Ethics: rhetoric and reality

In 1992 just 261 listed companies produced ‘non-financial’ reports on their
impact on the environment, society and workforce. By the end of last year this
figure had risen to more than 2,500, including about 90% of the FTSE100.

Any casual observer might conclude from this that an ethics and corporate
responsibility revolution has taken place. And, the UK produces more of these
reports than any other markets world-wide.

However, there is a growing gap between the rhetoric and the reality. For
many companies these reports are soft marketing rather than a serious attempt to
describe what is really going on inside the organisation. As the reports are
part of a communications function in most companies, the gap with actual
business practices can be significant.

The recent wave of corruption scandals comes to mind, such as the 37 UK
construction firms that admitted to the OFT that they had rigged some bids.
These 37 include winners of corporate responsibility awards!

One might conclude that the gap between the rhetoric and reality does not
matter. But the costs cannot be under-stated. In the construction case the OFT
can fine companies up to 10% of their turnover. In addition they will be removed
from tender lists so work will be lost.

Softer costs include the considerable amount of management time needed to
clean up the mess as well as the departure of unimpressed employees.

Clearly there is still a lot of cleaning up to be done and anyone who thinks
that sound business management is not cost-effective should take a long hard
look at the long-term impact of these types of scandals on their reputation.

Having conducted more than 250 assessments in 40 countries for almost 100
organisations, GoodCorporation has found that one of the biggest problems
businesses face is that much of the corruption goes on beneath the radar of
auditors, lawyers and finance departments. Even the brightest of forensic
accountants will not see insider trading, a conflicted supplier relationship,
facilitation pay-ments or the inappropriate acceptance of hospitality, as these
are almost always hidden beyond the scrutiny of the accounting system.

Accountants can help their clients to protect their reputation by helping
them recognise that many of the answers are about culture, values, incentives
and behaviour. Better accountants and stronger controls are certainly welcome,
but they are just one part of making corporate responsibility a reality.

Leo Martin is director at ethical auditing company Good

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