Companies everywhere are looking inward to make sure. Management Centre Europe explains how HR can lead the way.

In the wake of a wave of scandals that have dealt a blow to investor confidence and put the spotlight on corporate governance and senior executive accountability, business ethics must become a key issue for human resources. Ethics and HR need to go hand in hand.

"You cannot open a newspaper in any European country today without reading about some alleged financial irregularity or another example of 'profits before people'," says Nick Kelly, MCE faculty member and principal at Shamba Management Consultancy in the United Kingdom.

"In the global economy we are all affected when Arthur Andersen shreds documents or when analysts at Merrill Lynch recommend stocks in public and denigrate them in private," says Kelly. "In Europe recent events include the 'Nazi gold' scandal at UBS, the behaviour of leading French oil companies, and even allegations of impropriety at the top of the Olympic Games movement."

Stephen Johnson, a member of the board of Right Management Consultants, a career transition and organisational consulting firm, believes that the notion of ethics is a philosophical one. "It has to do with human behaviour, especially the way that people treat one another," he says. "There can scarcely be any managerial function which will be more concerned with ethical issues than HR."

"And", adds mentor Mike Pegg, managing director of The Mentoring Centre and author of The Magic of Work, "Corporate ethics flow from recruiting people who take responsibility and make good decisions, especially in difficult situations".

Recent research by totaljobs.com, an online recruitment portal, revealed that an overwhelming majority — 78 percent — of jobseekers feel the reputation of the CEO is an important factor when deciding whether to apply for a job. In addition, 75 percent would be put off applying for a position if the CEO had a poor reputation. "A business needs to holistically define what its moral tone is going to be and ensure that this is lived and breathed at every level," says totaljobs.com Operations Director Keith Robinson.

So, Kelly says, the real question HR faces is this: why do we need to be asked the question "Why is ethics important in HR?".

"Have we really forgotten what is right or wrong?" he asks. "Have we really subsumed our ethical judgment to the mantra that 'greed is good?'"

In essence, most HR decisions have an ethical component. And HR is at the crossroads of every organisation — so it is better placed than any other function to provide guidance on ethics, and police the ethical behaviour of the organisation's employees.

A clear ethical policy is the key to strongly communicating your company's position to all your stakeholders - and the results should be obvious. Kelly cites the example of a top-performing salesman in a company who is known to have accepted cash and other favours from a key client. The sales director agrees this is wrong but says she cannot afford to lose the salesman.

"In this case, I felt that the issue was significant enough to warrant dismissal from the company," Kelly says. "The legal case for dismissal was clear - it was against company policy to accept bribes. But the business case for revenue was also strong. In the end the CEO agreed that the right course of action was dismissal and we informed the key client about new arrangements. Revenues increased in the following financial year." According to Kelly, the decision sent a clear message throughout the organisation.

But, cautions Johnson, it would be dangerous to infer from this that it is a matter that can be delegated to an HR manager and largely left there, like for example recruitment procedures. "When it comes to setting, or even more to changing, standards of behaviour, the entire enterprise must be involved, literally from top to bottom," he says.

"HR managers have an important part to play, particularly in the early stages of any initiative to address ethical issues," Johnson adds.

"They, better than anyone else, can establish reliably what the current situation is in regard to the importance placed on ethical considerations when policy is made or executed. They know how to survey attitudes, how the factors governing recruitment or promotion are weighed and which behaviours are genuinely encouraged and which receive lip service or a tick in a box."

After all, HR alone cannot regain the integrity of an organisation. "If this integrity has been lost, then it is up to the organisation at a senior level to assess why this has happened, and collectively determine a way to go forward," says Robinson.

But, he adds, HR can play a massively important role in implementing this new vision, acting as a catalyst to re-train existing staff, recruit new integral people to move the business on and establish new policies.

By bringing the right people into the organisation, people who share the ethical vision of the company, HR can help to set the moral tone of the organisation. "'Reward the behaviour you want repeated' is the maxim," Pegg says.

"The first job is to recruit people who take responsibility. The second is to enable them to learn how to make decisions." The latter is more difficult because of the different stages people go through in their careers.

Pegg says that HR can help people throughout the organisation gain an overview of the situation by focusing on:

• the challenge
• the choices
• the consequences - of each option
• the creative solutions
• the conclusions - the chosen course of action.

"HR can then enable people to make decisions," he says. "And, ultimately, it is the quality of the decisions that will determine the long-term health of any enterprise."

Tips for rediscovering your organisation's integrity

Here are some tips from Kelly on how HR can rediscover the organisation's integrity:

1. Find a champion: "Unless a senior person — hopefully the CEO — is prepared to drive the introduction of a business ethics policy, forget it and resign," he says.

2. Get endorsement from the chairman and the board: "The board must be behind the policy and receive regular reports on its operation," says Kelly.

3. Borrow examples of frameworks: use a proven framework that addresses issues as they affect different constituents or stakeholders of the organisation.

4. Produce a code of conduct: this should be distributed in booklet form or via a company intranet. "Existing policies, for example on giving and receiving gifts or the private use of company software, can be incorporated," Kelly advises. Guidance on how the code works should also be included.

5. Promote the code: publish and send the code to all employees, suppliers and others. State publicly that the company has a code and an implementation programme that cover the whole company. Put it on your website and send it to joint ventures and other partners.

6. Make it work: practical examples of the code in action should be introduced into all company internal (and external) training programmes as well as induction courses. Incorporate it into the performance management process and attitude surveys. Take ownership down to employee level — HR may drive the code but only everyone can make it work.

October 2002

Copyright 2002: Management Centre Europe, Brussels, Belgium.