Business Ethics as Risk Management
Responses to recent corporate collapses have overlooked the importance of business ethics in managing risk
* Four indicators of business ethics and their risk management aspects are discussed
* Investors are wanting companies to disclose how they are managing the risks from poor business ethics practices
Over the past decade, poor risk management of various kinds, for example, a lack of board independence or potentially compromised auditors, has contributed to sometimes spectacular company losses and failures. Largely absent from regulatory and (until recently) investor responses to this has been a consideration of business ethics. As the collapse of Enron demonstrated, all the correct oversight structures of an independent board and corporate governance charters cannot compensate for the lack of an ethical corporate culture.
The importance of business ethics in risk management has hovered around the edges of inquiries such as the Owen Royal Commission and the Jackson Inquiry. Both inquiries looked beyond mere legal boundaries on company behaviour, to wonder if all the costs and reputation damage could have been avoided by (in Justice Neville Owen's words) someone asking 'is this right?'
Why has the issue of business ethics not received more systematic attention from business and investor groups? One explanation could be that ethics is a contentious subject that overlaps, sometimes uneasily, with questions of law. Another explanation is that real measurement of ethics by outsiders is difficult, although not impossible. However, investors are beginning to focus on business ethics as one of the missing pieces to the risk management puzzle.
Research commissioned by BT's superannuation fund clients and performed by Monash Sustainability Enterprises, has shown that poor business ethics practices can translate into a range of risks to company performance and returns to shareowners. This article discusses the business ethics indicators used, the
* Four indicators of business ethics and their risk management aspects are discussed
* Investors are wanting companies to disclose how they are managing the risks from poor business ethics practices
Over the past decade, poor risk management of various kinds, for example, a lack of board independence or potentially compromised auditors, has contributed to sometimes spectacular company losses and failures. Largely absent from regulatory and (until recently) investor responses to this has been a consideration of business ethics. As the collapse of Enron demonstrated, all the correct oversight structures of an independent board and corporate governance charters cannot compensate for the lack of an ethical corporate culture.
The importance of business ethics in risk management has hovered around the edges of inquiries such as the Owen Royal Commission and the Jackson Inquiry. Both inquiries looked beyond mere legal boundaries on company behaviour, to wonder if all the costs and reputation damage could have been avoided by (in Justice Neville Owen's words) someone asking 'is this right?'
Why has the issue of business ethics not received more systematic attention from business and investor groups? One explanation could be that ethics is a contentious subject that overlaps, sometimes uneasily, with questions of law. Another explanation is that real measurement of ethics by outsiders is difficult, although not impossible. However, investors are beginning to focus on business ethics as one of the missing pieces to the risk management puzzle.
Research commissioned by BT's superannuation fund clients and performed by Monash Sustainability Enterprises, has shown that poor business ethics practices can translate into a range of risks to company performance and returns to shareowners. This article discusses the business ethics indicators used, the