Can Companies Still Afford to Ignore Business Ethics and Corporate Governance in their Own Backyards?

Ein Beitrag von: Tebogo R. Mazibuko, LL.M, MBA; Director of International Business, Legal & Compliance

Introduction: Wirecard, a Glaring Cue for Every Company

The current scandal surrounding Wirecard, in which reportedly 1.9 billion euros disappeared from its balance sheet, is the latest and greatest of its kind and even named by some experts as the “Enron of Germany” (Browne, 2020). This has not only exposed the short-comings of Germany’s regulation of the financial services sector, but has also caused a renewed interest in business ethics and corporate governance. An article was published in this week’s German Handelsblatt, reporting on the continuously fraudulent workings by Wirecard’s CEO and his close ally, a director at Wirecard over a period of one and a half decades (Bender, Holtermann, Iwersen, & Schneider, 2020). While it is the scandals surrounding large multinational corporations that make the headlines, topics of business ethics and corporate governance are also central to small and medium enterprises (SMEs), as SMEs are drivers of the European economy (Bundaleska, Dimitrova, & Nikolovska, 2012, p. 4) with a vast range of stakeholders. Furthermore, there is a range of benefits for SMEs trading with solid business ethics and corporate governance, for example, reduced risks between owners, increased access to credit and higher resilience to financial costs from fraud or theft (The Association of Chartered Certified Accountants, 2015, p. 5). Based on the aforesaid, the topics of business ethics and corporate governance are important for all companies and businesses and together constitute the topics briefly discussed in this mini paper.

Real Business Ethics are an Unavoidable Foundation

Business ethics is defined by the London-based Institute of Business Ethics as “the application of ethical values to business behaviour […] relevant both to the conduct of individuals and to the conduct of the organisation as a whole. It applies to any and all aspects of business conduct, from boardroom strategies and how companies treat their employees and suppliers to sales techniques and accounting practices.” (Institute of Business Ethics, 2020). Along with this, it is important to note that ethics go beyond the abidance by legislation and are guided by values (Institute of Business Ethics, 2020). The academic field of behaviourial business ethics emanates as a response to highprofile corporate scandals that were reported on approximately fifty years ago and with the exponential increase of corporate scandals since the 1980s, this area is attracting increased attention from academics in social science and psychology (Kish-Gephart, Trevino, Chen, & Tilton, 2019, p. 3).

Conceptually, business ethics at national level encompass at least three levels, namely individuals, organisations and systems (in this case, micro-,meso- and macro-levels) (Enderle, 2015, p. 724). In the same vein, three dimensions of corporate ethics have been identified, based on how companies position themselves in relation to ethical behaviour: external (focused on the impact of a company’s ethical behaviour on external stakeholders), internal (considering mainly the manner, in which a company designs and executes its key functions so as to be in line with prevailing regulatory prescripts and societal ethical standards) and employee (looking at how corporate ethics show up in the day-to-day behaviour of employees and how employees also rely on their own moral standards to guide their daily decision-making and behaviour) (Chun, Shin, Choi, & Kim, 2013, p. 856). An examination of literature on the topic of business ethics highlighted matters such as morality, ethical decision-making and corporate social responsibility (CSR) (Vazquez, 2018, p. 692). In the specific context of family-owned businesses, issues like governance and succession were observed to take precedence (Vazquez, 2018, p. 692).

Corporate Governance is the Next Cornerstone

There is a direct link between business ethics and corporate governance, considering that the latter requires corporate leadership “to give life to an organisation’s guiding values, to create an environment that supports ethically, sound behaviours, and to instill a sense of shared accountability among employees” (Camilleri, 2018, p. 3). Viewed from this perspective, it follows that ideally corporate governance should be a reflection of organisational ethics and integrity, and so too a company’s strategy, decision-making and organisational systems (Camilleri, 2018, p. 3).

The importance of effective corporate governance (on paper and in practice) being bedded on a solid foundation of values and strategic management at corporate executive level cannot be over-emphasised (Wieland, 2006, p. 158). Furthermore, and according to a study conducted on German companies with the application of the German Ethical Culture Scale (GECS), a compliance-based approach to manage business ethics prioritises the prevention of misconduct, applying measures of control, monitoring and sanctions while an integrity-based approach aims to encourage stakeholder self-governance and responsibility (Tanner, Gangl, & Witt, 2019, p. 4). The study found that a combined implementation and monitoring is important to better predict considerably deviant behaviour (Tanner, Gangl, & Witt, 2019, p. 14).

Corporate policies and procedures present one manifestation of an employer’s efforts to connect with its employees’ moral campus and to give the employees an insight into the employer’s corporate ethical framework (Copoeru, 2012, p. 39). The ethical code of a business, in essence, formalises sets of standards and actions, against which the actions and decisions by everyone in a company (including the executive) will be measured against (Tadjudje & Labi, 2018, p. 123). Based hereon, it can be argued that the unethical behaviour of corporate employees stems not solely from the lack of morals on a personal level, but are actually encouraged by the existing bureaucratic structures (Copoeru, 2012, p. 39) and normalised ways of working. Even prior to the Wirecard scandal there was a view that the absence of business ethics among employees is often directly attributable to the low or absent business ethics standards among the executive (Rapp & Strenger, 2015, p. 14).

Corporate Leadership Has an Important Mandate

The Wirecard scandal has place renewed focus on Germany’s corporate governance rules and corporate leadership. The chairperson of the Association of Supervisory Boards in Germany was quoted to express the dire need for the modernisation of the corporate governance rules (Browne, 2020). The CFA Society Germany echoes this sentiment, adding that, on a company level, corporate leadership must strengthen corporate governance measures such as reporting, and increase the responsibility of the advisory board (CFA Society Germany, 2020). Along the same lines, compliance is important to provide the stakeholder with compact protection, however, it is the existing corporate ethics (most especially from most upper corporate echelons), together with increased executive accountability, that give life to corporate governance and the compliance process (Toebe, 2020). Ethical leadership is at the centre of it all, tying together business ethics, management and corporate governance, while acting as an example to employees across the company (Agbim, 2018, p. 30).

In Closing

Recent corporate scandals are a reminder that the issues of business ethics and corporate governance are not a nice-to-have, but can be instrumental in the increased competitive advantage, growth and sustainability of all companies. Companies are central in normalising and mainstreaming relentless business ethics, solid corporate governance and business practices, all while achieving greater corporate performance and exemplary corporate citizenship (Agbim, 2018, p. 31).

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Tebogo R. Mazibuko, LL.M, MBA

Tebogo R. Mazibuko, LL.M, MBA

Written by Tebogo R. Mazibuko, LL.M, MBA; Director of International Business, Legal & Compliance