Managing responsible business

Managing responsible business

Contents Foreword from the Chartered Institute of Management Accountants (CIMA) . . . . . . . . . . . . . . . . . . . . . . . . . 2 Foreword from the Institute of Business Ethics (IBE). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2. Survey results and discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.1 The challenge for business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.2 Prioritising issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.3 In focus: the environmental imperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.4 Managing business ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.5 Involving the finance team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.6 Experiencing ethical conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 4. Research methodology and demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 5. References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 6. Appendix – definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 About CIMA and the IBE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Managing responsible business | 1

Foreword from CIMA CIMA is very pleased to have teamed up with the Institute of Business Ethics to bring you the results of this survey. We are committed to contributing to the debate on corporate responsibility and business ethics, and are particularly excited to be playing an important role: tapping into global trends and translating them into the latest thinking on business ethics management. This research forms part of our responsible business programme, which covers a number of ethics and corporate responsibility outputs.

In this study, 1300 finance professionals told us how they are involved in managing their organisation’s ethical performance. 84% said that business has a moral obligation to help address global issues such as climate change and poverty, and over half report that ‘environmental impact’ is more important to their company now than it was two to three years ago.

If there is a global trend towards the increasing importance of business ethics and corporate responsibility then there are encouraging signs that organisations are beginning to tackle these issues.

However, there also appears to be a lack of practical action taking place, with only one third of the organisations surveyed publicly reporting on ethical performance or CR. Even fewer (30%) actively collect ethical management information, despite nearly half of those who fail to do so thinking their organisation would benefit from it.

2 | Managing responsible business

Finance professionals have a growing role to play in managing ethical performance. Over half (59%) contribute to managing their organisation’s ethical performance, and 73% believe that it will be a part of their role in the next few years. Many contribute by demonstrating high professional standards: ‘upholding their professional code of ethics’, ‘ensuring the integrity of management information’ and ‘leading by example’. Only 16% believe they contribute via the analysis or collection of ethical management information, with even fewer (15%) saying they contribute by reporting ethical performance against their goals.

These survey results represent a welcome first step in the process of pushing ethical business issues higher up the agenda. While it is heartening to note that management accountants across the world have grasped the bigger picture when it comes to realising the importance of business ethics issues, it is also clear that this area needs to be embedded in organisational strategy and reported on more thoroughly. Responsible, sustainable business is an area that management accountants are well placed to drive forward and continue to influence. CIMA looks forward to leading the way in supporting them as they take on this challenge.

Charles Tilley Chief Executive Chartered Institute of Management Accountants www.cimaglobal.com

Foreword from the Institute of Business Ethics The Institute of Business Ethics (IBE) is delighted to have worked with CIMA in designing and analysing a survey to explore how management accountants contribute to their organisation’s ethical performance. The IBE has worked with CIMA on a number of projects, most notably in assisting with the development of the ethics syllabus for the CIMA Certificate in Business Accounting.

Ethics is increasingly being acknowledged as an important aspect of business practice. Organisations that take ethics seriously also tend to take their reputation, their governance, and ultimately their business seriously. In today’s world, shareholders and stakeholders have high expectations of organisations; they expect them to be run to high ethical standards.

For the IBE, this survey is important as it identifies how businesses are responding to the increasing attention to high standards of business conduct and what this means for the finance function.

CIMA’s own professional code of ethics demands that its members act with integrity. It is clear from this survey, that they have a strong sense of their own ethical responsibilities, both as finance professionals, and as employees of organisations. In leading by example, CIMA members contribute to the ethical culture of the organisations in which they work.

At a time when the business climate is becoming difficult, doing business ethically may become more of a challenge. However, IBE research has indicated that companies which are explicit about their ethical values may find that they are the ones who ride an economic downturn best.

Philippa Foster Back OBE Director Institute of Business Ethics www.ibe.org.uk

The results of the survey set out in this report, under the authorship and editorial control of CIMA, make for interesting reading. In particular, it is encouraging that nearly nine out of ten CIMA members said that their senior management are taking ethical issues seriously.

It is clear that management accountants and other finance professionals play a vital role in supporting this management commitment and upholding the integrity of their organisations. The importance of this role will increase as more organisations seek not only to act ethically, but to prove that they are, to both internal and external audiences. The skills of finance professionals in collecting and analysing management information can contribute to managing non-financial performance and so assist in providing the assurance that organisations are living up to the ethical standards they set for themselves.

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Executive summary In March 2008 CIMA, together with the Institute of Business Ethics (IBE), surveyed finance professionals about their attitudes to ethical standards. 1300 responses were received (7.8%). 51% are based in the UK, and 70% work in the private sector.

84% of finance professionals believe business has a moral imperative to help address global issues, but companies are not doing enough. They are tackling ethical issues on a superficial level but are failing to strategically manage their ethical performance. When business ethics is not properly managed it can have serious impacts on the bottom line. This study shows that companies may not be prepared for the growing importance of emerging issues such as environmental impact and work/home balance.

CIMA believes that businesses need to move on from an operational, check-box approach. They need to consider ethical performance at the strategic level, integrating it into the way they do business.

Companies need to stop seeing business ethics as an add-on and instead embed it into core business processes.

Finance professionals also need to be aware that managing ethical performance is going to become more important to their role. While many are indirectly contributing to business ethics in their organisation, their potential direct contribution is being overlooked. They are in a position to add value to companies by contributing to managing ethical aspects of performance, but their skills are not being used effectively.

Managing performance against ethical goals will become an increasing part of finance professionals’ roles. Companies need to change the way they train and incentivise their finance teams so that their skills can be harnessed to help collect, analyse and report on ethical management information.

We believe that to move forward, steps need to be identified that will help companies achieve true integration of ethical concerns and opportunities into the way they do business. Organisations need clear recommendations on how to implement practical actions to back up their ethical codes. CIMA will continue its work on responsible business in 2009 and beyond, leading the way in taking this area forward.

Results at a glance • • • • • • •

84% believe business has a moral imperative to help address global issues.

Companies still tend to address ethical issues on a superficial level.

‘Safety and security’ and ‘security of information’ are considered the most important ethical issues.

New issues such as environmental responsibility and work/home balance are receiving more attention.

Finance professionals are becoming more involved in ethical performance management.

A key role for CIMA members is to ensure the integrity of management information.

Three out of ten respondents have experienced pressures to compromise ethical standards.

1300 responses were received globally

4 | Managing responsible business

What is business ethics?

Business ethics is the application of values – such as honesty, integrity and fairness – to business behaviour. It is about how a company does business, rather than what it does. It applies to any or all aspects of business conduct, from boardroom strategies to sales and marketing techniques; accounting practices to treatment of suppliers and customers.

Standards of business ethics are usually set out in an organisational code of ethics or conduct. This can cover such diverse elements as treatment of suppliers, anti-competitive practices, bribery and corruption, environmental pollution, product safety and impact on local communities.

A commitment to high standards of business ethics involves the management of non-financial aspects of performance. This can encompass what is talked about as corporate social responsibility (CSR), corporate responsibility (CR) or corporate citizenship. While opinion is divided as to whether these terms all mean the same thing, they all have in common that they are about organisations taking responsibility for the way they conduct their business and the impact of their operations, beyond a concern for the financial bottom line.

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1 Introduction

CIMA, in association with the IBE, carried out survey research to explore how management accountants contribute to their organisation’s ethical performance. We wanted to find out what steps companies are taking to manage their performance against ethical goals, and to explore the role of the finance function in supporting this.

The purpose of this research was to identify how businesses are responding to ethical challenges and what this means for the finance function. It looks at the contribution accountants currently make to their organisation’s management of ethical performance, and asks whether this role is likely to develop. It also explores what the most important ethical issues are for companies today and how these will change over the next few years.

Companies are increasingly trying to demonstrate that they do business responsibly. More and more are adopting codes of ethics (or similar documents), and a growing number report publicly on their corporate responsibility. A recent IBE survey showed that 71% of companies with an ethics policy now provide training on its application, while other IBE research indicates that those who seek to embed their codes in this way financially outperform those that do not1. A loss of trust between a business and any of its stakeholders (such as employees, customers, investors, suppliers or civil society) impacts negatively on business performance. Conversely, in a time of reduced economic activity, a reputation for integrity may help maintain the loyalty of staff and customers.

We examine whether companies are using the skills finance professionals have in collecting and analysing management information to help manage ethical performance and meet ethical commitments. If their skills are not being used in this way, do finance professionals have a different part to play?

Although the importance of an ethical culture and a responsible reputation is being recognised, we still hear in the media of organisations being criticized because of ethical failings. Whether it is accusations of high-risk trading strategies by banks, extractive companies accused of environmental degradation or allegations of slave labour in the factories supplying Western supermarkets with clothes and toys, almost every sector has been touched by ethical scandal.

The results of this survey have wide implications.

Companies will need to consider whether they are adequately managing their ethical performance, and whether they are able to assure their boards of this. They will also need to decide whether the finance function is contributing sufficiently to ethical management processes.

There are implications for those responsible for educating management accountants, too. They will need to consider whether they are adequately equipping them to contribute to the ethical culture and performance of a company. CIMA is already leading the way in educating finance professionals in business ethics: it is a fundamental element of the CIMA syllabus and an important part of continuing professional development.

Note: the charts may not add up to 100% due to ‘data roundings’ during analysis.

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2 Survey results and discussion

2.1 The challenge for business Many organisations are addressing their ethical responsibility by adopting a code of ethics. 72% have a code of ethics or similar statement of business values, showing that they recognise the importance of responsible business practice. The number putting codes in place has been steadily increasing: research into UK companies in 20052 found that 65% of workplaces had one. It is a shrinking minority that have yet to see the importance of guidance for their staff on ethical matters.

the need for a code, far fewer are doing anything to embed it (see Fig 1). A gap exists between what businesses are saying and what they are actually doing to bring their ethical values to life.

Despite the increasing number of codes and policies, many organisations remain exposed to ethical risk because they are not backing up their written statements with action. Only 46% of those in this survey provide ethics training, and fewer than one in five offer incentives to staff for upholding ethical standards. While many organisations have recognised

Respondents are noticing their organisations’ failure to reinforce ethical values. Almost four out of ten (38%) agree or strongly agree that ethical standards are not fully monitored or evaluated in their workplace.

Companies that adopt business principles without embedding them risk damaging their credibility in the eyes of employees.

The IBE suggests that, in addition to training, codes need to be backed up by other initiatives to support an ethical culture, such as exemplary leadership, awareness raising, speak-up mechanisms, incentives and ethical assurance programmes.

Figure 1 Ethics advice/services provided Does your organisation provide?

A statement of its ethical values, business principles or commitments to its stakeholders?

7

A code of ethics or similar document to guide staff about ethical standards in their work?

5

Training on ethical standards at work?

72

23

72

9

A hotline for reporting conduct that violates the organisation’s standards of ethics?

46

8

A helpline where you can get advice or information about behaving ethically at work?

46 53

11

Incentives for staff to uphold the organisation’s standards of ethical conduct?

40 55

35

13 0

Base: All respondents (1300)

21

10

68 20

30

Don’t know

40

50 No

60

70

80

19 90

100%

Yes

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2 Survey results and discussion

2.2 Prioritising issues and 4.48 respectively. Around half of respondents (51% and 49%) think these are more important now than they were a few years ago and many (51% and 41%) expect them to become even more important in the next few years.

So what are the key areas that companies should be taking action on? ‘Security of information’ and ‘safety and security’ are considered to be the most important, and will remain so in the future. On a scale where 1 is ‘not at all important’ and 5 is ‘very important’, these issues received mean scores of 4.52

Figure 2 Importance of ethical issues to UK finance professionals Currently, how important are the following ethical issues to your organisation?

Which ethical issues are significant to your organisation? (IBE survey 20073) Mean scores 5

100% 90 80 70 60 50 40 30 20 10 0

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Mean scores = where 1 is not at all important and 5 is very important

Our results <250 employees 251 – 5000 employees 5000 + employees

Percentage scores from IBE survey 2007

Please note: mean scores are from current survey and percentage scores are from IBE ‘Use of Codes of Ethics in Business’ survey 2007 based on 200 responses from CEO or person responsible for business ethics function in FTSE 350 companies which were also known to have a policy or code.

Base: All headquartered in UK (544)

8 | Managing responsible business

This trend is possibly a reflection of the heightened perception of the threat of terrorism which has been a feature of recent times. This receives a high profile in the media, pushing issues of personal safety to the fore. Advances in technology and fears for global security also mean that more information is stored, and that it is of a more sensitive nature, than ever before.

Security of information is more important to UK finance professionals than it is to the companies in the FTSE3504 (see Fig 2). While these companies also believe that ‘safety and security’ is the most important issue, they do not rate ‘security of information’ as highly as other issues including environmental impact, bribery, whistleblowing and discrimination. So why is security of information so important for finance professionals? This is perhaps due to their role as guardians of commercially sensitive information. Finance professionals often have greater access to confidential data than others.

They are responsible for information and for ensuring its integrity, and so they understand the importance of maintaining its security.

Almost half (43%) say work/home balance will become more significant in the next two to three years. These issues are considered the least important now, with a mean score of 3.56 (where 1 is not at all important and 5 is very important).

Only a third (31%) think that work/home balance issues have become more important in the last few years. However, work/home balance is in the top three issues predicted to grow in importance, after environmental impact (68%) and security of information (51%).

There is overwhelming evidence that environmental impact is fast becoming a key concern for business.

Although it is not as important as other issues now, the highest number of respondents – over half (57%) – feel it has become more important in recent years. Even more (68%) see it continuing to grow in the future. Companies need to understand that environmental performance is becoming a key issue, and would be well advised to prepare themselves to manage it appropriately.

‘Environmental impact will become increasingly important to business.’

‘Work/home balance issues look set to become more important.’

Managing responsible business | 9

2 Survey results and discussion

2.3 In focus: the environmental imperative 84% of respondents agree that business has a moral obligation to help address global issues such as climate change and poverty. 68% believe environmental impact will get more important.

This is an issue companies cannot afford to ignore.

Despite widespread agreement that tackling environmental impact should be a priority for business, many companies are targeting their carbon footprint rather than integrating environmental concerns into their strategy and policy. 79% say their organisation is taking steps to reduce environmental impact. In 89% of cases these steps are to reduce their carbon footprint, for example by improving energy efďŹ ciency, reducing international travel or recycling waste. Far fewer are making long-term commitments such as integrating environmental concerns into strategy (54%) or implementing an environmental policy (62%).

Figure 3 Taking action to reduce environmental impact What is your organisation doing to reduce its impact on the environment?

Taking action to reduce its carbon footprint (e.g. recycling, energy saving, reducing international travel)

89

Implementing an environmental policy

62

Embedding environmental concerns and/or opportunities in business strategy

54

Integrating environmental concerns and/or opportunities into the product development and innovation process

43

Reporting externally on its environmental performance

42

Implementing a sustainable procurement policy

35

Monitoring suppliersâ&#x20AC;&#x2122; environmental performance Other

24 4 0

10

20

Base: All who are taking steps to reduce impact on the environment (1035)

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30

40

50

60

70

80

90

100%

In a 2007 study5, more FTSE350 companies (21%) were making operational energy efficiency and environmental impact reductions than, for example, making longstanding commitments (9%) or monitoring company progress (7%). This reinforces our findings – that businesses are failing to take the necessary steps to manage their environmental performance, despite its growing importance.

Less than half of those that are taking any steps to reduce environmental impact (42%) are reporting externally on their performance. We expect reporting on environmental performance to become more prevalent as environmental issues become more important.

Companies are missing out on opportunities to beat competition and boost the bottom line. A CIMA survey of economic trends6 found that 85% of FTSE350 finance directors were convinced that there are business opportunities in developing environmentally friendly products. By contrast, less than half (43%) of those who are addressing their environmental impact in this survey have done so by integrating environmental considerations into product development. Environmental concerns and opportunities are still not part of the product development and innovation process in the majority of cases, even where companies are taking steps to reduce their carbon emissions. Opportunities exist, but few businesses are embracing green innovation.

They need to move beyond carbon reduction in order to create competitive advantage in this area.

Alternatively, larger companies might be going green because they are under greater stakeholder pressure to do so. Their environmental impact is likely to be much bigger – and more conspicuous – than that of SMEs. This means they have a greater job to do to manage stakeholder concerns and might be under more pressure from them to take action. A CIMA survey into economic trends7 shows that for UK Finance Directors the onus is on large companies to take action on the environment. The study found that the majority of UK FDs (72%) thought that business should be doing a lot more for the environment, compared to less than one in three – 28% – who thought the same of SMEs. In this survey, 1 in 5 (20%) SMEs have not started to address environmental issues, compared to only 1 in 20 of the largest companies (over 5000 employees).

‘It is not only bad news for big companies: SMEs need to clean up their act too.’

Larger organisations are more likely to address environmental impact than SMEs. 87% of respondents from companies with over 5,000 employees say that their organisation has taken steps to improve their environmental performance, compared with 71% of SMEs. This could reflect the greater resources available to the largest companies, or it could be due to the existence of environmental regulation that only applies to larger companies.

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2 Survey results and discussion

Large companies are being held accountable for their environmental impact, but overall few businesses are taking the right steps to manage this. Recent media focus on climate change and reducing CO2 emissions has been taken on board and as a result many are trying to lower their carbon footprint.

While this is commendable, they are still not doing enough to manage their environmental impact at the strategic level. They are not reporting on their progress and companies – particularly large ones – are not meeting stakeholder expectations. It is not only bad news for big companies: SMEs need to clean up their act too, and take more action on environmental degradation and climate change as these issues grow in importance.

Figure 4 Taking action on environmental issues In terms of environmental issues... should small businesses (<250 employees) be doing: 1 Nothing more?

15% 2 A little more?

56% 3 A lot more?

28% should larger businesses (>250 employees) be doing: 1 Nothing more?

5% 2 A little more?

23% 3 A lot more?

72% Source: CIMA quarterly economic trends survey – Base =201.

March 20088.

Figure 5 Reducing impact on the environment 100% 71

85

87

9

5

7

8

251 to 5000 employees (large company)

More than 5000 employees (very large company)

90 80 70 60 50 40 30 20 20 10 9 0 Up to 250 employees (SME) Base: All respondents (1300)

Yes

No

Is your organisation taking steps to reduce its impact on the environment?

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Don’t know

â&#x20AC;&#x2DC;Less than one in three collect ethical management information.â&#x20AC;&#x2122;

2.4 Managing business ethics Most organisations are not gathering ethical management information. Despite almost three quarters having a code of ethics or equivalent, less than a third (30%) actually collect information to manage their performance against their ethical goals. There are signs that companies are considering their performance in relation to ethical standards, as over half (56%) have key performance indicators, or KPIs. However, they are still not demonstrating a considered and strategic approach. Companies have not implemented the necessary information gathering systems to ensure they live up to their stated ethical

standards. They are at risk of poor ethical performance or even scandal and the ensuing reputational damage this would bring. Corporate responsibility has been steadily moving up the agenda, but companies are still failing to manage these issues effectively.

Public reporting on ethical performance is also sporadic. Only 35% of companies report publicly on their corporate responsibility or ethics. Although they have a stated standard of business conduct, they are neglecting to report their performance against these and so cannot be held accountable.

Figure 6 Managing ethical performance and corporate social responsibility (CSR) 100% 35

30

90 80 70 42 46

60 50 40 30

28 20 19 10 0 Does your organisation publicly report on Ethical Performance/Corporate Social Responsibility (CSR)?

Base: All respondents (1300)

Yes

Does your organisation collect ethical management information?

No

Donâ&#x20AC;&#x2122;t know

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2 Survey results and discussion

In recent years codes have become more common and even enshrined in legislation9. This survey shows that many companies have a code but are failing to collect or analyse information about their performance against it. Failing to manage ethical issues effectively can affect financial performance and can leave organisations vulnerable to reputational risk.

Once reputation has been destroyed it is difficult to repair, and public trust is hard to win back. By failing to evaluate their ethical performance, companies risk facing real damage to the bottom line when poor ethical practices are uncovered.

Relatively few respondents see this pattern changing in the near future. Fewer than one in five (19%) think their organisation will begin to collect in the next two or three years – the same number as said that their company would not. Almost half (48%) believe collecting ethical management information would benefit their organisation. Finance professionals can see the value of managing ethical performance, but it appears their employers have not yet recognised the potential benefits.

‘Finance professionals recognise the potential value of managing ethical performance.’

Figure 7 Collecting ethical management information in the future

'' )%

&.

&.

Maybe Yes No Don’t know Base: All who state no or don’t know to collecting ethical management information (913) Do you think your organisation will begin to collect ethical management information within the next two or three years?

Company size affects how likely an organisation is to report and/or collect ethical management information. The difference is striking: 19% of SMEs collect ethical management information compared with 44% of organisations with over 5000 employees.

The pattern is even more pronounced when it comes to reporting. Whereas only 17% of SMEs report publicly, 61% of very large organisations (over 5000 employees) do the same.

It is possible that this effect of company size is due to larger companies being more likely to be listed and so more likely to produce public financial accounts into which corporate responsibility and ethical information can be fed. They may also be bound by legislation that requires them to disclose social and environmental information, such as the UK Companies Act 2006 which applies to medium and large quoted companies10.

14 | Managing responsible business

Figure 8 Effect of company size on ethical performance management Does your organisation publicly report on ethical performance?

Does your organisation collect ethical management information?

100% 17

40

61

19

33

44

90 80

72

64

70 34 60 37 13

50 40

43

13 30

33

20

23

26 16

10

11

0 Up to 250 employees

251 to 5000 More than 5000 employees employees

Base: All respondents (1300)

Yes

Most of the largest companies do collect and report ethical management information, so those that do not risk being viewed as lagging behind their peers. A minority of 13% do not collect or report.

These companies are not managing their ethical performance and risk suffering commercially as a result, because ethical lapses can impact on financial performance. There are strong arguments in favour of the view that managing non-financial, ethical, impacts is simply part of good business management.

Up to 250 employees

No

251 to 5000 More than 5000 employees employees

Don’t know

Ethical management information is normally gathered as part of regular management processes and is considered at the highest levels of the company.

Ethical performance data tends to be collected annually or quarterly, where it is collected at all.

‘Information about ethical performance is considered at senior levels.’

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2 Survey results and discussion

Anecdotal evidence suggests that general management information is usually gathered more frequently than this, but it is still encouraging that in 67% of cases it is collected as part of regular management processes. This implies that many of those companies that are addressing their ethical performance are doing so as part of core business, rather than as an add-on. In these organisations, managing ethical performance is integrated into the management of other aspects of performance.

It is also encouraging that ethical management information, when collected, is seen by senior people in the company. 86% report that data on corporate responsibility and ethics goes to senior management, and 68% say it goes to the board. Those organisations that have taken practical steps to manage their ethical performance are considering the issues in the same way as they do other management information.

Figure 9 How ethical management information is collected

As part of the organisationâ&#x20AC;&#x2122;s regular management information gathering systems

67

As a separate internal exercise e.g. staff survey

56

Internal audit report

53

Through appraisals/PDP

42

Analysis of speak up (whistleblowing) data

30

Feedback after ethics training

28

External assurance provider

22

Donâ&#x20AC;&#x2122;t know

6

Other

2 0

10

20

30

Base: All who collect ethical management information (387) How is information about your organisationâ&#x20AC;&#x2122;s ethical performance collected?

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40

50

60

70

80

90

100%

Figure 10 Frequency of analysis of ethical management information 30%

25

26 24 23

20 18 15

10

7 5 3 0 More frequently than monthly

Monthly

Quarterly

Annually

Less frequently than annually

Don’t know

Base: All who collect ethical management information (387) How frequently is ethical management information analysed?

2.5 Involving the finance team The increasing importance of ethics is already affecting the finance function. Well over half (59%) already contribute to managing ethical performance in their organisation. For 55% it is actually a part of their role, and this is expected to rise – almost three quarters (73%) believe it will be an element of their job in two to three years’ time. Although over a third (37%) say their role does not currently involve managing ethical performance, only 14% expect that this will still be the case in a few years’ time.

The proportion for whom it forms a major part of their role is also predicted to rise – jumping from 9% now to 14% in two to three years. Increasing numbers of finance professionals will manage ethical performance as part of their role, and for some it will become a major part of their role. Businesses will have to equip finance teams with the skills to manage ethical performance. For finance professionals, there will be a need to rethink their position in the company as their role is changing.

‘73% believe ethics will be part of their role in two to three years.’

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2 Survey results and discussion

Figure 11 The role of finance in ethical performance management: now and in the future 70% 60

59

50 46 40 37 30 20 10

14 14 13

9 8

0 Now

In two or three years

Major part of my role

Part of my role but not a major one

Not at all a part of my role

Not sure

Base: All respondents (1300) To what extent is managing your organisation’s ethical performance a part of your role now?

To what extent do you predict that managing your organisation’s ethical performance will be a part of your role in two or three years’ time?

‘Businesses are overlooking the potential contribution of the finance function to managing ethical performance.’

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While many contribute to managing ethical performance where they work, their skills are not being put to the best use. Surprisingly few – only 15-16% – are involved in the collection, analysis or reporting of ethical management information. On the other hand, almost all (94%) contribute by upholding CIMA’s code of ethics, 90% by ensuring the integrity of management information, and 87% by setting a good example. These are key elements of being a professional accountant, but they are arguably indirect contributions to the overall ethical performance of the organisation. All employees have some responsibility for ensuring their organisation lives up to its ethical values, and finance professionals are contributing to this. However, they have yet to take on a more specific role in managing ethics.

Finance professionals contribute to ethical performance in ways that are related to doing their job professionally, but relatively few put their skills to use producing or analysing data on ethical performance. Businesses need to resource their management of non-financial performance more efficiently. At present, the skills of the finance function in data collection, analysis and reporting are being largely overlooked.

The survey shows that formal responsibility for ethics is at the top of organisations. Responsibility tends to lie with the board (67%) and/or chief executive (55%). It lies with the finance director in 34% of organisations, about the same number as HR director and the audit committee. Only one in three (34%) respondents have formal responsibility for ethics themselves. This is another indication that finance professionals are not generally contributing in concrete, direct ways to management of ethical performance. However, it is encouraging that businesses are placing responsibility for ethics at senior levels, even if they are not yet adequately involving the finance function.

Figure 12 How finance professionals contribute 90

Ensuring the integrity of management information

34 94

Upholding my professional code of ethics

30 87

Leading by example

20 49

Incorporating ethical standards into strategic business decisions Reporting ethical concerns to the organisation

6 50 3 26

Contributing to developing the code of ethics or similar document 3 15

Reporting ethical performance against our goals

2

Collecting ethical management information

1

Analysing ethical management information

1

Other

2 1

16 16

0 Base: All who said yes or don’t know to contributing to managing ethical performance (817)

10

20

30

40

50

60

70

80

90

100%

Contribute to managing ethical performance Greatest part of your contribution

In what ways do you contribute to managing the ethical performance of your organisation?

Which makes up the greatest part of your contribution?

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2 Survey results and discussion

2.6 Experiencing ethical conflict Finance professionals experience similar pressure to compromise ethical standards as the rest of the population. Overall 70% report that they ‘never’ feel under pressure to compromise standards of ethical business conduct, while 27% do feel that they ‘sometimes’ are. These are broadly in line with IBE’s results for UK employees in any role in 200511.

Finance professionals are less likely to observe unethical conduct than other employees. Fewer than one in five (16%) have witnessed conduct that goes against the organisation’s ethical standards in the past 12 months. A relatively low number of UK finance professionals (10%) have witnessed wrongdoing in the past 12 months compared with 20% of employees

in the IBE’s 2005 national employee survey12. This is particularly surprising given that the IBE found that managers and supervisors were even more likely to have witnessed wrongdoing at work. We would expect many of the respondents in this study to be at this level of seniority in their organisation. It is possibly an indication that finance professionals are not as aware of ethical issues as the public in general. If this is true businesses will have to target finance professionals to ensure they have a good understanding of the company’s ethical standards. Alternatively, it might be that professional accountants are less likely to be in workplaces where misconduct is endemic, because being associated with this could prove a risk to their qualification.

Figure 13 Pressure to compromise ethical standards 80% 70 70 60 50 40 30 27 20 10 2

1 0 Always

Sometimes

Never

Don’t know

Base: All respondents (1300) Do you ever feel under pressure from your colleagues or manager to compromise your organisation’s standards of ethical business conduct?

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Figure 14 Witnessed violation of ethical standards 90% 86

80 74

70 60 50 40 30 20 20 10 10

3 6

0 Yes

No

Don’t know

Base: All who work in UK (666)

2005

2008

13

Please note: 2005 data is taken from the IBE ‘Ethics at Work’ survey based on responses from 759 UK employees including 316 with managerial or supervisory roles In your current role, have you personally observed conduct that violated organisational ethics standards, policy, or the law in the last 12 months?

Most respondents reported wrongdoing when they had come across it, but many were dissatisfied with the response. Seven out of ten of those that had witnessed an ethical transgression in the past 12 months reported it. Only 56% were satisfied with the way that the concern was handled, leaving 31% dissatisfied and 13% indifferent.

It is encouraging that the majority of finance professionals report wrongdoing when they observe it, but by not handling concerns in a satisfactory way, companies risk losing the confidence of their employees and discouraging them from reporting issues in the future. The most common reason for not reporting wrongdoing was not thinking that it would make a difference (27%). For many others, the issue simply resolved itself (22%).

‘The CIMA survey will reassure the public that accountants take ethics seriously and the vast majority will speak up if they come across an ethical concern. However, for employers there is a very clear message: your staff are less likely to tell you something is going wrong if they think it won’t make any difference.’

Cathy James Legal Director of Public Concern at Work

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3 Conclusions

An overwhelming majority of finance professionals believe that business has a moral obligation to help address major ethical issues.

Responsible business practices can also strengthen the bottom line. By not managing their ethical performance, companies are vulnerable to financial shocks from reputational damage and loss of public trust.

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Many organisations have suffered financially because they did not properly manage ethical risks. It is impossible to know how many more are losing ground to competitors because they are not taking advantage of the opportunities that embedding ethical considerations into strategy can provide.

Our results show that companies still have a long way to go to manage their ethical performance effectively. CIMA believes that a radical change in approach is needed. Companies must stop seeing business ethics as an add-on or something that is ‘nice to have’ and instead integrate it into core business processes. Companies have adopted codes and have delegated responsibility but they have not yet begun to manage their ethical performance in the same way they manage other parts of the business. Effective management of ethical performance needs to be recognised as an element of good business practice as well as a moral imperative. Not enough companies are taking concrete action to assess performance against their own ethical standards. This suggests that they still need to be convinced of the value of systematically measuring and monitoring ethical performance.

Organisations must also be prepared to tackle new ethical issues as they become more important.

Environmental issues are moving to the fore, driven by the urgency of climate change. In CIMA’s view, companies must respond by moving on from largely superficial efforts to reduce waste and energy consumption. They must address this strategically and integrate environmental concerns and opportunities into the way they do business if they are to remain competitive and stay ahead of legislation. Work/home balance issues are also set to be more significant in the future. Businesses need to start thinking now about how they can monitor and improve their performance in this emerging area.

There are also implications for individuals. As companies begin to embed their ethical goals into the business, the finance function will need to become more involved. Finance professionals must be prepared to contribute directly to managing ethical issues beyond carrying out their day-to-day role in a professional way, and be prepared to gather, analyse and report new kinds of information.

In order to make these changes, companies and individuals need a clear roadmap of how to effectively manage the ethical performance of an organisation.

It appears that some organisations have begun to embed such standards and issues into their core business decisions but the majority have not. The challenges now are to identify the steps companies must take, and to provide guidance on how to take them.

As CIMA’s responsible business programme progresses, we look forward to following up this initial research.

Further analysis into the ways that companies are managing ethical performance and the drivers for this will help business to embrace this growing agenda.

More work is also needed to fully understand how finance professionals can help businesses on their path to ethical performance management and whether there is a skills gap that needs to be filled. We will explore how organisations are managing performance against their ethical standards and what this means for management accountants through our ongoing programme of work on responsible business practice.

Organisations need to harness the skills of their finance professionals to manage ethical performance, but they also need to equip them for this expanding role. They need to ensure their finance function has the training and support available to be able to step up to the challenge of contributing to ethical performance management. There is an implied need for training in this area, and professional institutes and other educators must be aware of the function’s changing role. Organisations will also need to think about culture and the perception of ethics internally and change the way this is viewed by employees if they are to get the necessary buy-in from their staff.

These issues must become part of job roles, and employees must be trained and incentivised to live up to companies’ ethical standards.

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4 Research methodology and demographics

This research was carried out through a quantitative online study. Potential respondents were emailed a link to a questionnaire in March 2008. The target sample was 16,670 CIMA members in the UK, Ireland, Malaysia, Sri Lanka, Australia, South Africa, Hong Kong and Singapore. 1300 responses were received in total, equalling a response rate of 7.8%.

Figure 15 Sectors respondents work in

&.

+ ) &

,% 39% of respondents work for SMEs (organisations with less than 251 employees), 43% for large organisations (251 – 5,000 employees) and 19% work for very large organisations (5,001+ employees).

The majority are employed by the private sector (70%), and a significant minority by the public sector (19%). Only 6% work for non-profit organisations and 4% work in practice. The most popular areas of work for respondents were manufacturing (22%), financial services (15%), other commercial (12%) and business services (10%).

Public

Other

Not for profit

Private

In practice Please indicate which of the following broad sectors you are currently employed in?

Most respondents (65%) have job titles that clearly reflect a financial role: management accountant, finance manager, financial controller, finance director, finance/business analyst or other accountant. Of the remainder, 12% are either CEO, CFO, MD or another director.

42% of respondents work for companies headquartered in the UK. Of these, 91% also work in the UK. 51% of total respondents work in the UK. In this report any comparisons with IBE research refer to the responses from those whose organisation is headquartered in the UK only.

24 | Managing responsible business

5 References

1

Institute of Business Ethics. 2007. Does Business Ethics Pay? Revisited – The value of ethics training.

2

Institute of Business Ethics. 2005. Ethics at Work – A national survey.

3

Institute of Business Ethics. 2007. Use of Codes of Ethics in Business – 2007 survey & analysis of trends.

4

Institute of Business Ethics. 2007. Use of Codes of Ethics in Business – 2007 survey & analysis of trends.

5

Institute of Business Ethics. 2007. Use of Codes of Ethics in Business – 2007 survey & analysis of trends.

6

Chartered Institute of Management Accountants. 2008. CIMA Quarterly Economic Survey 2008 - Wave 1.

7

Chartered Institute of Management Accountants. 2008. CIMA Quarterly Economic Survey 2008 - Wave 1.

8

Chartered Institute of Management Accountants. 2008. CIMA Quarterly Economic Survey 2008 - Wave 1.

9

Sarbanes-Oxley Act of 2002 (Pub.L. 107-204, 116 Stat. 745, enacted 2002-07-30) (USA).

10

Companies Act 2006: Elizabeth II. (Section 417). The Stationery Office, 2006.

11

Institute of Business Ethics. 2005. Ethics at Work – A national survey.

12

Institute of Business Ethics. 2005. Ethics at Work – A national survey.

13

Institute of Business Ethics. 2005. Ethics at Work – A national survey.

14

Institute of Business Ethics. 2006. Living Up To Our Values – Developing ethical assurance.

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6 Appendix

Definitions Business ethics, in the context of this report, is the application of values – such as ‘integrity’, ‘fairness’ and ‘respect’ – to organisational behaviour. It is about the way an organisation does its business, rather than what it does. It applies to any or all aspects of business conduct, from boardroom strategies to sales and marketing techniques; accounting practices to treatment of suppliers and customers. Sometimes business ethics is referred to as business principles, and usually an ethics policy or code or a corporate responsibility policy sets out a company’s standards of business ethics.

Ethical performance is the extent to which an organisation’s behaviour aligns with its stated ethical values and commitments. Ethical performance is usually concerned with the discretionary decisions made by a business or by its employees, rather than simply legal compliance.

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Ethical management information allows an assessment of the organisation’s ethical performance, such as efficacy of relevant policies and procedures, occurrence of breaches of relevant policies or codes, stakeholder opinion and other metrics. It may include specific ethics information, such as the number of employees attending ethics training or calls to an ethics helpline, as well as routine management and risk information. Often such information will originate from multiple sources within the business, and can be either quantitative or qualitative.

(Further reading: ‘Living Up to Our Values’, Institute of Business Ethics14)

About CIMA and the IBE

CIMA

Institute of Business Ethics

CIMA, the Chartered Institute of Management Accountants, is the only international accountancy body with a sole focus on business. It is a world leading professional institute that offers an internationally recognised qualiďŹ cation in management accountancy, focusing on accounting in business, in both the private and public sectors.

It is the voice of 164,000 students and members in 161 countries, CIMA is committed to upholding the highest ethical and professional standards of members and students.

The IBE was established by business people in 1986 to encourage high standards of business behaviour based on ethical values. It aims to lead the dissemination of knowledge and good practice in business ethics.

The IBE helps organisations establish effective ethics programmes and strengthen their ethics culture.

Institute of Business Ethics 24 Greencoat Place London SW1P 1BE +44 (0)20 798 6040 www.ibe.org.uk

The Chartered Institute of Management Accountants 26 Chapter Street London SW1P 4NP +44 (0)20 7663 5441 www.cimaglobal.com

Managing responsible business | 27

The CIMA ethics debate 2008

Is global ethics a myth?

19 November 2008 | 1 Birdcage Walk | London Ever wondered whether companies really care about social responsibility? Attend a free evening event in London which promises to be a dynamic debate, fuelled by opinions from three high profile panellists and questions from the audience.

Speakers include: • • • •

James Caan (leading entrepreneur) Andrew Neil (editor and political journalist) Noreena Hertz (economist and advocate of ‘ethical globalisation’) Moderated by Jon Snow (broadcaster)

Bookings: To register an interest email ethicsevent@cimaglobal.com with your name, address and phone number.

Sponsorship opportunities: Email michael.taylor@cimaglobal.com

28 | Managing responsible business

ISBN 978-1-85971-601-4 (pdf) The Chartered Institute of Management Accountants 26 Chapter Street London SW1P 4NP United Kingdom T. +44 (0)20 7663 5441 F. +44 (0)20 7663 5442 www.cimaglobal.com Š CIMA 2008

Permission requests should be submitted to CIMA at ethics@cimaglobal.com