MORE and more attention is being focused on how companies are run and
tomorrow sees the publication of the Cadbury Committee's report into the
financial aspects of corporate governance as the subject is known by
these days.
The legal parameters within which directors operate has been tightened
up, with tough new laws on insider trading an example, and there is
greater willingness to track down and prosecute wrongdoers, as Gerald
Ronson found out. And it may not be just the bosses who get jumped on.
Executives further down the ladder can be expected to end up in the
dock if American experience is anything to go by for breaches of
regulations relating to the environment and employee relations as well
as corporate governance in general. Apart from tougher laws companies
are increasingly having to work within a tighter ethical framework.
A new comprehensive guide* to social responsibility for management has
been published to give guidance to management over how they can improve
their performance in this area.
Moral questions do not naturally impinge on the busy industrialist's
mind but it is in companies' own interests to have a social conscience
and work within an ethical framework. A positive image in these respects
helps to secure customers and keep them loyal while brand names can be
badly damaged by negative publicity, such as through insensitive
treatment of customers or a cavalier attitude towards a pollution risk.
Companies which are alive to the external social environment can be
expected to react more quickly to shifting consumer tastes. The best
quality employees are likely to gravitate to companies with positive
images. This is shown in a generally lower labour turnover rate and less
''shrinkage'' or theft.
Revelations of wrong-doing have led to higher expectations for company
behaviour and in many cases this will mean more management resources
being devoted to ethical matters. Applying management processes to
social responsibility still has a long way to go, though surveys suggest
companies are gradually becoming more aware of the importance of the
issues.
So far there are relatively few ethical committees in European
companies, though they are common across the Atlantic. However, the
Royal Bank of Scotland refers ethical issues to a board-level committee.
The study suggests that ethical responsibilities be written into every
manager's job description and that exemplary behaviour be rewarded and
breaches of the ethical code punished publicly.
Even investors are becoming aware that treating ethical issues
seriously is not just a diversion of resources away from the main
business of the company of earning more profit. Companies with a
responsible culture are less likely to have skeletons in the cupboard
and will have a more motivated workforce.
It is easy for companies to write well-sounding platitudes about
ethics and social responsibility in their annual reports and leave it at
that. It is far more difficult to put them into practice and imbue the
corporate culture with them, particularly when times are hard and
pressures to perform financially are so strong.
* Actions Speak Louder than Words by David Clutterbuck with Dez
Dearlove and Deborah Snow, published by Kogan Page.
Sir Adrian Cadbury
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