Phyllis Young

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Blackwell Publishing Ltd.Oxford, UK

CORGCorporate Governance: An International Review0964-8410Blackwell Publishing Ltd. 2005 November 2005136730738Original Articles

CORPORATE GOVERNANCE AND BUSINESS ETHICS

CORPORATE GOVERNANCE

*An earlier version of this paper was presented at the 2004 Australian and New Zealand Academy of Manage- ment Conference, Dunedin, New Zealand. **Address for correspondence: Graduate School of Manage- ment, Griffith University, PMB 50 Gold Coast Mail Centre, Queensland 9726, Australia. E-mail: [email protected]

Corporate Governance and Business Ethics: insights from the strategic planning experience

*

Ingrid Bonn** and Josie Fisher

In this paper we develop an integrated approach towards corporate governance and business ethics. Our central argument is that organisations can learn from the development of strategic planning in the 1970s and 1980s. We identify three weaknesses – a bureaucratic and formalised approach, lack of implementation and lack of integration throughout the organisation – which were prevalent in strategic planning in the past and which are potentially just as problematic for an integrated corporate governance approach to business ethics. We suggest ways these weaknesses might be avoided and provide questions for boards of directors to consider when integrating ethical concerns into their organisations’ corporate governance structures.

Keywords: Corporate governance, business ethics, strategic planning

Introduction

orporate governance is concerned with the processes by which organisations are

directed, controlled and held accountable (Australian Standard AS8000, 2003). It deals with the rights and responsibilities of an organisation’s board, its management, share- holders and other stakeholders (OECD, 2004) and requires balancing their interests with the economic goals of the organisation as well as the interests of society as a whole. Sir Adrian Cadbury (2000) made this point very clear:

Corporate Governance is concerned with hold- ing the balance between economic and social goals and between individual and communal goals. The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of indi- viduals, corporations and society.

Cadbury’s definition suggests that corporate governance is an overarching concept with implications for an organisation’s approach to

C

corporate social responsibility and business ethics in addition to ensuring that regulatory responsibilities are fulfilled.

Over the past decade, there has been an increased interest in corporate governance. This can partly be attributed to a rising num- ber of corporate crises and failures. Events such as the

Exxon Valdez

disaster, where an entire ecosystem was threatened, or the Ford Pinto scandal (where the organisation decided to put profit ahead of human safety by not recalling cars despite their known defects) have sparked discussions about the role of large corporations in society and raised questions about their ethical stan- dards, management decisions and corporate governance practices (Kiel and Nicholson, 2003). Corporate failures such as Enron and WorldCom in the United States and HIH Insurance, Ansett and Pan Pharmaceuticals in Australia have raised concerns over the effec- tiveness of corporate governance and corpo- rate accountability.

The above examples of corporate failures and managerial misconduct highlight the need for organisations to pay more attention

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to corporate governance practices. In this paper we focus on how organisations can address concerns about corporate social responsibility and, particularly, business ethics in their corporate governance struc- tures, and how they can encourage high standards of ethical behaviour throughout their organisations. We first discuss the relationship between corporate social respon- sibility, business ethics and corporate gover- nance. We then draw an analogy between the approach towards strategic planning in the 1970s and early 1980s and the approach towards corporate governance and business ethics at present. We argue that there are les- sons to be learnt from the development of stra- tegic planning that can be used to provide guidance for an integrated corporate gover- nance approach that incorporates principles relating to ethical conduct. We identify three areas of potential weakness in incorporating business ethics into corporate governance that were also evident in the development of stra- tegic planning, namely (1) a bureaucratic and formalised approach, (2) lack of implementa- tion and (3) lack of integration throughout the organisation. We discuss the ways strategic planning has overcome these areas of weak- ness and suggest how corporate governance can deal with them. We then provide a number of questions that can guide boards of directors when integrating ethical concerns into their organisation’s corporate governance structure and evaluating their success in doing so.

Corporate social responsibility, business ethics and corporate governance

It is widely claimed that businesses have obli- gations that go beyond profit maximisation and that businesses should make a positive contribution to society (see for example, Boatright, 2003; Carroll, 1999; Fisher, 2004; Robbins

et al.

, 2003; Shaw and Barry, 2004). Corporate social responsibility, according to Epstein, “relates primarily to achieving out- comes from organizational decisions concern- ing specific issues or problems which (by some normative standard) have beneficial rather than adverse effects upon pertinent corporate stakeholders” (1987, p. 104). It involves “bringing corporate behavior up to a level where it is congruent with the prevailing social norms, values, and expectations” (Sethi quoted in Boatright, 2003, p. 374). Corporate social responsibility encompasses those expec- tations society has of organisations at a given point in time. They are “the behaviors and

norms that society expects business to follow” (Carroll, 1999, p. 283). Society expects busi- nesses to make a profit and obey the law and, in addition, to behave in certain ways and conform to the ethical norms of society. These behaviours and practices go beyond the requirements of the law, and seem to be constantly expanding (Carroll, 1999).

The relationship between corporate social responsibility and business ethics can be char- acterised in various ways. Carroll’s “Pyramid of Corporate Social Responsibility” (1991, p. 42), one of the most widely cited approaches, identifies four dimensions of corporate social responsibility: economic, legal, ethical and philanthropic (or discretionary). More re- cently, Schwartz and Carroll (2003) pro- posed a three domain account of corporate social responsibility. These domains are con- sistent with the earlier model except that philanthropy is no longer a discrete category. The domains are represented by a Venn dia- gram with the overlapping circles represent- ing economic, legal and ethical responsibilities resulting in seven combinations. In both models, ethics is one aspect of the corporate social responsibilities of business.

As pointed out above, corporate governance is concerned with the processes by which organisations are directed, controlled and held accountable and requires balancing the inter- ests of various stakeholders and society as a whole with the economic goals of the organ- isation. While corporate governance is con- cerned with all of the dimensions of corporate social responsibility identified above, it is the way that ethics is dealt with at the governance level that is the focus of this paper. In other words, we focus on organisational approaches to ethics at the level of corporate governance.

Corporate governance principles and business ethics

The need for organisations to make explicit the behaviour expected from board members is widely recognised. For example, the Austra- lian Stock Exchange (ASX) Corporate Gover- nance Council advises organisations to “clarify the standards of ethical behaviour required of company directors and key executives . . . and encourage the observance of those standards” (2003, p. 25). The ASX rec- ommends establishing a code of conduct that identifies practices for directors, the CEO and other key executives necessary to preserve the ethical reputation and integrity of the com- pany and that outlines the responsibility of individuals to report unethical practices. The

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ASX also suggests a number of areas with which a code of conduct should deal: conflicts of interest, corporate opportunities, confi- dentiality, fair dealing, protection of and proper use of the organisation’s assets, com- pliance with laws and regulations, and en- couraging the reporting of unlawful/unethical behaviour (ASX, 2003).

Similar guidelines for corporate governance have also been developed by the OECD, the Higgs report in the United Kingdom, the New York Stock Exchange (NYSE) and the Council of Standards Australia. The Higgs report, for example, states that “[t]he board should set the company’s values and standards and ensure that its obligations to its shareholders and others are understood and met” (2003, p. 21). The report further outlines the personal attributes that should be possessed by non- executive directors: “First and foremost, integ- rity, probity and high ethical standards are a prerequisite for all directors” (p. 29).

In addition to making board expectations explicit, there is also a recognised need for companies to provide information relating to expected behaviour to all employees. The Investment and Financial Services Association Limited (IFSA) Guideline 17 (2003, p. 36), for example, recommends the adoption of a com- pany code of ethics. The NYSE Rule 10 states: “Listed companies must adopt and disclose a code of business conduct and ethics for direc- tors, officers and employees . . .” (2003, p. 15). The ASX (2003) identifies ten corporate gover- nance principles, two of which are of interest here because they clearly refer to ethics – Prin- ciple 3: Promote ethical and responsible decision-making and Principle 10: Recognise the legitimate interests of stakeholders. One obvious way for a board to respond to these principles is to introduce a code of conduct/ ethics for all employees in addition to a code that focuses on the board and top executives.

The above recommendations suggest that an organisation’s approach to ethics must have its foundation in its corporate gover- nance framework. However, we argue that this is just the first step. Pan Pharmaceuticals Limited, an Australian publicly listed com- pany, is an example of an organisation that despite meeting its corporate governance requirements was forced into receivership because of its unethical behaviour. Pan Pharmaceuticals was Australia’s largest con- tract manufacturer of complementary medi- cines such as herbal, vitamin, mineral and nutritional supplements. They also manufac- tured some over-the-counter medicines, in- cluding pain relievers and cold and flu preparations. In its 2002 annual report, Pan Pharmaceuticals stated that the board “accepts

and observes the recommendations of the Cor- porate Governance Council of the Australian Stock Exchange Limited”. However, in April 2003 the Australian medicines watchdog, the Therapeutic Goods Administration (TGA), suspended the licence held by Pan Pharma- ceuticals to manufacture medicines after TGA inspectors found serious deficiencies and fail- ures in the company’s manufacturing and quality control procedures, including the sys- tematic and deliberate manipulation of quality control test data, substitution of ingredients and substandard manufacturing processes. The Expert Advisory Committee which re- viewed the audit reports advised the TGA that the failures in manufacturing practices were so bad that they created immediate risks of death, serious injury or serious illness and that no confidence could be placed in the quality of any products manufactured by Pan Pharmaceuticals. This led to the biggest pro- duct recall in Australia’s history and the com- pany went into liquidation in September 2003 (Australian Consumers’ Association, 2003; Therapeutic Goods Administration, 2003).

As the example of Pan Pharmaceuticals demonstrates, accepting and observing the recommendations of the Corporate Gover- nance Council is not enough to ensure ethical behaviour throughout the organisation. In the next sections we discuss what organisations can do to move beyond mere compliance with corporate governance principles in order to develop an integrated approach towards cor- porate governance and business ethics that encourages high standards of ethical be- haviour throughout the organisation. We approach this task by drawing an analogy between the approach towards strategic planning in the 1970s and 1980s and business ethics at present. We believe it is appropriate to draw such an analogy for three main rea- sons. First, strategic planning can be regarded as an on-going process by which senior man- agers identify objectives and choose a set of strategies for the organisation. This process requires input from middle managers as well as employees at the operating level (Floyd and Wooldridge, 2000). Similarly, a commitment to business ethics involves establishing policies and processes that identify and support the ethical objectives of the organisation. This pro- cess also requires continuous input from all levels within the organisation (Ferrell

et al.

, 2000; Schermerhorn, 2002).

Second, strategic planning is goal-oriented and encourages a medium- to long-term per- spective of what an organisation wants to achieve (Hill

et al.

, 2004). Likewise, the identi- fication and adoption of ethical principles has the purpose of encouraging certain kinds of

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behaviours and outcomes, is regarded as posi- tive for business in the long-term (Grace and Cohen, 2005) and, together with other corpo- rate governance principles, can drive business performance (KPMG, 2003). Third, strategic planning requires cross-sectional communica- tion and cooperation and serves an important integrative function within the organisation (Viljoen and Dann, 2000). In exactly the same way, a commitment to business ethics requires the engagement of everyone in the organisa- tion (Grace and Cohen, 2005) and involves identifying shared values and objectives towards which the entire organisation works.

Building upon these similarities, we argue that there are lessons to be learnt from the development of strategic planning that can be used to provide guidance for an integrated corporate governance approach that incorpo- rates principles relating to ethical conduct.

Strategic planning and business ethics

When the concept of strategic planning was developed around 1965, many large organisa- tions embraced it as a formal technique and established elaborate strategic planning sys- tems. The notion of strategic planning, accord- ing to Mintzberg (1994a), became a virtual obsession within a decade. However, by the early 1980s there was widespread disenchant- ment with the planning activities from the previous decade. The main problems with strategic planning were: (1) a bureaucratic and formalised approach, (2) lack of implementa- tion and (3) lack of integration throughout the organisation (Bonn and Christodoulou, 1996).

In the following three sections we discuss these problems in relation to strategic plan- ning and how they were overcome. We also identify similar problems with implementing corporate governance principles relating to ethical conduct and suggest ways to deal with them.

Bureaucratic and formalised approach

Strategic planning processes in the 1970s and early 1980s were characterised by a high degree of formalisation and regulation. The planners relied extensively on planning tech- niques and analytical methodologies and car- ried out a series of mechanical steps with the result that the form had become more impor- tant than the content. Managers described the strategic planning process as a “repetitive bureaucratic nightmare” which had “devel- oped a life on its own” (Bonn and Christo- doulou, 1996, p. 545). The strong emphasis

on analysis and formalisation left little room for flexibility, creativity and strategic insight (Mintzberg, 1994b).

During the past two decades organisations have tried to improve the flexibility of their planning systems and to rely less on rules and regulations. Wilson (1994) argued that strategic planning has moved towards an executive-driven activity, which balances “hard” quantitative and “soft” judgemental tools and approaches. Bonn and Christo- doulou (1996) found that greater flexibility in the planning system was reflected in the changing role of informal planning. Informal planning discussions were seen as impor- tant for improving the quality of strategic thinking in the organisation and helped the participants in strategy meetings to focus on issues of strategic importance.

There is a similar risk that the current focus on compliance with corporate governance guidelines could lead organisations to focus on formalisation and “box ticking”, replicating the experience with strategic planning. The various corporate governance guidelines that have been developed suggest that organisa- tions actively set boundaries for business activities and clarify the expected standards of behaviour for their boards of directors, senior managers and employees. Such policies “pro- vide guidance to personnel to help them recognize and deal with ethical issues, pro- vide mechanisms to report unethical conduct, and help to foster a culture of honesty and accountability” (NYSE, 2003, p. 15). One re- sponse is to design and implement a code of ethical conduct (sometimes referred to as a code of conduct or a code of ethics), which is described as a rational, top-down approach (Johnson and Smith, 2002).

However, as the experience with strategic planning has shown, a strategic plan that was developed through a formalised and bureau- cratic approach did not necessarily produce the desired behaviour within the organisation. Similarly, the existence of a code of ethical conduct does not ensure ethical behaviour throughout the organisation. On the contrary, managers and employees may regard the code of ethics “as one more set of procedures to be undertaken to keep the bosses, the auditors or the regulators happy” (Bartlett and Preston, 2003, p. 45). They may feel that complying with such a code will add to their workload and does not provide clear tangible benefits, resulting in a lack of interest and commitment. Enron, for example, had adopted a code of ethics and used formal means to implement it. The company’s actions, however, clearly dem- onstrated that its code did not ensure ethical behaviour (Adam and Rachman-Moore, 2004).

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Cleek and Leonard (1998) identified the objectives of a code of ethics as increasing social responsibility, providing guidelines for acceptable employee behaviour, improving management, assisting organisations to com- ply with government guidelines and im- proving corporate culture. However, they concluded that the mere existence of a code of ethics was not a significant factor in influen- cing behaviour; rather, it is the way the code is communicated, enforced and used that has a greater impact. Research conducted by Schwartz (2004) identified relevance and set- ting realistic standards as being important in influencing the effectiveness of a code of ethics. Cassell

et al.

(1997) advised that the prevailing contextual framework must be taken into account when formulating, imple- menting and enforcing a code. They concluded that the impact of any code will be mediated by its design process, its content, the way it is presented and its enforcement.

The above discussion highlights the need to ensure that a code of ethical conduct helps to promote ethical behaviour within an organisa- tion, rather than existing on paper only. To have credibility, a code of conduct must be context specific and tackle the significant issues confronting the organisation and its environment. An organisation, for example, may have operations in particular countries where there is strong public concern relating to the use of child labour or the abuse of human rights. Another organisation might have to deal with pollution arising from manufacturing processes or possible health threats from the use of certain products. In order to identify the key issues, boards should encourage talks with their main stakeholders, either in “one off” meetings or through more permanent advisory panels. Stakeholders may include shareholders, employees, customers, suppliers, analysts and institutional investors and/or community organisations. Such con- sultative dialogue with the organisation’s various stakeholders will help to eliminate “blind spots” and group think.

As the experience with strategic planning has shown, there is a need to use a flexible approach towards the development of guide- lines for ethical conduct. This includes exten- sive discussion and debate between board, senior managers, middle managers and other employees on a regular basis, involving both the content and implementation of policies and processes that address ethical behaviour. Such involvement of different levels of the organisation helps to develop a code of ethical conduct that is understood and owned by everyone in the organisation, thus fostering commitment and dedication. This also in-

cludes paying attention to informal aspects of ethical conduct. Informal discussions about ethics may help to identify potential “grey areas” and improve the quality of ethical thinking within the organisation. There should be regular staff development and train- ing programmes and an opportunity to make amendments to the code of ethics and its pro- cedures, if appropriate (Kitson and Campbell, 1996).

Lack of implementation

During the 1970s and 1980s top managers tended to spend insufficient time on strategic planning and delegated the planning function to either a corporate planning department or a corporate planner (Steiner, 1979). Planning staff often cut senior executives out of the strategy development process and turned them into little more than rubber stamps (Wilson, 1994). Line managers were also ex- cluded from the planning process and their expertise was largely ignored (Bonn and Christodoulou, 1996). The failure to involve line personnel in the planning process resulted in line managers disassociating themselves from the conclusions of the strategic planning process and paying little or no attention to strategy implementation. In addition, strategic plans were rarely reviewed and many top managers rejected the formal planning mech- anism by making intuitive decisions that con- flicted with the formal plans (Steiner, 1979).

These problems with strategy implementa- tion led to a number of changes during the 1990s. The staff-driven process of corporate planning was replaced by a more consultative approach, which involved divisional and busi- ness unit managers in its process. Planning meetings were used as a forum to address strategic issues on a regular basis and to help generate stronger commitment from line managers. Prime responsibility for developing strategy was moved to line managers charged with strategy implementation. This decentral- isation of strategic planning to divisions or business units was accompanied by a shift of strategic planning responsibility from plan- ning staff to line managers. In addition, the role of the corporate planner changed from being a “doer” of planning to becoming a coordinator and facilitator who assisted line managers with the planning and who ensured that an organised and efficient planning pro- cess took place (Bonn and Christodoulou, 1996).

Implementing business ethics is similar to implementing strategy (Murphy, 1988). Schwartz (2004) identified senior management support, training and reinforcement as being

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important factors in determining the effective- ness of codes of ethical conduct. Reporting violations and consistent enforcement of the code were also found to be important. The research by Adam and Rachman-Moore (2004) showed that informal methods such as follow- ing the example set by management and con- forming to the social norms of the organisation were also important in code implementation.

The Australian Standard AS8000 (2003) advises against succumbing to the temptation to merely satisfy legal requirements, rather, it is claimed that “[t]he board and senior man- agement should strive to achieve a culture of good governance” (p. 12). Similarly, KPMG (2003) identify three possible approaches to the ASX Corporate Governance Principles: simple compliance, meeting best practice and driving business performance. If the principles are regarded as simply another compliance issue, adopting them will not enhance performance. However, the require- ment to implement these principles can pro- vide the impetus to introduce performance- enhancing change throughout the organisation. In order to take advantage of this opportunity, strong leadership and commitment from the board is required.

The implementation of codes of ethical con- duct to drive business performance requires the establishment of appropriate structures and processes for monitoring and improving ethical behaviour. This includes identifying key performance indicators, which are used to provide reliable information about the organ- isation’s ethical performance. The perfor- mance indicators should not just be extensions of the organisation’s financial reporting sys- tem, but include non-financial measures such as organisation reputation and community perception. Monitoring the organisation’s ethical performance identifies whether the existing approach is meeting expectations in terms of how the policies, procedures and codes of conduct are implemented and whether existing processes are achieving their performance potential or whether they require improvement.

An increasing number of large companies, particularly in the United States, have estab- lished Ethics Committees. Their task is to deal with policy formulation and with specific violations of the organisation’s ethical code or complaints from employees and other stakeholders (Kitson and Campbell, 1996). Although such committees might be useful, there is a danger of them becoming the sole body responsible for dealing with business ethics. As the experience with strategic plan- ning has shown, corporate planning depart- ments in the 1970s and 1980s tended to

exclude line managers from the planning pro- cess and top managers were likely to spend insufficient time on strategic planning. The result was a lack of ownership in the planning results and, as a consequence, a lack of imple- mentation. Ethics Committees may encounter similar problems, namely a delegation of ethical issues by top managers and a lack of involvement from line personnel. Such delega- tion may prove particularly harmful since senior managers are regarded as role models within the organisation, so their behaviour is crucial in determining whether the implemen- tation of ethics policies will succeed (Johnson and Smith, 2002). To overcome these potential problems, Ethics Committees should ensure that top managers and line personnel address ethical issues on a regular basis and that the prime responsibility for developing policies, procedures and codes of ethical conduct is given to line managers who are responsible for implementation. Hence, Ethics Committees should predominantly coordinate and facili- tate the development of guidelines dealing with ethical behaviour and ensure that the organisation has efficient processes in place to deal with ethical issues.

Lack of integration throughout the organisation

Strategic planning in the 1970s and early 1980s tended to neglect the organisational culture in which it took place (Steiner, 1979). Wilson’s (1994) research showed that culture was the respondents’ main concern in the field of strategic management. Cultural problems included issues such as internal politics, bureaucracy, poor communication, lack of willingness to respond to change, lack of organisational learning, and lack of market and customer orientation.

Over the past two decades organisations have responded to the “cultural challenge” by trying to integrate the strategic planning sys- tem throughout the organisation as a whole. Organisational culture has become a critical ingredient in the implementation of strategy and organisations have started to recognise that the values, motivation and behaviour of the organisation’s members are critical deter- minants in the success or failure to implement strategy. In particular, organisations have actively tried to shape their culture by estab- lishing effective communication processes throughout the organisation, by providing programmes for education and training, and by placing strong emphasis on leadership by example (Bonn and Christodoulou, 1996).

Similarly, organisational culture can either promote or hinder ethical behaviour. Adam

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and Rachman-Moore (2004) found that the majority (67.7 per cent) of employees they sur- veyed identified the social norms of the organ- isation and the behaviour of management to be most influential in determining ethical con- duct. The social norms of the organisation are influenced by formal and informal controls that “arise as groups attempt to regulate the behaviour of their memberships according to various mores, norms and values which have become socially established and sanctioned in different intra-organizational contexts” (Cas- sell

et al.

, 1997, p. 1081). These controls are embedded in organisational contexts in which competing influences have arisen in day-to- day social interactions (Cassell

et al.

, 1997) and influence particular aspects of behaviour within the organisation.

Hence, if an organisation’s commitment to business ethics as identified in its corporate governance framework is to have a lasting impact, the ethical principles must be an in- tegral part of how the organisation operates and be reflected in the organisation’s code of ethical conduct, formal and informal controls, policies, processes and procedures. Ethical principles will be regarded with cynicism if there are inconsistencies in an organisation’s approach towards ethics and, in particular, if members of the board of directors and top management assert them, but behave unethi- cally (Minkes

et al.

, 1999). The board and man- agement, therefore, have to ensure that there is a high degree of congruence between the ethical standards of the organisation and their own behaviour and activities. Pinchot and Pinchot (1992) suggested that executives should cultivate their ethical competence with the same enthusiasm they devote to cultivat- ing their technical, marketing and financial skills. When the board makes strategic deci- sions concerning, for example, acquisitions, divestitures or international expansion, these decisions should be informed by, and be con- sistent with, the organisation’s stated ethical position.

In addition to “walking the talk”, the board and senior management need to actively pro- mote, manage and monitor a culture that emphasises ethical behaviour and integrity within the organisation. A statement of the organisation’s commitment to ethics should be included in the mission statement, in the organisation’s overall strategies and goals, as well as in supporting functional strategies such as human resource management and marketing. Ethics should become everyone’s business and “the way we do things around here” (Bower, 1966, p. 22) should be consistent with the organisation’s ethical values. This requires the establishment of training pro-

grammes for employees and the provision of communication channels for receiving feed- back on initial and ongoing problems and difficulties.

Practical considerations for an integrated approach to business ethics

The above discussion has identified a number of important considerations that boards of directors need to address if they want to suc- cessfully integrate ethical concerns into their organisations’ corporate governance struc- tures. These considerations give rise to a num- ber of questions that can be used by boards to evaluate their approach to business ethics.

First, boards need to identify their current values, attitudes and beliefs and whether they are appropriate for their organisation. Does the board agree on what an ethical issue is? Who initiates discussion about ethical issues and when? How does the board debate ethical issues? Who is involved in the discussion? Second, boards should closely examine their behaviour towards ethical issues. Does the board take ethical issues into account when making key strategic decisions? What impor- tance does the board assign to these ethical issues? To what extent do board members “walk the talk” regarding ethical issues?

Finally, boards need to evaluate the or- ganisation’s current strategies, policies and procedures and investigate whether they en- courage ethical behaviour and reflect the organisation’s ethical values. Does the organi- sation have a code of conduct and who knows about it? Are all employees involved in the development and implementation of ethical guidelines? Are relevant training programmes established that promote the organisation’s stand towards ethical behaviour? Are relevant structures and processes for monitoring and improving ethical behaviour established? Is the organisation’s focus on ethical behaviour embedded in the organisation’s culture?

Conclusion

Concerns about the activities of organisations have resulted in an increase in the attention being paid to corporate governance. Bodies such as the OECD and stock exchanges have developed corporate governance principles that include reference to business ethics. We have argued that an organisation’s approach to ethics must be addressed in its corporate governance framework. However, this is just the first step if the organisation is interested in

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more than simple compliance with corporate governance principles. Measures must be taken to ensure that organisational behaviour is consistent with the ethical values espoused in the codes of conduct for boards of directors and employees, as well as the organisation’s mission statement, its overall strategies and goals, and its supporting functional strategies.

We have employed an analogy with stra- tegic planning to provide insights into how ethical concerns can be integrated into an organisation’s corporate governance structure. Our main argument centred around three major weaknesses – a bureaucratic and formal- ised approach, lack of implementation and lack of integration throughout the organisa- tion. These weaknesses were prevalent in strategic planning in the 1970s and 1980s and are potentially just as problematic for an integrated corporate governance approach to business ethics. We have provided a number of practical suggestions formulated into ques- tions for boards of directors to consider when integrating ethical concerns into their organi- sations’ corporate governance structures.

An integrated approach towards corporate governance and business ethics should help organisations to implement high standards of ethical behaviour throughout the organisa- tion. Such a proactive approach provides evidence of the board’s commitment to good corporate governance and may help to enhance the organisation’s reputation and competitiveness.

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Ingrid Bonn

is a Senior Lecturer in the Graduate School of Management at Griffith University, Australia. Her research interests are in the areas of corporate governance and corporate social responsibility, strategic decision-making, and performance and longevity of organisations. She has published articles in academic journals such as

Long Range Planning, Journal of Organizational Change Management

,

Management Decision

and

Asian Business & Management

.

Josie Fisher

is a Lecturer in the New England Business School at the University of New England, Australia. Her research interests include corporate governance and social responsibility, business ethics and bioethics. She has published in a variety of refereed jour- nals including the

Leadership and Organization Development Journal

,

Journal of Business Ethics

,

Journal of Medical Ethics

and

Medicine, Health Care and Philosophy

.