Company ethics codes mere window dressing, global study finds

A Deakin University business ethics expert has called on the Federal Government to legislate to force Australian corporations to comply with their code of ethics.

Associate Professor Greg Wood from the University's Bowater School, who has looked at company compliance with their code of ethics said his research showed that while many companies had an ethical code, few aligned it with their activities in the market place - a practice which could lead to another Enron or HIH.

The survey has been run over 10 years and looked at Australia's top 500 companies' commitment to business ethics. It has been replicated in Canada, Sweden, the United States, Turkey and Taiwan.

"If you look at legislative change and company behaviour, there is a clear link," Professor Wood said. "For instance companies' support for whistleblowers coincided with changes to the Corporations Act."

Professor Wood said business ethics was not a major consideration in Australia until the stock market crash of 1987.

"This event, and the more recent USA Sub Prime crisis has put the spotlight firmly on the ethical practices of a number of high profile companies and individuals.

"When we started our Australian study, the collapses of One.Tel, Ansett, HIH were still five years away. However, with the USA Sub Prime crisis, the sentencing of former HIH executives and the James Hardie asbestos payout saga continuing to play out in the media one has to ask has business ethics evolved to a higher level or are we still stuck in the past?

"What came through in the Australian study and was echoed in the overseas research was that while companies had a code of ethics, and these numbers increased year on year, less than half used them in strategic planning. This was despite companies communicating their ethical codes widely and using them for disciplinary purposes.

"If a company does not consider its code in its strategic planning processes then how does it ensure that its strategic plan, which guides its actions in the market place, is not at odds with its espoused ethical principles?"

Associate Professor Wood believes that this gap is the "chink in the armour" and may explain why miscreant behaviour from companies that otherwise appear to be doing good is still seen.

"One of the reasons these high profile company crises continue to arise may well be because the code of ethics is rarely considered in the strategic planning process," he said.

"They are not looking at them as linked documents. This is fundamental. It is not a new idea but strange that today that it is not happening even in companies that have all of the business ethics artefacts in place to support the ethos of the code. One would expect that a code of ethics would be integral to strategy formulation.

"It could lead one to proffer a cynical view that for some companies these ethical codes are little more than window dressing or a PR device aimed to deflect scrutiny of the organisation or worse viewed as a legal defence against potential accusations of malfeasance rather than as a document that is embedded for its intrinsic value in to the organisation's psyche."

Further information about the study:

A three-stage research procedure was used and conducted across 1995 and 1996. The process was replicated in 2000 and 2001 and then replicated again over 2005 and 2006. A questionnaire was sent to all of the public relations managers of the top 500 Australian companies (based on revenue) operating in the private sector: firms which, for several reasons such as size of turnover, employee numbers, business profile and the like, are more probable to have developed a formal ethics code. Companies were asked to answer up to 30 questions and to supply a copy of their code of ethics. The second stage involved the content analysis of codes of ethics supplied by survey respondents. The third stage involved a more detailed follow-up of a small group of firms that appeared to be close to best practice.