Ethical Leadership: Foundation for Organisational Success

Ethical Leadership: Foundation for Organisational Success

This article was first published in the Q2 2023 issue of the SID Directors Bulletin published by the Singapore Institute of Directors

In today’s business environment, stakeholders are increasingly demanding transparency and accountability. The board’s role in shaping and overseeing the culture of the organisation that respects the intent of the law (while focusing on building a purposeful, profitable and sustainable organisation) has become vital. Hence, incorporating the interests of all stakeholders into the decision-making processes, rather than solely focusing on maximising financial value, has become the foundation for corporate success.

Context: Ethics and culture

Ethics in a corporate context refers to the set of principles and values that guide the behaviour of individuals and groups within the organisation.

Corporate ethics involves making decisions and taking actions consistent with these principles and values, always prioritising the wellbeing of all stakeholders. Culture, on the other hand, refers to the shared values, beliefs, attitudes and practices that define the character of an organisation. Culture shapes how individuals and groups interact with each other and with external stakeholders, and can profoundly impact the success and sustainability of a corporation.

Together, ethics and culture provide a framework for making decisions and taking actions that prioritise ethical principles and values. A foundation for creating a positive and responsible organisational culture includes promoting honesty and transparency in communication, ensuring fair treatment of employees and customers, prioritising environmental sustainability, and engaging in socially responsible business practices.

Ethics and culture need to be considered in the environment in which an organisation operates. See box, “Emerging Contexts for Ethics and Culture” for the trends relevant to considerations of ethical culture for corporations today.

Many emerging areas are relevant to ethics and culture in this dynamic world. Companies need to be aware of the issues and approach them responsibly and proactively. In addressing the issues, companies should ensure their actions and decisions are aligned with their values and contribute to a more just, sustainable and responsible world.

Action: Board and culture

The board may face several dilemmas in ensuring a culture that promotes ethics and accountability within the organisation. These challenges include:

• Balancing the competing demands of different stakeholders.

• Addressing potential conflicts of interest among board members.

• Resistance to change from board members, senior management and employees.

• Monitoring and managing the ethical conduct of employees and third-party partners.

Navigating ethical dilemmas requires continuous effort, commitment and communication. Some actions that boards can take to overcome the challenges of promoting an ethical and accountable culture are in the box, “Steps for Building a Strong Culture”.

By clearly communicating and articulating the organisation’s values and establishing a strong system of internal controls, the board sets the tone from the top. As it sets about developing a system to ascertain what is right for the business and its role in the community, the next phase is to implement and execute a strategic plan.

First, the board should establish a code of conduct that describes the ethical values of the organisation. The code of conduct plays an essential role within a company’s ethics and compliance programme, and serves as a useful point of reference.

Second, by incorporating sustainability and social responsibility into the organisational strategy, the board embeds the organisational values of the company into the day-to-day operations.

Third, the board should conduct regular ethical and compliance reviews. This helps identify and address any potential issues while ensuring that actions are aligned and respond to changes in the legal and social environment. Beyond financial data, the board should evaluate the company’s impact on society, the environment, human rights and community development. This ensures that the company’s actions align with social expectations.

Fourth, establishing a system of governance and oversight can help the board monitor any potential conflicts. An internal audit function and an independent whistle blowing mechanism to report potential ethical violations or misconduct are useful, if not essential, tools.

Finally, a culture of open communication and transparency throughout the organisation can help ensure stakeholders are aware of the organisation’s values, policies and practices.

Read the full SID Directors Bulletin

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