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Does EU #Corpgov Policy Need More Ethics ?

Posted on June 21, 2013 at 10:50 AM

Having asked the Parliamentary Standards Commission to report on banking standards in the UK, Chancellor of the Exchequer George Osborne said in his speech in Bournemouth in February : "The change to the culture and ethics of banking go beyond bonuses and fines. I believe we need proper professional standards in the banking sector – just as we have for doctors and lawyers. I want to see the industry take pride in those standards, as our medical and legal professions do."

Well, unless you've been living under your duvet waiting for summer, the report is out and you can get it here.

Much has been said by politicians, policy makers and the media - you can update yourself on some of the reaction in coverage in The Guardian.

The ICAEW's  view is worth noting: "The industry needs to restore professionalism from the inside, through strong ethical leadership and a change of culture."

So what of that change in culture and ethics to which the Chancellor also referred ? Ethics is inherent in corporate governance, and ethical choices are relevant to the business strategies pursued by boards and the way in which they direct and structure their business to achieve them. So says the Institute of Business Ethics(IBE) and I have to agree.

They have been looking at the extent to which - in legislation, frameworks and codes for corporate governance across the EU and within its member states - there are explicit statements or requirements for business to be governed in line with ethical principles or commitments.

With impeccable timing, they are about to publish a report I encourage you to get your hands on. Its author, Julia Casson, says: (my emphasis) "We began this report wanting to understand whether there was guidance for companies in governance policies, at national and EU level, on ethical business practice. Although we did find similarities in corporate governance requirements around practice and certain issues, there seems to be a general lack of ethical language in corporate governance provisions. This is in spite of the fact that boards are expected to set the values which will guide their company's operations."

It seems there is still a disconnect between 'what is ethical' and 'is good for business' - or even 'what is unethical generally has a negative impact on business.' Even those who wrinkle their noses at it the first way around would find it hard to argue with the second phrasing.

The IBE has found that there are beginnings of a greater focus on board behaviour and conduct at the EU member state level, especially in guidance for directors. So various 'codes of conduct' now include language around commitment, leadership, discretion, independent judgement, integrity, acting in the corporate interest, acting in the interests of stakeholders and so on. They refer to behaviours required by boards.

As IBE Director Philippa Foster Back aknowledges, many companies do now draw up their own values, embed them into their workforce and monitor whether they do business according to them. But, as she says: "not all companies do this and business, according to many public opinion polls, is not trusted."

This report is therefore being published (on June 27th) to prompt discussion. Why is there a lack of explicit ethical imperative at the corporate governance policy level ? Should this omission be addressed ? And what else might business do ?

On one level the whole notion of EU corporate governance is fraught with peril. Only today the FT Brussels blog revealed that the issue of 'subsidiarity' or EU-speak for letting each nation mind its own business might be about to spell a death for quotas for women on boards. But maybe not, when it comes to something like this.

The IBE report cites an Ernst & Young survey in 2012 which illustrated how, with increasing globalisation, companies are importing good practice developed elsewhere, adapted to their own legal and governance framework. Surely 'best practice' comes in part by being open to discussion and learning from others.

And as for those "proper professional standards" referred to by Mr Osborne (whom I am trying very hard not to think of as Jeffrey), well there has already been one very good step in that direction.

Mr Saker Nusseibeh, who is CEO and head of investment at Hermes Fund Managers, has become the first CEO in the UK to sign a new Banking and Finance Oath that originates in Australia. It starts "Trust is the foundation of my profession...." And that really should not sound revolutionary.

I know about this because I read Mr Nusseibeh's letter to the FT yesterday, and so should you - Hermes has long been a leader when it comes to the fine tuning of corporate governance. The FT headlined it 'Have you signed up to the oath yet ?'

'Well ? Have you ?

I'm not going to pretend that I have read the entire IBE report yet but I am looking forward to it. I encourage you do the same.

Occasional Paper 8 : A Review of The Ethical Aspects of Corporate Governance Regulation and Guidance in the EU Institute of Business Ethics in association with ecoDA sponsored by EADS

Categories: Governance, Ethics, Communication