesses are expected to demonstrate their value to society, and to show how they are addressing injustice and inequality, so leaders increasingly see a role for themselves on the public stage. Where companies historically have preferred to remain above the fray, many leaders are now more comfortable asserting their company’s own values and principles through proactive contribution to public debate.10 11

The Ethics Study2021 Key capabilities to integrate ethics % of survey respondents who believe that integrating this capability is “important” or “very important” to being an ethical organization 97% 96% Anchor decision making Shape, monitor, and track a culture that enables people to do the right thing 94% 85% in values and principles Prevent products Track non-financial and services being used to cause harm 64% Take a public position metrics of success on controversial and societal impact societal issues 90% 77% Take public Pursue a purpose 91% action to address 96% beyond profit societal injustice Build assessment of societal Equip all employees 94% Ensure an inclusive impact into innovation and design decisions to consider ethics in culture that creates decision making opportunity for all Embedding purpose, ethics, and values Shaping an inclusive, Maximising positive impact into strategy and decision making ethical culture and preventing societal harm12 13

The Ethics Study2021 Shifting systems, culture, and mindsets Driving transformative change Leaders believe that the new era of ethical and responsible business will be driven Leaders believe that the journey to reinventing their organizations will be a long road not only by investment in systems, processes, and capabilities, but also by a culture and that lasting change will require collaboration across industries and sectors. They shift across their organizations. This shift will encompass better understanding and acknowledge significant barriers to progress in the external environment, with mixed supervision of employee conduct, as well as a focus on training and empowering signals coming from governments, regulators, investors, and other stakeholders. employees to consistently do the right thing. But as they begin to chart a roadmap for the coming years, they already see concrete In this year’s Ethics Study, we set out to understand leaders’ assessment of their steps they can take to accelerate progress across their industries to build a more companies’ performance on the critical cultural drivers that determine the ability of ethical, responsible, and inclusive global economy. an organization and its people to act ethically and responsibly. 1. Measuring Š Defining ­­ new measures of success focused on purpose and the value what matters created for society, with an honest accounting of societal risks and harms Responsibility: Are people responsible and accountable for doing the Š Establishing ­ more stringent due diligence of right thing? ethical capabilities and outcomes Leaders must start by communicating clear and feasible expectations, setting out what is Š ­Enhancing systems to identify, manage, and mitigate ethical risk expected of every member of the organization. Leaders also need to focus on accountability, holding people responsible for their decisions and actions, with an explicit expectation to 2. Collaborating within Š Establishing ­­ a common terminology and consider ethics, values, and principles in decision making. Underpinning this effort will be and across sectors measures of success and failure a renewed focus on building effective “speak-up cultures” in which people at every level are empowered to challenge authority, introduce new ideas, and engage in deliberation and Š Sharing ­ best and emerging practice and contributing to debate on the right thing to do. cross-sector frameworks and benchmarking initiatives Š Advocating ­ for peers to collaborate and take bold action on global priorities Capability: Do people have the right knowledge, skills, and support to do the right thing? 3. Engaging Š Engaging ­­ stakeholder groups in discussion and Building the capabilities for people to navigate and manage ethical issues begins with stakeholder groups debate on grey-area ethical questions developing their awareness of ethically charged decision points. The ability to make effective (inc. underrepresented Š Establishing ­ systems and processes to routinely factor and responsible decisions depends on identifying ethically charged decisions and on and marginalised societal expectations into decision making building a foundation of core professional skills and the ability to deliberate on broader ethical communities) Š Embedding ­ a consideration of societal impact throughout design aspects in order to determine the right thing to do. and innovation processes and into decisions on ethical use Motivation: Do we encourage our people to do the right thing? 4. Engaging investors Š Engaging ­­ investors with data and examples to showcase the value of on the value of ethical business in shaping new markets and managing systemic risks A foundational factor in motivating their people to do the right thing is a clear organizational ethical business Š Equipping ­ companies and investors with the tools to factor a company’s purpose that defines the value that the organization creates for society. Successful organizations will increasingly harness the intrinsic motivation of their people by selecting ethical capabilities into their expectations for future value and developing people who are aligned with the values of the organization and are driven Š Addressing ­ fundamental challenges stemming to behave in virtuous and responsible ways. Leaders also need to align incentive schemes to from a focus on short-term results send clear signals of which behaviours are valued and expected, and to assess performance beyond traditional financial measures of success. 5. Developing a new Š ­­Driving initiatives to support emerging leaders from all backgrounds generation of leaders Š ­Redefining the template for global business leaders Š Engaging ­ with universities and business schools to broaden curriculums14 15
(Video) Jim Carlton Integrity Lecture 2022: 'Liberty, Fraternity and - what was the other word?'

The Ethics Study2021 Most of us have articulated our purpose, but that’s not the question. The question is whether it is alive and well, and affecting decisions. 1. A new era of Alan Jope, CEO, Unilever ethical business Business leaders feel a personal responsibility to ensure that their company does the right thing – but are increasingly facing difficult decisions on the right thing to do. Business leaders are looking to a new era of ethical and responsible business, in which the right thing to do must be routinely informed not only by the law, but also by compa- nies’ own values and principles. In our survey of 750 business leaders around the world, 97% told us that they feel a personal responsibility to ensure that their company does the right thing. Crucially, leaders also believe that simply adhering to the letter of the law is no lon- ger acceptable: 96% believe that doing the right thing means following their company’s own values and principles, as well as applicable laws and regulations. As leaders navigate rising stakeholder expectations, and pur- sue bolder ambitions to reorient their companies, they feel that they are increasingly encountering difficult decisions on the right thing to do. Managing stakeholder expectations and relationships is an ever-growing part of leaders’ roles, as customers, the media, and the public at large become more active in scrutinising the decisions and actions of business. An era of radical transparency is raising the stakes for organizations in being able to explain their decisions, their motivations, and the processes by which decisions are made. Companies are expected to articulate a clear societal purpose, and to demonstrate how their values are lived in every deci- sion they make. In the words of Alan Jope, CEO of Unilever, “Most of us have articulated our purpose, but that’s not the question. The question is whether it is alive and well, and affecting decisions.”16 17

The Ethics Study2021 Leaders see the COVID-19 crisis Leaders see ethical Leaders are reflecting on their own role in shaping a more ethical creating opportunities business as an opportunity and responsible economy for transformation for competitive advantage One of the recurring themes in our conversations It is also clear that leaders see these issues as As attention turns to rebuilding the economy in Many also spoke of a shift towards a new gener- has been the extent to which rising societal chal- important not simply for their own sake but also the wake of the pandemic, business leaders see a ation of leaders. Peter Lacy, Chief Responsibility lenges, and the COVID-19 pandemic in particular, as an increasingly important factor in determin- window of opportunity to think differently about the Officer and Global Sustainability Services Lead at have intensified the focus on responsible busi- ing industry winners and losers. As Ade Ayeyemi, way they lead their organizations and to play their Accenture, observes, “We see a new generation of ness. “During the Syrian war and the pandemic, CEO of pan-African banking group Ecobank, part in building a more ethical, responsible, and leaders who reflect more seriously on the moral the watch stopped,” says Bassam Maamari, reflects: “Ethics is a key infrastructure that we inclusive global economy. Ruchi Dana, Executive and ethical dimensions of leadership and are very Chairman of Syria’s Banque Bemo Saudi Fransi. need to have as an organization to be successful Board Member of Dana Group, notes, “We care conscious of the legacy they will leave through the “We knew that profitability had to be secondary, in the long term.” about the greater good because, in the end, it’s the businesses they will be remembered for running.” and we focused on helping people in need in legacy that we want to leave behind in this world.” our society, in the communities around us, and In our survey, 93% of business leaders believe Importantly, many leaders we spoke with see this among our staff.” that integrating ethics will be essential to the Many of the leaders we interviewed discussed new generation as more comfortable discussing future success of their business, and 84% believe their sense of personal responsibility to harness ethics, responsibility, and morality. As discussions From the way in which companies have treated that this integration will provide a route to com- the recovery to shape a fairer, more inclusive, and of ethical business become mainstream, leaders their workforce, to how they have made use of petitive advantage in their industry. more just society. “COVID has done one positive are embracing these conversations as an opportu- government-funded initiatives such as furlough thing: it has forced leaders to step up and do some- nity to shape a new, more empowering agenda for and employment support schemes, leaders also Alan Jope of Unilever says of the company’s inte- thing about their impact on society,” says Katherine their companies. believe that their decisions have been subjected to gration of purpose, values, and ethics through Garrett-Cox, CEO of GIB Asset Management. unprecedented scrutiny. They face scrutiny from its brand portfolio and strategy for growth, “We within the firm, as employees exert ever-greater embarked on this journey on principle, but a very pressure on their companies to live up to the val- strong business case emerged: brands that com- ues they espouse, and from outside, as consumers pete on a platform that is purposeful — whether and the public at large hold brands to account for it’s a sustainable, environmental, or a social their actions. The 2021 Edelman Trust Barometer proposition — are growing at roughly twice the revealed that 86% of people surveyed worldwide rate of the rest of the portfolio.” Only in a crisis can you check the expect CEOs to speak out on controversial societal issues, with almost two-thirds (66%) demanding And in the words of Daniel Klier, Global Head of ethical heartbeat of a company. that business leaders take the lead on change Sustainable Finance at HSBC, “From the per- spective of the financial industry, focusing on Alison Tarditi, Chief Investment Officer, rather than waiting for government to impose it.1 topics like ESG and responsible business actu- Commonwealth Superannuation Corporation But while intense scrutiny may create discomfort ally makes a difference. Our frontline teams have for business leaders, many see an opportu- embraced this and we are ahead of our competi- nity for transformation. As Alison Tarditi, Chief tors, and therefore get a higher market share and Investment Officer at Australia’s Commonwealth better access to the C-suite. And in the end, we Superannuation Corporation, observes, “Only in help clients shape their business model for the a crisis can you check the ethical heartbeat of next 10 years.” a company.” And as one European business leader observes, We care about the greater “In a context where our institutions are increas- good because, in the end, ingly mistrusted and under pressure to produce better and more socially just outcomes, big busi- it’s the legacy that we want ness has a target on its back. And that pressure forces you to reflect on your underlying purpose to leave behind in this world. and the social good that you create. It’s opened Ruchi Dana, Executive Board Member, up the whole social justice agenda, and it’s a pre- Dana Group cious moment in history: this is different, this has momentum, and things have to change.”18 19
The Ethics Study2021 Leaders see slow progress in translating intentions into action Business leaders are turning to ethics as an alternative lens for decision making Our interviews demonstrate that business leaders But translating good intentions into action is an In the absence of market signals that can consis- employees accountable for their actions. We are are unhappy with the pace of change and often uphill task. For more than a decade, business tently guide action, business leaders are turning to guided by our Maadili Charter: ‘maadili’ is the express frustration at a collective failure to find a leaders have expressed firm commitments to ethics as an alternative lens for decision making. Swahili word pertaining to ethics and morals, path to doing what they know to be right. As one integrating environmental, social, and governance Of the 750 business leaders surveyed for this which defines ethical behaviour as following the senior leader observes, “When you look at large issues into core business, ensuring that the pri- year’s Ethics Study, 96% believe that integrating spirit and intention of the law so that we’re able to corporates around the world, the rhetoric on ethics, vate sector can play its role in achieving the UN’s ethics — building capabilities that enable them treat all our stakeholders fairly and respectfully.” values, and social justice is much better than it was Sustainable Development Goals by 2030. Despite to pursue a purpose beyond profit and embed five years ago. But I always try to remember that conviction and commitment amongst leaders of values and principles into decision making — will Business leaders are already moving in this direc- as humans we judge ourselves by our intent, and some of the world’s largest companies, however, be essential to their company’s ability to do the tion: 95% of the leaders we surveyed believe that we judge others by their actions. So the question progress has been slow. right thing. ethics provides actionable guidance on the right we need to be asking ourselves is how we can be thing to do. Crucially, many companies are mov- authentic as leaders and take real action to close The UN Global Compact–Accenture Strategy CEO “There are so many dilemmas out there, you need ing away from the notion that any action must be the gap between the rhetoric and the reality.” Study on Sustainability 2019 showed that while a moral compass, and you need to know what is justified by an immediate win-win for society and 48% of companies report actively integrating sus- right and wrong,” observes Georg Kell, Chairman of for the bottom line: in our survey, 92% of leaders tainability into their organizations, just 21% believe Arabesque and Founding Director of the UN Global believe that companies should follow their own We’ve had a generation of that business is playing a critical role in contributing Compact. “You need to cultivate the moral dimen- values and principles even when it means sacri- leaders who didn’t take their to the Sustainable Development Goals.2 sion of leadership, for the sake of credulity and for the sanity of your own mind. It’s a way to ask ficing financial returns. responsibility seriously, who One of the most evident challenges for business yourself, every day, with humanity and humility: “Ethics is the grey area where formal rules and leaders throughout the past decade has been the guidelines are no longer, or not yet, applicable — and didn’t believe it was their struggle to interpret unclear — and often contradic- am I making the right decisions?” what’s called for is your judgement,” says Wiebe responsibility, and were tory — market signals. The expected premium for When you have an approach Draijer, Chairman of Rabobank. “That’s where sustainable brands has been slow to materialise, it’s most relevant, in having a setting where you waiting for governments and despite strong growth in ESG-focused funds, that’s driven by values, can freely debate different points of view.” And as to solve these problems. mainstream investors have shown marked reluc- tance to meaningfully shift their strategies and you can be definitive and Elizabeth Proust, Director of Lendlease, puts it, “Ethics gives us a framework of guidelines and Senior leader, European multinational selection criteria. clear, and give everyone in principles to answer the ‘should we’ question: we know we can do x or y, but is it the right thing to do?” As a result, the greater alignment of sustainability the company that sense of with core business — in addition to being one of Ann Cairns, Executive Vice Chair of Mastercard, Leaders are also conscious of growing impa- tience — and even latent anger — from society the major engines of success in mainstreaming certainty and belonging. reflected on the role that the company’s central more broadly for business to step up and ESG considerations — has proved to be one of value of decency played in enabling its response Ann Cairns, Vice Chair, Mastercard translate intentions into action. “We live in an the critical weaknesses in the development of the to the pandemic: “The first message we commu- age that has potential for cynicism, which is corporate sustainability movement. With the busi- nicated to our people was that no one would lose often an understandable, yet regrettable and ness case for sustainability increasingly focused Anchoring action in ethics, and the company’s their job due to COVID. That was a very simple dangerous, result of perceived hypocrisy,” says on the materiality of ESG issues to business suc- own definition of the right thing to do, promises message, but it was a powerful one — and when Henrik Syse, Research Professor at the Peace cess, the pace of change in the structures and to open up a new frontier in which leading com- you have an approach that’s driven by values, you Research Institute Oslo. “We hear people saying systems of how the market assesses and rewards panies are expected to define their purpose and can be definitive and clear, and give everyone in the that they care about the environment, or about performance has often acted as a brake on more the ways in which their values and principles company that sense of certainty and belonging.” the welfare of our workers, but if we don’t see ambitious action and has sometimes provided an guide decisions. “Our governance philosophy is that being articulated through action, we easily excuse for business leaders reluctant to step up to not simply a matter of compliance and sticking As leaders look to the scale of the challenge in get the sense that they don’t really care. But if we their role in leading the way towards a more sus- to the letter of the law,” says Thakane Setsabi- rebuilding the global economy, the stage is set for see the corporate world actually stepping up to tainable economy. Mushonga, Customer Strategy Executive at morality to take back its place alongside materiality. the plate, and taking these challenges seriously, pan-African financial services group Old Mutual With leaders setting out on the journey to embed that can make a huge difference to the way peo- As one senior leader observes, “We’ve had a gener- Limited. “It’s a wide set of principles, frameworks, new ways of thinking across their organizations, ple perceive the society they live in, and build that ation of leaders who didn’t take their responsibility and risk management practices which ensure a new era of ethical business is on the horizon. sense of involvement, that they are taken seri- seriously, who didn’t believe it was their responsi- that we’re always aligned around our strate- ously in their society.” bility, and were waiting for governments to solve gic values, and that we hold our directors and these problems.”20 21
The Ethics Study2021 2. Integrating ethics One of the things that leaders have Leaders see an urgent need to build new capabilities that enable their companies to overcome is “pilot paralysis”... to consistently do the right thing The question is whether these issues are A common theme in our discussions was the struggle that systematically integrated into systems many leaders face in translating good intentions into con- and processes, and professionalised crete actions that deliver tangible impact on the way their firms operate. While many companies have developed state- across the business so that ethical and ments of purpose, mission, values, and principles, leaders responsible practice becomes the default. face significant challenges in integrating these aspirations Peter Lacy, Chief Responsibility Officer and into decision making and action, as well as embedding ethics Global Sustainability Services Lead, Accenture into the culture of the organization. Leaders realise that taking advantage of opportunities for systemic transformation will demand a new approach that moves beyond the articulation of principles and values and the celebration of pilot initiatives. Instead, they see an urgent need to build new capabilities, mindsets, and cultures that will enable their people to bring these values to life, translat- ing positive intent into action every day. “One of the things that leaders have to overcome is pilot paralysis and the desire to simply illustrate that we’re doing the right things,” says Accenture’s Peter Lacy. “The question is whether these issues are systematically integrated into systems and processes, and professionalised and industri- alised across the business so that ethical and responsible practice becomes the default.” Leaders acknowledge that they are at the beginning of their journey towards integrating ethics While our research shows strong affirmation for a new, ethics-based approach to business, it is clear that the major- ity of companies are just beginning their journey towards integrating ethics meaningfully throughout the organization. Our conversations with leaders at the forefront of the move- ment towards more ethical business reveal a recurring challenge in moving from strategy to execution: translating statements of values and purpose into day-to-day operations. Leaders see a range of capabilities that will define what it means to be an ethical business in the coming decades, from anchoring business decisions in purpose, values, and principles to creating an inclusive, ethical culture that can maximise impact for society.22 23
The Ethics Study2021 Embedding purpose, ethics, and values into strategy and decision making 1. Pursue a purpose beyond profit 2. Anchor decision making in values 3. Equip all employees to consider and principles ethics in decision making A striking 90% of leaders surveyed believe that it is creates value for society. As Andy Wales, Chief essential for the ethical organization to pursue a pur- Digital Impact and Sustainability Officer at BT For companies seeking to translate statements of Fully 96% of respondents highlighted the impor- pose that goes beyond the profit motive. The notion Group, explains: “A good purpose statement cap- purpose and values into reality, a critical capabil- tance of training and empowering employees to of purpose-driven companies has gained traction tures the essence of where a company has come ity — highlighted by 96% of the business leaders consider ethics in decision making. Many lead- in recent years, with the Financial Times series on from, and the potential of what a company can be.” we surveyed as an essential element of the ethi- ers reflected on a shift from considering ethics “The Company of the Future: Profit and Purpose,” Lara Warner, Chief Risk and Compliance Officer at cal organization — is the ability to anchor everyday alongside compliance as a black-and-white as well as initiatives such as the British Academy’s Credit Suisse Group AG, commented on the role of decision making in the company’s values and set of requirements and standards, towards a Future of the Corporation programme, marking a purpose in the banking industry, saying, “Banks need principles. “Every business decision has an ethical greater acknowledgement of ethical grey areas. mainstreaming of a discussion that just a decade to be seen as institutions that have a relationship dimension,” says Andrea Stürmer, CEO of Zurich Increasingly, employees are asked to address ago was still on the fringes of core business. with society: that should be the biggest priority for Insurance in Austria. “Through bringing ethics into decisions that require moral and ethical judge- our industry.” our conversations, we consider the interests of our ment, where the right thing to do cannot be Evidence also shows that public demand for stakeholders and carefully weigh our decisions determined by the rules alone. business to articulate its societal purpose is Purpose is also seen as a powerful motivation for against them.” growing: a recent GlobeScan survey revealed that employees, particularly in challenging times. As As Ann Cairns of Mastercard reflects, “One of the nearly 85% of respondents believe that societal Rabobank’s Draijer explains, “Purpose is the start In our conversations, many leaders spoke of a things I’ve learned as a leader is that you have expectations for purposeful corporate leadership of everything, and the more you live it, the more “moment of clarity” during the COVID-19 pan- to always do what you feel to be the right thing, will be higher a year from now.3 it drives you. And right now, everyone is sitting at demic in which their purpose and values stepped and be transparent about it. And people can criti- home, so it doesn’t matter if your offices are nice, forward to guide action in the most difficult of cise you, but if you’ve done everything you can to or if the paycheck is good, or if your brochures are Purpose is the start of glossy: everyone has to feel that from their living circumstances. But for others, the pandemic high- lighted the gap between their efforts to define and explain how you’ve made a decision, it gives you tremendous strength and reassurance that you’re everything, and the more you rooms, they’re putting a man on the moon.” articulate purpose, values, and principles, and doing the right thing to the best of your ability.” live it, the more it drives you. In our conversations with leaders, it is also their ability to routinely take these aspirations into account in day-to-day deliberations. As one Wiebe Draijer, CEO, Rabobank apparent that the integration of purpose into the interviewee reflected, “When the crisis hit, the fact Decision making is a team sport, and company’s operations is top of mind for exec- that we had placed attention and focus on our an ethical framework of values and utives across every region and industry sector. “The most important thing is to have a funda- “We’ve translated our mission into decision cri- values, and had really built our culture to make principles gives us the perspective sure they were lived and embedded, helped us to mental understanding of the mission and values teria,” says one leader in the financial services weather the storm.” and guidelines to help guide decisions of the enterprise,” says John P. Davidson, CEO of sector. “Anyone that submits a proposal has to about the right thing to do. Options Clearing Corporation. “What is the social explain how the decision fits with the cooperative For some, the existence of values-based frame- value that a particular company serves for the behaviours that stem from our overall mission. Elizabeth Proust, Director, Lendlease works for decision making was invaluable in economy and for society itself: is it just to make And that means that even in a low interest rate making decisions that were consistent, efficient, the highest possible return for shareholders, or environment, which can suck the energy and the and transparent. “We want to ensure that we Describing Rabobank’s approach to building the does it reflect the interests of all a company’s oxygen out of any financial institution, we’ve been have a North Star of our values, and then build capabilities of its people, Wiebe Draijer notes: stakeholders within a longer-term view of what’s able to make audacious decisions that align com- an ethical scaffolding that enables us to decipher “Every year we pay extra attention to our values happening to the environment and to society? All pletely with our long-term mission and purpose.” what we think is the right thing to do in any given and behaviours during our Week of Integrity, of these considerations are fundamental to the ethi- situation,” says Paula Goldman, Chief Ethical where we build our people’s individual under- cal proposition of how a business conducts itself.” Leaders realise that purpose matters only if and Humane Use Officer at Salesforce. And as standing of ethical dilemmas, ethical conduct, it has material impact on the way their orga- Elizabeth Proust, Director of Lendlease, points and how to deal with ambiguity. And we train As the weight of evidence grows for the role of nizations are run. In the words of Gabriel Ros, out, “Decision making is a team sport, and an them to deal with that ambiguity, both from the purpose shaping the way that a company and its Managing Director of Mapei Argentina, “Purpose ethical framework of values and principles gives perspective of working out the right thing to do, people behave, leaders are placing more empha- has real value when it means that there are us the perspective and guidelines to help guide but also on how you can reach out and ask for sis than ever in crafting a common narrative that lucrative opportunities we do not take. That gives decisions about the right thing to do.” help, and make ethics something that’s natural explains why their company exists and how it teeth to purpose.” to discuss and debate.”24 25
The Ethics Study2021 4. Track non-financial metrics of success and societal impact Case study: Rabobank To support their commitment to purpose-driven profit: the purpose-driven perspective has to pre- decision making, leaders are committed to devel- vail in the long term. Once business leaders have Integrating values-driven decision making oping new measures of success. Some 85% clear metrics that enable them to take into account believe that tracking non-financial metrics of suc- various social and environmental returns, these cess and societal impact is essential to becoming tensions will become much easier to resolve.” Rabobank was one of the first financial institutions worldwide to an ethical organization. establish an Ethics Committee. Founded in 1998, with a mandate to These trade-offs present themselves in two ways. “assess practical situations that have an underlying ethical issue and First, many leaders still experience conflicting pri- I don’t think there are intrinsic orities between financial returns and the broader weigh them against the values and norms of Rabobank,” the commit- tee is designed to provide the bank with direction and consistency tensions between purpose and interests of stakeholders. For this group, enabling the business to prioritise objectives beyond tra- with regard to making ethical choices in line with Rabobank’s mis- profit: the purpose-driven ditional measures of profit and loss depends on sion, identity, and the Rabobank Compass of values and behaviours. perspective has to prevail in having quantified metrics of stakeholder value and societal impact. By tracking impact with the same When Rabobank CEO Wiebe Draijer took over the helm of the bank the long term. Once business detail and rigour as traditional metrics of financial in 2014, amid highly challenging circumstances for the industry, he leaders have clear metrics success, companies can make decisions that are both more informed and more transparent. sought to give new prominence to the committee. In our conversation, that enable them to take into Draijer told us about the importance of the committee in creating a Second, even for leaders who insist that the trade- renewed sense of trust and transparency in managing complex ethical account various social and off between societal impact and financial success issues: “I inherited a committee that had been there for many years, and environmental returns, these is illusory — often pointing to longer-term measures when I took over, there was a real debate about whether it was actually of stability and sustainable growth — a further tensions will become much challenge remains. Determining a company’s most needed. So I decided to put the committee on a pedestal: I’m going to chair it, I’m going to be there every time, and I’m going to put the bank’s easier to resolve. effective approach to societal impact is compli- cated by the breadth and interconnectedness of the best people on the committee. Kenny Nwosu, Chief Executive Officer of issues and by an array of disparate environmen- Norsad Finance tal, social, and governance metrics. In particular, “The most important thing we did is to make the committee fully trans- many leaders underline the challenge of managing parent: anyone at the bank can take notice of the minutes of every In keeping with Drucker’s maxim that what gets trade-offs between environmental impact — where meeting, in Dutch or in English, and see what was discussed. And that measured gets managed, leaders believe that to quantitative metrics such as a carbon price can help them in making decisions framed in financial does two things: it clarifies issues that are not covered by formal rules ensure that day-to-day decisions are informed by purpose, new measures of societal impact must terms — and broader social issues such as com- and regulations; and it helps people to reflect on issues, see the differ- stand alongside traditional metrics of financial suc- munity development, labour standards, and human ent points of view, and understand the dilemmas involved in dealing cess. In the words of one leader in the financial rights, where business lacks common metrics to with ethics at the frontier. So we take practical issues that our people services sector, establishing new metrics that can track benefits and harms. are encountering day to day, navigate new angles and new directions, track a company’s journey against its long-term and then bake those decisions into our policy and processes.” targets is a way of “bringing rigour and transpar- Leaders see great potential in the coming decade ency into an emotional discussion.” to develop new approaches to this fundamental challenge by identifying the issues on which their One critical role of non-financial metrics, leaders organizations wish to contribute, selecting the believe, is in enabling companies to manage com- most appropriate measures of success, and build- plex trade-offs within the ethical and responsible ing these goals into decision making at every level. business agenda. As Kenny Nwosu, Chief Executive Officer of Norsad Finance, reflects, “I don’t think there are intrinsic tensions between purpose and26 27
The Ethics Study2021 Shaping an inclusive, ethical culture 5. Ensure an inclusive culture that creates opportunity for all 6. Shape, monitor, and track a culture that enables people to do the right thing Just as leaders recognise the importance of Leaders also see a clear need to improve the rep- enabling their people to make effective ethical resentation of minorities in leadership positions, Another critical element of the ethical orga- their priorities with their managers on a decisions, they also see employee experience both from the perspective of equity and social jus- nization, identified by 97% of the leaders we monthly basis, and these check-ins enable as critical to success in building a more ethical tice, and as a driver for change in the organization. surveyed, is the ability to shape, monitor, transparent and honest conversations about organization. With more attention than ever on As one senior leader in the Middle East reflected, and track a culture that enables people to priorities, expectations and behaviours.” issues of diversity, equity, and inclusion, 94% of “Having more women on the board has changed do the right thing. business leaders see an imperative to personally the entire perspective of the company: the other Leaders also see a growing need to think ensure that their companies foster an inclusive members have realised that there were many Leaders recognise that the responsibility differently about monitoring and tracking culture. As Mark Hoplamazian, President and CEO things that needed to change to make the envi- for ethical and responsible decision mak- the culture of their organizations. For many of Hyatt Hotels Corporation, observes, “We’ve ronment more suitable for women.” The Founder ing sits not just with those at the top, but firms, culture has been synonymous with extended our understanding of what it means to and CEO of INvolve, Suki Sandhu, stressed the must be integrated throughout their organi- employee engagement, and while the wellbe- operate ethically beyond what we would consider importance for leaders to build empathy with zations. As leaders increasingly recognise ing and satisfaction of their people remains a to be the tenets of our code of conduct, to cover underrepresented minorities: “We work with that complex and ambiguous ethical deci- critical area for attention, leaders understand human values, seeing one another first and fore- many businesses in which the majority of the sions will be made not only by leaders, but that they need deeper insight into how the most as humans and only then as professionals.” positions of power are filled by white men, trying also by relatively junior people on the front- cultural environment can support employees to get them to build empathy with people who are line, they know that the company’s ability to make good, ethical decisions. By under- One of the clearest themes emerging from our different. We’ve seen a lot of progress with gender to act ethically and responsibly depends standing the core drivers of ethical culture, conversations was a focus on shifting the dis- because a lot of people have daughters or they on effective communication, training and and developing new ways to monitor and cussion from metrics and targets that measure know women who are entering the workplace decision making frameworks, as well as the track the ethical health of the organization, representation — of leaders from Black and ethnic and can learn from them about the experiences cultural environment they create. leaders are building confidence that their minority backgrounds, for example — and towards of women. In the case of race and ethnicity, there people can consistently do the right thing. a clearer understanding of equity and inclusion. isn’t that critical group of diverse people that peo- A recurring theme in our conversations is A 2020 report from the Institute of Business ple at the top are exposed to.” leaders’ belief that the new era of ethical Ethics, The Ethics of Diversity, revealed a growing and responsible business will be driven by shift amongst business leaders to go beyond the Leaders believe that they must enable people from a culture shift across their organizations. traditional business case that focuses on the all backgrounds to thrive within the organization Leaders believe that this shift will require a impact of diversity on corporate financial per- and feel a sense of belonging and trust. As Trevor new approach to giving their people clear formance, and towards an imperative for action Manuel, Chairman of Old Mutual Limited, explains, responsibilities, developing the right skills that considers moral and ethical issues as well “Part of developing an organizational culture in a and capabilities, and structuring appropriate as broader definitions of inclusion. These defini- multicultural environment is to enable people to incentives that allow them to move beyond tions encompass neurodiverse people and people connect with one another and one another’s cul- a rules-based environment to one in which with disabilities, and also take into consideration ture. On Africa Day, people come to work dressed every individual can consistently do the right cultural and socioeconomic backgrounds.4 in traditional clothes: through these and other cor- thing. “Ingraining our values and ethics into porate initiatives, we make it easy for employees our culture has been one of our priorities, to relate to colleagues in all countries, truly blend- and we deeply believe that this will accel- ing our cultures into our way of working.” erate business performance,” says Yvonne Garcia, Chief of Staff at State Street. “We have ingrained our values in our performance priorities. Each employee sets and reviews28 29
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