The need for meaningful ethical disclosures not just box-ticking

By Nick Topazio

I recently read with interest ‘Managing responsible business – a global survey on business ethics and as my particular specialism is corporate reporting I was drawn towards the statistics on the number of organisations that publicly report on ethical performance.  The figure for organisations of up to 250 employees reporting ethical issues was 17% rising to 36% for those of between 251 and 5,000 employees.  Often I find that best practice in corporate reporting is driven forward by a number of exemplar organisations that show the way whereas others lag far behind.  The survey underlying the Business Ethics report shows that 59% of organisations of more than 5,000 employees did publicly report on ethical issues.   On the face of it, this seems like an encouraging proportion although clearly room for improvement.  But I wonder what the picture would be if we delved a little deeper.

CIMA is currently working on a project for the International Integrated Reporting Council looking into the reporting of Business Models.  As a consequence I have 18 annual reports on my virtual desk (i.e. pdfs) of companies that I know report well on their business models.  Academics and researchers will be completely dismayed as to my sample selection process but I decided to spend a little time looking at the reporting of ethical issues within these reports.   In line with the main survey, 10 or 56% of the organisations reported on ethical issues but of those ten only 3 really went much further than just saying “All directors and employees are required to act fairly, honestly and with integrity and they are required to demonstrate that they have read and understand our Code of Business Conduct and Ethics, a copy of which is published on the corporate website”.

Just saying that you have a Code of Ethics and employees are required to adhere to it whether that be following a specific training programme or not is hardly very informative but for some companies this represents the ‘tick in the box’ which unfortunately is all they are looking for.  For others, no doubt, they did not report more because they couldn’t see what else to report.  In my flawed sample of UK listed entities two stood out to me as providing effective and engaging ethical reporting.  These are the 2011 BAE Systems and Petrofac Annual Reports.

Often advances in corporate reporting in particular organisations are driven forward following adverse publicity and this is undoubtedly the case at BAE in terms of past questions about its ethical business practices.  Nevertheless current BAE levels of ethical disclosure are at the vanguard and include a full page on Ethics featuring 2011 progress against previously stated objectives as well as targets for 2012.  The company appears to report open and honestly on issues raised with its ethical hot line and the number of dismissals resulting from breaches of its Code of Ethics.  Also featured is the work the company is doing with other organisations such as Trade, Regulatory and suppliers to promote more widespread ethical behaviour.

Unlike BAE, I am not aware of any adverse publicity driving good reporting practice at Petrofac, although as an oilfield service company it operates in sectors and countries that do have potential ethical issues.  What the company is doing to embed ethical behaviour within the organisation is well set out in its annual report including candid reporting of the internal whistle-blowing process. 

Many organisations that stick to “we have an ethical code which our employees follow” would do well to look at the level of meaningful disclosures in these two annual reports.  In that way alongside the drive to improve on the proportion of companies reporting on ethics, we can also start to see a general raising of the bar in terms of the quality of ethical disclosures.