Corporate ethics
Corporate ethics particularly refers to a company’s governance and accountability. It can include issues of board practice, bribery and corruption, the management of social, environmental and ethical (SEE) risks, board level accountability for stakeholders and political donations.
Corporate governance provides a framework for accountability to the company’s owners – its investors and shareholders. Fundamentally, good corporate governance should facilitate good corporate performance, ensuring the company is managed in the best interest of its owners.
In this section
Bribery and corruption
Codes of ethics
SEE Risk Management
Women on the board
Bribery and corruption
Corruption has many adverse effects. If permitted to flourish, corruption can, in the worst instances, hinder the development of entire nations. The World Bank and Transparency International, the global anti-corruption NGO, have demonstrated that, in some developing countries, corruption has reduced growth by deterring foreign investment and channelling funds into "white elephant" projects of primary benefit to corrupt decision-makers. Transparency International has also produced 'Business Principles for Countering Bribery' and produced lists of countries where bribery and corruption are common place. Companies that do business in such countries are more likely to be faced with compromising situations and have a bigger need to have in place policies and systems to address such cases.
Codes of ethics
How companies conduct their business and the behaviour of their employees is critical to a company’s ‘licence to operate’. Corrupt or unethical dealings will likely damage a company’s reputation and adversely affect the standing of its business partners, suppliers and customers. In the wake of a number of major global corporate scandals there have been growing public pressures and legislative initiatives for companies to be required to have a code of ethics.
SEE Risk Management
In addition to the management of financial risks, a wider conception of social, environmental and ethical (SEE) risks has emerged. The premise is that non-financial risks, should they occur, have a potentially damaging impact on the financial health of the company and ultimately on shareholder value. Future financial damage can result from unrecognised or unmanaged risks, or from the costs of defending allegations or lawsuits.
Women on the board
The “glass ceiling”, a term coined almost twenty years ago, has barely been cracked in the boardroom. In UK companies currently 10% of directorships are held by women. This is despite women comprising approximately 30% of managers. The ‘Female FTSE Report 2006’ states that the number of female-held FTSE100 directorships decreased to 117, down from 121 in 2005. This issue has extended globally as shareholders and investors put pressure on companies to improve their corporate governance and boardroom diversity.
Charities concerned about corporate governance and equal opportunities may wish to select companies that take steps to appoint a greater number of women directors.
Its relevance for charities
Corporate ethics is an issue of relevance to all investors. The issues mentioned above will be of particular interest to charities that are seeking to understand how well Companies manage their non-financial risks and are responding to pressure to be more accountable.
Corruption may be a particular concern of international development charities. Women on the board may be relevant to charities working on issues of equal opportunities and diversity.
Incorporating the issue into investments
Corporate governance is often the focus of engagement activity by fund managers.
It can also be the focus for positive and negative screens. This could focus on issues such as:
- whether the company separates the roles of Chair and Chief Executive
- whether the company has an audit committee with a majority of independent directors
- whether the company has policies and procedures on bribery and corruption
- whether the company has a code of ethics and, if so, how comprehensive it is
- how well the board and senior management address the Company's SEE risks and opportunities
- how many of the company’s directors are women
Some pooled investment funds include governance and accountability criteria. The Database of funds and fund managers gives some examples.
