Trust at a premium: the importance of professional ethics

October 2024  |  FEATURE | CORPORATE GOVERNANCE

Financier Worldwide Magazine

October 2024 Issue

Ethical practices are becoming increasingly important to companies’ success. Businesses worldwide are recognising the significance of ethical conduct in fostering trust and building a strong reputation. Establishing trust, promoting accountability and encouraging ethical decision making has perhaps never been more important.

Workplace incidents involving harassment or poor treatment of employees can be hugely damaging. They are key indicators of what can happen when ethics are not integral to the way an organisation operates.

Ethics in business involves a framework of moral principles and values that direct how decisions are made and behaviour is conducted within a company. These principles apply to relationships with employees, customers, suppliers and the wider community. Although ethical standards can differ across cultures and societies, certain fundamental values like honesty, integrity, fairness and accountability are universally recognised.

Building trust can be a tremendous challenge for organisations. And while it can take years to cultivate, it is fragile and can be shattered in an instant.

According to a recent Principia report, professional services firms are under increased scrutiny regarding ethics and integrity. Conspicuous shortcomings in the audit sector have spurred urgent calls for reform to protect market integrity. In the consulting industry, ethical lapses and complicity in widespread harm have spotlighted the need for stronger ethical standards. Law firms are also experiencing rising pressure to meet ethical expectations from clients and the public alike. With trust more critical than ever, ethics and integrity are in the spotlight.

Invaluable asset

A strong reputation is an invaluable asset for any business. It can act as a competitive advantage, attracting customers and partners while enhancing brand loyalty. Ethical behaviour contributes significantly to a positive reputation. When a business consistently makes ethical decisions and acts in the best interests of its stakeholders, it earns a reputation for reliability and integrity.

Several factors have elevated the importance of fostering an ethical organisational culture in today’s business landscape. Among them are the competition for talent, evolving employee expectations of the workplace, and high-profile scandals.

According to the Edelman Trust Barometer, 60 percent of individuals prioritise an alignment with their beliefs and values when selecting an employer. Developing an ethical culture is now paramount, not only from a regulatory and employment law standpoint, but also for employee engagement.

Conversely, unethical behaviour can lead to reputational damage that is often difficult to repair. Be it fraud, deception or disregard for society or the environment, such behaviour can tarnish a company’s image, leading to loss of customers, legal claims and financial setbacks.

When a company’s reputation takes a hit, so too does its ability to attract customers, employees and investors. According to a World Economic Forum study, up to 25 percent of a company’s market value is based on reputation. Reputational damage can cause customers to lose trust in the brand, leading to an exodus of existing customers and raising a barrier against new ones. Loss of sales and revenue as well as a negative impact on stock price may follow.

Other stakeholders may be affected too. Employees may be demotivated by the adverse fallout, feel less committed to the company and raise the question of job security if the company experiences a sharp drop in revenue. Investors can suffer if profits deteriorate. Suppliers may be concerned about the company’s ability to pay bills and fulfil other obligations.

Reputational damage can create a vicious cycle which a company may find very difficult to escape. Preventing it is crucial to maintaining stakeholder trust. To this end, crisis management plays an important role. Transparent, effective and timely communication with customers, employees, suppliers and investors can help reduce the impact.

Ethical codes

In light of these developments, many organisations are creating specific ethical codes to help guide their operations and assess how their activities impact stakeholders overall. These ethics programmes are designed to maintain standards of accountability, responsibility and professionalism as companies navigate the challenges of day-to-day circumstances.

While there are certainly reputational imperatives for professional ethics, there are also legal and regulatory requirements for organisations to act ethically. Regulators are intensifying their focus on the role of culture in compliance, demanding that firms identify and address the root causes of any failures.

Senior leaders therefore need to equip their companies to handle various legal and regulatory obligations, and commit to maintaining adequate professional standards – an ever more complex process.

Today, companies must comply with a vast and intricate web of regulatory and professional standards, across jurisdictions. Managing compliance throughout a global network and equipping partners and professionals with the tools for the job is an enduring and difficult task, but one that senior leaders must grasp with both hands. Failure to do so may attract regulatory ire, impair trust and reputation, and invite significant financial penalties.

In the UK, the Financial Conduct Authority (FCA) has emphasised the importance of firms cultivating the right culture. It focuses on culture and governance by looking at the key drivers of behaviour that may cause harm. These include a firm’s purpose, the role of its leadership team, its approach to managing and rewarding its employees, and the effectiveness of its controls and governance.

Culture

To ensure that employees adhere to the highest possible standards, companies need to establish the right culture, always taking into account compliance and ethics. Culture encompasses beliefs and behaviours that determine how a company’s employees and management interact, and how third parties and other stakeholders are perceived and treated.

It is no longer enough for companies to purely seek profit in order to be competitive; they must strive for an ethical reputation. This is essential for attracting and retaining employees and maintaining a positive brand image.

To operate ethically, organisations require an ethics programme which embodies and supports their core values. Whether formal or informal, depending on the organisation’s size, this programme should feature a code of ethics as its cornerstone.

While values serve as a roadmap for workplace behaviour, a code of ethics guides employees through ethical dilemmas. It not only lays down expected behaviours but also enshrines the company’s values, moving beyond mere compliance.

Company leaders have an integral role to play in this process. They are responsible for ensuring that these expectations are understood and attainable. After distributing a code of ethics, taking on feedback from staff and other stakeholders can provide valuable insights.

Culture should extend beyond the four walls of the office and encompass remote and hybrid workers too. The shift to remote working since the onset of the coronavirus (COVID-19) pandemic, has raised new ethical challenges. Companies need to be innovative and adapt to find ways to overcome them and tackle cultural barriers. They cannot adopt an ‘out of sight, out of mind’ approach.

Ethical standards may drop if employees do not interact in person daily, so efforts should be made to avoid this outcome. Many organisations communicate ethical messages and policies through various technology platforms, such as videoconferencing applications. Chat channels can be dedicated to specific topics or technical areas, for example.

Accountability

The process of strengthening ethics and culture in the workplace is continuous, with many stages. Senior leaders should keep ethical principles top of mind, weave ethics into everyday decisions, and reward ethical behaviour through formal and informal incentives and opportunities.

The process starts with setting the right tone at the top. Leading by example establishes the right ethical standards throughout an organisation. It fosters trust, which is crucial for accountability within a team.

According to Gallup, although only 40 percent of employees report unethical behaviour in the workplace, they are 24 percent more likely to do so if they trust their leadership.

Also important is adopting the right ‘tone in the middle’, as this can influence employee behaviour further down the chain. If employees in the middle tier of the organisation are surrounded by coworkers who commit unethical acts, they are likely to adopt similar behaviour, regardless of what their bosses advocate.

Creating a culture of accountability among employees is central to furthering the cause of professional ethics. This can be challenging, however. Organisations may suffer from poor employee buy-in, an unclear vision or mixed messages from management. According to a recent Partners In Leadership study on workplace accountability, 91 percent of respondents included accountability at the top of their company’s leadership development needs.

To build a culture of accountability, companies must fully understand what this means. There are differences between accountability and responsibility, for example. While responsibility refers to a person’s actions as they relate to the completion of a task, accountability is concerned with the results of a given task and carries with it a sense of ownership over those results.

If companies hope to drive accountability and ethical behaviour, every employee must understand how their work feeds into the organisation’s success or failure. In turn, leaders need to set appropriate goals, establish clear expectations, foster a sense of safety and stability, ensure employees have the resources they need, and put in place channels for submitting feedback.

North star

Ensuring employees adopt ethical practices is not about short-term gains, but rather sets a company on the path to long-term success. It provides a bedrock, particularly during times of economic and geopolitical uncertainty.

Professional ethics enhance trust and credibility, encourage integrity, support professionalism, facilitate personal and career growth, and ensure adherence to laws and regulations. Upholding ethical standards can lead to a positive, efficient working environment and a prosperous, sustainable business.

Honesty, integrity, fairness and accountability should be the foundations that support a professional ethics programmes. Embracing ethics is increasingly necessary for building trust, enhancing reputation, enduring growth, and thriving in the global marketplace.

Especially when challenges arise, a robust framework of professional ethics demands that employees walk a moral path. This reinforces standards for ethical behaviour across the professional services community. At a time when uncertainty abounds, trust and ethics can be a north star.

© Financier Worldwide

BY

Richard Summerfield