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The ethical view on corporate governance

by Simon Longstaff

Introduction

Like most things in life, issues arising in the field of corporate governance boil down to a set of questions about relationships.

For all the current debate about whether 'corporate governance' refers solely to matters affecting the structure and composition of boards of directors or a broader range of issues relating to the framework within which corporate policy is made and articulated, there is no escaping the fact that we are discussing a series of arrangements contrived by and for human beings.

When it comes to the nature, form and functions of a corporation; nothing is given. Everything is a matter of choice. All is open to criticism and justification. As such, there is a critical ethical dimension to the debate - which, inevitably, forces us to consider the nature, quality and extent of the underlying relationships on which the corporation is founded.

Indeed, this is in line with the definition of corporate governance offered by Monks and Minow (1995, p. 1). In answering the question, “what is corporate governance?” they reply, “It is the relationship among various participants in determining the direction and performance of corporations”.

Monks and Minow identify the key participants as being: shareholders, management and the board of directors. This identification obviously invites a response from those who hold that other key 'stakeholders' ought to be included in the discussion of corporate governance. Obvious contenders include employees, creditors and the community - especially as the latter manifests itself in the form of government. This is not a debate that I propose to address, except incidentally, in the context of this paper.

Rather, I want to focus on the reality of corporations as aggregates of people. True, the corporation enjoys the status of person as a legal fiction. But behind this fiction is a reality constituted entirely by the actions and interactions of people: people interacting with other people; people interacting with the products of technology; people interacting with systems and people interacting with the full variety of the natural world.

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What is talk of ethics all about?

Many discussions about ‘ethics’ begin with a flourish only to grind to a halt as people encounter disagreement about the answer to a fairly fundamental question, “What is ethics all about?”.

The disagreement flows from the fact that most people only have a partial understanding of the basic questions that are addressed in the field of ethics. The most commonly held views include a mixture of the following:

• Ethics is the same as morality
• Ethics is about rules for behaviour ('soft laws' if you like)
• Ethics is to do with theory (part of the useless species of things dreamed up in ivory towers)

While each view is severely limited, it is easy to see how it can be held as most people tend to see only part of the overall picture. Those wanting to capture the broader perspective may be best assisted by returning to what is regarded to be the founding question in ethics.

Few will be surprised to learn that the basic question of ethics has an ancient pedigree. Indeed, it can be traced back to a Greek philosopher who lived and taught in Athens during the fifth century BC. Socrates asked:

"What ought one to do?"

It should be obvious that this is an immensely practical question confronting us whenever we have a choice or decision to make. It is also a question that is extremely difficult to avoid. Indeed, the only sure way to escape this question is to be a creature of unthinking habit who goes about life doing things “because everyone does it” or because “that's just the way we do things around here” or because “it seemed like a good idea at the time”.

People who are dissatisfied with this approach; people who wish to make their lives their own will recognise that Socrates' question ultimately requires each of us to give an account of how our choices and decisions contribute to what we would defend as a 'worthwhile' life. And that is how we come to address issues of good and evil, right and wrong.

If ethics is about practical rather than purely theoretical matters, it should also be understood that it encompasses a general conversation about how people should live a ‘good’ life. This helps to explain the difference between ethics and morality. The distinction can be demonstrated by using the analogy of a conversation. If one imagines that the field of ethics is a conversation that has arisen in order to answer the question, “What ought one to do?”, then moralities (and they are various) are voices in that conversation.

Each voice belongs to a tradition or theory that offers a framework within which the question might be contemplated and answered. So there is a Christian voice, a Jewish voice, an Islamic voice, Buddhist voice, Hindu voice, Confucian voice and so on. Each voice has something distinctive to say - although they may all share certain things in common.

There are, in addition to the moralities that flow from the world's religions, the voices that represent the various attempts to found moral systems on the thinking of secular philosophers. No ethical theory or morality (from the West) has found a way to answer Socrates' question in a way that totally avoids the countless ethical dilemmas that seem to be a persistent feature of what might be called the ‘ethical landscape’.

One simple example may suffice as an indication of the type of dilemma that might be encountered. Most people would agree (possibly for quite different reasons) that people ought to tell the truth. These same people will hold that one ought to avoid causing harm. But what happens when to tell the truth will cause another person harm?

Each principle seems to be valid on its own account, but when put in combination with other values an irreconcilable tension may arise. This is not a trivial point. It reminds us that the ethical landscape is painted in shades of grey and not black and white. Sometimes we need to accept the limits to certainty when trying to decide how best to proceed. Sometimes our range of choice is reduced to picking the least bad alternative. Sometimes we may have nothing more than a well-informed conscience to guide us through the maze of ethical decision-making.

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A final point about ethics

In all this discussion one crucial point has been left unsaid: that ethical considerations involve an essential social element. Whether one seeks to move from religious conviction, or from a position in which one seeks to generate consequences in which pleasure is maximised and pain minimised, or from the point of view in which other persons are seen as being members of the 'kingdom of ends', the result is the same - a consideration of ethical questions involves a consideration of the quality and nature of relationships with other people.

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Values and principles - in practice

This paper is not the place to offer a comprehensive account of the means by which virtuous behaviour can be encouraged and developed.

Suffice it to say that the development of virtuous individuals and organisations is only possible in an environment in which people are consciously reflective about the status of shared practices that define their daily activity. In this context, the two great enemies of progress are firstly, a lack of integrity through which people (or organisations) say one thing and do another and secondly, a lack of thought in which people do things “just because that's the way we do things around here”.

Fear of punishment or an over-reliance on control mechanisms are replaced with a fair degree of self-regulation as the preferred basis for ensuring sound practice in the field of corporate governance. The reason for this is simple. Virtuous dispositions can only be developed through practice.

Similarly, a sense of personal responsibility only develops in an environment where choice is a genuine option. In circumstances where all or most matters are decided in advance by the legislature, or regulators, individual directors and boards are (somewhat paradoxically) relieved of their sense of responsibility. One hears comments like: “Why bother worrying about x. It's up to the government to decide. If they haven't said that it is wrong; if it is legal - then it must be okay”. In such circumstances, all manner of wrongs can be committed by otherwise decent people who have suspended their judgement in deference to the authorities.

At the 'micro' level, good corporate governance will be fostered by the adoption of 'inclusive' procedures designed to bring all the relevant parties into the process. For example, if compliance is an issue, say, for a Board's Due Diligence Committee, then it might achieve best practice by encouraging management to focus on developing a culture (or ethos) that is supportive of compliant behaviour. That is, the Board will adopt policies that reward compliant behaviour and not just punish the errant.

This approach takes on even greater significance when attention is directed away from issues of compliance and towards the challenge of performance. In a significant passage from Strictly Boardroom, Hilmer writes:

The board's key role is to ensure that corporate management is continuously and effectively striving for above-average performance, taking account of risk. This is not to deny the board's additional role with respect to shareholder protection.

(Hilmer, 1993, p. 33)

If Hilmer is right in his recommendation, then it is clear that boards must do everything in their power to establish a framework of policies within which performance can be maximised, taking account of risk. Given recent developments in the theory of organisational behaviour (see McGregor, 1983; Karpin, 1995), there are good reasons for holding that people perform best when managed according to a paradigm which assumes the predominance of positive aspects in human nature.

A responsible board should take full account of this sort of information and ensure that it informs its deliberations when approving policy. Not to do so, would be to court the charge of insincerity in the pursuit of improved performance.

Other recent research suggests that a proper concern with the ethical environment of a corporation is essential to long-term business success. Needless to say, many here are familiar with an interesting book, Built to Last: Successful Habits of Visionary Companies. The authors, James Collins and Jerry Porras:

... took a set of truly exceptional companies that have stood the test of time - the average founding date being 1897 - and ... set out to discover the timeless management principles that have consistently distinguished outstanding companies.

(Collins and Porras, 1994, p. xiii)

One of their key findings is expressed thus:

Visionary companies pursue a cluster of objectives, of which making money is only one - and not necessarily the primary one. Yes, they seek profits, but they're equally guided by a core ideology - core values and a sense of purpose beyond just making money. Yet, paradoxically, the visionary companies make more money than the purely profit-driven comparison companies.

(ibid, p. 8)

A moment's reflection should suggest why the increased profitability enjoyed by 'visionary' companies is not all that paradoxical. Any organisation capable of managing the complexities associated with paying proper attention to the way in which values are expressed in practice will be well-equipped to cope with the burgeoning complexity that defines the world in which we live.

Furthermore, an organisation that deals with the ethical dimension of all its activities will, at the same time, be building a high-trust environment. As we know, high trust correlates with low-cost. This is especially so when ethical commitments are reinforced so that they become part of the deep structure of organisations. In these circumstances, blind rule following is replaced by compliant behaviour based on the voluntary expression of dispositions that accord with desired practices. A certain degree of vigilance is still appropriate. However, far less supervision is required. And where rules are silent or ambiguous, there is still a basis for proper action.

As Sir John Dunlop once observed:

I put it to you that the directors are responsible to the shareholders for profit in perpetuity; and that this general expression of a principle permits, indeed requires, directors to pay full regard to their employees, to labour relations generally, to the community, to the country, in all their decisions for and on behalf of shareholders.

(Dunlop, 1987, p 7, my highlighting)

All of this may seem to be suggesting that a commitment to ethical behaviour can be generated by quoting the misleading nostrum that “good ethics is good business”.

While the evidence suggests that good ethics is good for business, it would be misleading to suggest that narrow self-interest can generate a stable commitment to ethical behaviour. Instead, the values and principles that count most are those that will attract support - even if there is a cost. People should be ethical because this is the right thing to do. The fact that this may be a profitable course of action should be regarded as a collateral benefit. Returning to Collins and Porris (ibid, p. 73), core values are those which must not be “compromised for financial gain or short-term expediency”.

Needless to say, a great number of practical souls will be wondering about the detail of a programme designed to deliver the kind of results that I envisage. Those of a more sceptical bent may even doubt that such a programme can be devised.

The Ethicscan process, developed by St James Ethics Centre is one such approach. It not only generates a base-line study but also assists organisations in the development and implementation of strategies designed to foster an inherently ethical culture - a culture which builds successful performance on a foundation of consistently applied values.

The kind of process applied by the Ethics Centre is essentially practical in nature. It not only maps a culture but, equally importantly, takes a hard look at the systems and policies so as to determine the nature of signals being sent in the organisation. The aim is ultimately to ensure that all the signals - values statements, remuneration policies and so on, are in alignment.

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How to implement and monitor a code of practice

As will be seen from the argument below, there are two principal types of code - codes of ethics and codes of conduct or practice.

It goes without saying that the difference is often ignored. Yet the distinction is an important one. Before setting out some thoughts on how to develop these codes and make them work, it may be useful to say something about why they so frequently fail.

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Why codes fail

Putting it bluntly, even well-intentioned people are committed to the folly of developing codes as an alternative to the active and creative management of an organisation's culture. The development of a code is an understandably attractive alternative. At first glance the solution seems to be relatively cheap and efficient. In fact, it is regrettably common for the following process to unfold:

1. refer the matter of ‘ethics’ to Corporate Counsel, Human Resources or a consultant
2. have the appointed individual draft an appropriate document (usually based on earlier attempts by others)
3. publish the code (occasionally with a 'sign off' requirement)
4. activate the internal monitoring / enforcement regime
5. sit back and relax

This is, of course, something of a caricature. However, when it comes to addressing the ‘problem of ethics’, most companies look for a cheap 'off the shelf' solution. What is more, those who seek such a solution do so in the face of compelling evidence that solutions of this type may be superficially efficient - but almost totally ineffective.

A moment's reflection about the thought experiment outlined at the beginning of this chapter will begin to suggest some fairly obvious reasons for why codes might fail when developed or applied in such circumstances. For example, it is clear that there needs to be a level of trust within an organisation sufficient to ensure that people are prepared to believe claims by management et al that rules are designed to prevent a serious mischief or promote a worthwhile good. In a similar vein, one recognises that the range and quality of relationships that underpin an organisation's culture need to be such that a sufficient degree of loyalty is felt to be owed to the institution and its defining ends.

Recourse to a 'quick fix' has a further disadvantage. At first glance, the error might seem to be quite trivial. However, there is considerable significance to be found in the fact that so many organisations set out to develop a Code of Ethics and, instead, produce a Code of Conduct (or some sort of hybrid).

The significance of this goes beyond the issue of mis-description. Rather, the confusion is evidence of the phenomena described above - phenomena in which the broader issue of ethics is set aside in favour of the 'hard science' of specifying types of behaviour that, in defined situations, are to be prescribed or proscribed.

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Different codes?

The discussion above has alluded to a difference between Codes of Ethics and Codes of Conduct. What are these differences? The difference between the two alternatives is relatively easy to describe. A Code of Ethics expresses fundamental principles that provide guidance in cases where no specific rule is in place or where matters are genuinely unclear. A well drafted Code of Conduct will be consistent with the primary Code of Ethics, however, it will provide much more specific guidance. In comparison to a Code of Conduct, a Code of Ethics will tend to:

• be more general,
• contain fewer principles,
• be expressed in terms of 'ought' or 'should' (and not 'must'),
• be directed to all persons affected (and not just to 'employees'), and
• provide general guidance in those cases where a Code of Conduct is silent, ambiguous or unclear.

Bearing this in mind, a Code of Ethics might include provisions such as:

• That our actions should be based on a recognition of the essential dignity of each and every person.
• That we should have an active concern for the wellbeing of the community and the environment.
• That we should provide a challenging and safe workplace in which people can flourish.

... and so on. Naturally enough the principles need to be amended to take into account the distinctive ends that an organisation might seek to achieve.

On the other hand, a Code of Conduct will have a number of discreet headings which cover specific instructions. For example:

Gifts & benefits

Employees must:

• not demand or accept any unauthorised gifts, rewards or benefits because of the employee's status
• disclose to their manager any gift, reward or benefit offered or suggested to them in connection with their duties.

Conflicts of interest

Employees must:

• ensure that there is no actual or apparent conflict between their personal interests and the performance of their duties
• identify, and fully disclose in writing to their manager, possible conflicts of personal or financial interests.

At first glance, it may seem that far more use can be made of a Code of Conduct. After all, such a Code provides clear and unambiguous direction about appropriate standards of behaviour. However, further examination of the issue reveals that the less specific Code of Ethics is the more significant document.

Despite (or some would say because of) its 'fuzzy' form, a Code of Ethics is the better vehicle for ensuring long-term commitment to important values. This is because a Code of Ethics demands something more than mere compliance. Instead, such a Code calls forth an exercise in understanding that is linked to a requirement that people exercise judgement and accept personal responsibility for the decisions that they make. As a North American manager observed to Fortune:

Today life is fired at us point-blank. People don't have time to refer to the Bible or to the company handbook. You've got to have all that internalised.

A Code of Ethics should be a document that expresses an organisation's underlying values. It is therefore essential that the document ring true for those to whom it applies. And this means that Codes of Ethics need to be devised in consultation with the people most directly affected by its application. In other words:

Everyone who's going to have to live with the statement should get a chance to put his or her two cents in.

Codes of Ethics and Codes of Conduct are not 'magic bullets' that solve an organisation's problems. And the fact that an organisation has a written Code will not guarantee that its personnel are especially ethical. But good managers will realise that, if approached with the proper degree of care and sophistication, the very process of developing these Codes can have a profoundly positive effect on the culture of an enterprise.

If it is not already clear, let it be stated directly that organisations should be looking to develop both types of code. Indeed, serious consideration should also be given to the suggestion that there be an additional level of documentation outlining the responsibilities owed to stakeholders. The idea is to create a series of 'nested' and logically related documents each of which contributes something different to the process of reinforcing the ethos of the organisation.

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And some ideas about how to make codes work!

Having undertaken a cursory explanation of the difference between the two types of code and bearing in mind the earlier discussion about the ways in which common approaches to developing these codes can lead to failure, what can be said by way of advice about the appropriate way to proceed?

To many, the following observations will seem blindingly obvious. The only thing that might prevent them from being labelled as the fruit of common sense is the fact that they are so uncommonly applied in practice.

Map the Base-line

It is interesting to note that very few organisations take the trouble to assess the culture that they seek to reinforce or change. Anecdotal evidence or a kind of 'group memory' may provide a fecund source of assumptions that are seldom tested. At the very least, this opens one to the risk that the ideals of an elite come to form the basis for developing an approach to the organisation's ethos. In the same vein, it is possible that a 'mythical' culture can emerge from the minds of idealistic enthusiasts. It is possible to avoid such pit-falls by the relatively simple expedient of conducting a 'values audit'.

In its simplest form such an audit will seek to establish three things. What do people in the organisation:

• think to be its most important values?
• believe to be the ideal level of presence of each of these values?
• believe to be the actual level of presence of each of these values?

Such a survey will help to identify what people think to be important. But more importantly, this exercise will begin to identify what has been called 'the values gap'. It is an obvious step beyond this point to involve the workforce in suggesting the means to close the gap. In addition to this the audit will provide a base-line against which progress (such as in closing the gap) can be assessed.

Involve everyone

Although becoming something of a clich', it is still important to observe that people are more likely to apply rules that they have had a hand in developing than those which have been handed down - as if from 'on high'. At a fairly basic level it is easy to understand how it is that a degree of ownership of a process can create an acknowledged prima facie obligation. This naturally works to the advantage of those who look for compliance.

An additional practical reason for ensuring a broad base of involvement in the development and implementation of the codes is that this will increase the likelihood that the resulting documents will be relevant to the daily experiences of those to whom they apply. Beyond this, widespread involvement will help to ensure that codes don't call for one kind of approach while custom and practice demand another.

However, there are more important reasons for involving everyone. The foremost of these is that such a policy can be an effective expression of the principle that all people are owed respect. The fact that a company chooses to encourage all of its people to participate in defining its ethos indicates that personnel are regarded as being more than mere means for securing the organisation's ends.

An open culture in which each person is encouraged to contribute to the process outlined above is one that is likely to be one in which trust can be engendered. It is likely to be a culture with the underlying resilience to cope with periods of rapid change. When value questions are reserved for the judgement of the few (lest the public airing of such issues cause dissension), then the foundations of an organisation can be undermined by hidden pockets of unresolved difference. Cracks are papered over until the degree of tension increases to an unsustainable level.

Finally, it is important to understand that the requirement to involve everyone suggests that the process should be extended from the board-room to the factory floor. In a similar vein, the various codes ought to apply to all members of the organisation, and if there are to be differences, then these will need to be justified.

Aim for short development cycles

Some organisations accept the importance of consulting their employees. But there is less of a concern to provide timely reports of the findings. Such practices can lead to a serious erosion in the level of morale within an organisation. People become cynical and easily develop the perception that the entire exercise was nothing more than a 'gesture' by management.

On the practical front, the quicker the turn-around, the greater the likelihood that positive reinforcement can be achieved.

Build in a process for review

It is important to avoid circumstances in which codes come to be seen as stale or 'set in stone'. It does not take many generations before unreconstructed codes lose their immediacy and relevance.

Should this happen, then the code is likely to fail in its application. This is not to suggest that companies need constantly to be reinventing the wheel. It may be that despite being regularly (and fairly frequently) reviewed, the code(s) will continue, unchanged for years.

However, the development of a review process will help to ensure that the documents remain relatively fresh and relevant. Indeed, the process of keeping the code(s) before people as living documents can prove to be an extremely effective 'handle' for those who have responsibility for developing strategies for the effective management of values.

There is no need for managers to surrender responsibility

Much of the above suggests a commitment to principles of workplace democracy. Many managers will object to this implied orientation. Bearing this in mind, it should be stressed that none of the above is meant to suggest that managers ought to surrender their prerogative to manage.

An important part of the process will be to define and articulate the various spheres of responsibility. It is perfectly reasonable for managers to specify that while they are genuinely interested in consulting their colleagues they will, in the end, have to accept responsibility for making the final decisions.

Having said this, there may be separate reasons for managers to extend the decision-making process so that it involves their colleagues. Such a decision might be part of a process of evolution away from the technical paradigm of management towards the less precise art of leadership. But that is another topic.

There is a need for authenticity rather than homogeneity

Some people labour under the false impression that there is just one type of culture that can be described legitimately as possessing sound ethical characteristics. The prevalence of this sort of belief may be a contributing factor to the tendency (noted above) to gravitate towards generic products that can be bought 'off the shelf'. There is also a level of comfort that flows from adopting positions that are similar to the existing norm.

Yet there is no need for homogeneity in the cultures and codes of organisations. In normal circumstances one would expect individual differences flowing from the existence of variations in defining ends, personnel and so on, to lead to natural variety in the types of ethos to be found in distinct organisations. All the same, there is no essential virtue in variety. One would not be too surprised to find organisations sharing a number of commitments and values. However, the key feature to be sought is an authentic expression of what people hold to be important and right.

One should see the process as an investment

One can mount convincing arguments to support the claim that there are ethical grounds for encouraging broad participation in the process of developing codes. Yet one needs to recognise that no matter how attractive and convincing these arguments, it is almost certain that organisations will focus on the 'bottom line'. And they will do so with the clear recognition that the 'quick fix' is the cheaper option.

To follow the recommendations outlined in this chapter would be to commit a significant investment of resources - especially resources of time and personnel. So why make such an investment?

Many would accept that the rational approach is to invest in ways that lead to the generation of continuing benefits. Given the pervasiveness of the ethical dimension in all that we do, organisations cannot afford to sacrifice the additional effectiveness that flows from this process for the sake of achieving false efficiencies.

There are a number of other points that could be made touching on subjects such as the need for codes to be in plain English, to use inclusive language and so on. Any observations in these areas would be largely self-evident.

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Why all the fuss about ethics?

For some years now, the topic of ‘ethics’ has been gaining increased exposure across the ranks of the management community, its advisors and regulators. Many believe that the rise of interest in this topic can be traced back to the latter years of the last decade - a time when society began to look for an appropriate response to what has been labeled 'the excesses of the '80s'.

While the activities of the 'corporate cowboys' certainly gave impetus to the current wave of interest in business and professional ethics, it is important to recognise the force of other factors driving the process.

Of these, the most important factor is the rate and process of change. As the rate of change accelerates, so novel problems arise with increasing frequency. Some of the most obvious challenges come about because of developments in technology. For example, people working in the field of medicine regularly encounter circumstances where technology could be applied to sustain life but where to do so would merely be to extend the natural process of dying.

At the same time there are issues to do with equity and the allocation of the community's resources. Should every person have access to the latest diagnostic tool or medical treatment? Or should there be some kind of 'rationing' in the interests of containing costs? Whether attention focuses on developments in medical research or the practice of health care professionals, the questions go on.

Although 'bio-ethical' questions capture the popular imagination, technological developments in other areas give rise to equally pressing issues. The use and potential abuse of information and communications technology has the power radically to affect the nature of society. New forms of surveillance may limit our effective zone of privacy. Genetic engineering gives rise to new life-forms which, as commodities, may serve commercial interests while defying nature's laws of evolution.

Looking towards the horizon of the future, it should be obvious that complex ethical questions are going to be a constant feature of our environment - touching the public and private sectors alike.

Another reason for a boost in the volume of talk about ethics can be found in a sincere determination to find an alternative to escalating regulation and surveillance. There can be no doubt that there is popular pressure on governments to ensure that the community is protected from some of the worst excesses perpetrated by those who would put profit or personal success before all else. And governments, of all persuasions, need little encouragement to expand their sphere of influence.

The trouble is that too much regulation and surveillance can destroy the very qualities of personal and institutional responsibility that should be encouraged. External controls can only do so much. Their limitation is that no matter how comprehensive, people will be tempted to wriggle through loopholes - especially if there is no understanding of the underlying principles that are being reflected in the rules.

Let me be clear, I am not suggesting that government abdicate its responsibility to set the framework within which commercial and professional behaviour is conducted. And I am not wanting to advocate the abolition of regulation.

Rather, I am concerned to argue that a balanced approach be adopted. In particular, an essential element of self-regulation ought to be allowed otherwise we will find that individuals and corporations surrender their judgement about the rights and wrongs of a situation in favour of a limited and strict interpretation of the law. As we have seen, once the language of ethics has been lost, it is hard to recover.

One implication flowing from the view I have advanced is that organisations will need to become far more sophisticated in the way they manage the ethical dimension of their environment. A concern about ethics needs to become a vital component in the process of strategy development. Policies and procedures need to reflect a genuine commitment to building a culture in which deep values are explicitly acknowledged. This means going beyond a commitment to the 'shallow' commercial values of profit maximisation and instead allowing a full appreciation of what underlies such commitments. In other words, the organisation needs to know why profits are important. Only then will other legitimate concerns be weighed in the balance.

A failure to address these issues at a deep level will reinforce community cynicism that talk about ethics is just another piece of window dressing, just another public relations stunt. If this cynical view is reinforced then the cost will not just be borne by the management community. All of us will be affected - and so much for the worse.

A final reason for attention to ethics is the evidence of an increasing focus on the need to develop the skills of leadership as well as those of management. Or perhaps, it might be better observed that the inherent role of leadership in management is again being made explicit. For some time now, the idea of an 'art' of management has been replaced by the idea that management is a kind of 'science'. Invariably, the creative aspect of science has been ignored in favour of its technical aspect. Management has been reduced to a kind of technology overseen by a crop of narrowly trained MBA graduates.

A renewed concern about leadership and its role in the art of management now means that there is a need to address issues to do with the character of those who lead organisations. In turn, this leads to a consideration of whether or not managers should possess a range of virtues suitable to their task. For example, do managers need courage, fortitude or even wisdom? Each person will have their own answer to such questions. The important thing to note is that whatever the ultimate answer may be, the conversation is once again about ethics.

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The role of the corporate secretary

An absence of ethics leads to a reduction in the level of trust that exists in a community. When a community feels that it can no longer rely on informal canons of decent behaviour, it often resorts to formal mechanisms of increased regulation and surveillance. Somewhat ironically, this has a tendency to weaken the bonds of ethics even further. Extra regulation is always accompanied by increased costs. There is a financial cost which hits the good and bad alike and which is passed on to the consumers in the form of higher charges and taxes. There is also a social cost as regulation also depends on the need for surveillance. There is a subtle but real change in the quality of our liberty. And there is also the cost to be borne in terms of our ethics. If somebody else is prepared to tell you what is ‘right’ and ‘wrong’, then it lifts a burden of having to make our own decisions. In a sense we become less responsible. 'I was only following the code'. 'They make the rules, it is not my problem'. One of the important benefits that a group of self-regulating professionals should bring to society is a framework for informal systems of checks and balances designed to protect the community from some of the less welcome excesses of human behaviour.

I sometimes think of corporations as if they were ships at sea. A marginally competent sailor can get by when the wind and weather is fair. However, a combination of technical excellence, experience and sound judgement is required by those who would survive the occasional tempest.

Every ship needs a good lookout - someone who can read the tell-tale signs of changing conditions. Every captain needs a confidante who can act as a sounding board when tough decisions must be made and executed. This means that there will be occasions when the corporate secretary may need to adopt a position that goes beyond that of setting out the formal requirements of the law and applicable regulations.

In addition to this, the corporate secretary might also be thought to occupy a position ideally suited to the provision of disinterested advice concerning some of the broader implications of adopting certain policies and procedures.

Indeed, it could be argued that corporate secretaries are bound to adopt this role because of their chosen status as professionals. Belonging to a profession means accepting that there is a significant (if not overriding) duty to act in a spirit of public service. In fact, this determination to act in this spirit is the key defining characteristic of a professional.

One particularly influential definition of a profession was offered by Roscoe Pound. It goes as follows:

The term refers to a group ... pursuing a learned art as a common calling in the spirit of public service - no less a public service because it may incidentally be a means to livelihood. Pursuit of the learned art in the spirit of public service is the primary purpose.

The point should be made that to act "in the spirit of public service' at least implies that one will seek to promote or preserve the public interest. A person who claimed to move in a spirit of public service while harming the public interest could be open to the charge of insincerity or of failing to comprehend what his or her professional commitments really amounted to in practice.

In August of 1993, the Australian Council of Professions issued a discussion paper, Professional Services, Responsibility and Competition Policy. Significantly, a press release about this paper was issued under the title, In The Public Interest. Both the paper and the release sought to distinguish a profession from "more commercially minded occupational associations". As opposed to others, professional practitioners:

... must at all times place the responsibility for the welfare, health and safety of the community before their responsibility to the profession, to sectional or private interests, or to other members of the profession.

If the idea of a profession is to have any significance, then it must hinge on this notion that professionals make a bargain with society in which they promise conscientiously to serve the public interest - even if to do so may, at times, be at their own expense. That is, to be a professional is to face the very real prospect of having to act with moral courage.

While not wanting to suggest that corporate secretaries are especially ethical or courageous they do have the advantage of belonging to a professional association that can support them, if it is minded to do so. Individuals acting alone may feel unable to raise their concerns for a variety of reasons which might include: a lack of access to relevant information, concern about continued employment prospects and so on. Corporate secretaries nationally enjoy peer support which should be directed to helping them to discharge professional obligations - especially those relating to integrity, an orientation towards the truth and a commitment to the provision of independent advice.

Let me be clear, I am not suggesting that corporate secretaries ought to substitute their judgement for that of their employer on matters of policy. Instead, I am saying that corporate secretaries must not suspend their judgement in deference to those who exercise power or influence. That is, the critical assessment by corporate secretaries should bolster a more general tradition in which professionals provide impartial advice and service to their employer. To do so is quite consistent with a more general professional obligation to discern the difference between a client's interests and wants. This is to engage in the distinctive form of 'best practice' that informs the work of members of the professions.

Talk of 'best practice' frequently leads people to concentrate on a quasi-technical framework in which measurable standards are defined. The focus is on defining what constitutes superlative technique. But is this enough? Let me state clearly that I think it essential that people aim for technical excellence. However, to leave it at that would be to endorse the development of a lop-sided kind of practitioner who is only concerned with how best to prosecute the means to an end.

While a concern for means is important, let me suggest that the idea of 'best practice' should also encompass the development of skills, understanding and dispositions that allow for excellence in the assessment of ends. It can only be so if you accept my suggestion that corporate secretaries should play a vital and creative role in assisting organisations to exercise informed judgement. Informed judgement should reflect on the destination as well as the means of traveling! It is important to ensure that both means and ends can be justified. How many times have we heard statements that boil down to nothing more than a claim that 'the ends justify the means'.

All of this suggests that corporate secretaries ought to consider their role as something like a 'reflective practitioner' - a person who combines the mastery of technique with a kind of practical wisdom.

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Conclusion

In the current social environment there are many who would argue that a genuine commitment to ethics is an unrealisable ideal. Many think that sound ethical principles are fine in theory but that they can't really be applied in practice. To try to do so is to be nostalgic. They say that to promote virtue is to be old fashioned, to hark back to ideas only useful in a different era. They ask us to be 'realistic' and to embrace the 'modern' way of doing things. This plea is often nothing more than an ill disguised plea to allow for the survival of the fittest. Perhaps such people are right. Perhaps a dog-eat-dog world will be the most efficient. And perhaps efficiency is the only value that we need to embrace in the search for a worthwhile life. Or perhaps efficiency is only one of a number of important values that we must learn to juggle across an unpredictable landscape.

Those of us who are serious about the need to make ethical considerations an explicit concern in our daily lives must face up to this challenge. After all, what if our critics in the market place are right? What if the prime (and exclusive) aim in life really is to maximise our satisfaction of wants (and not just needs)? What if the liberty of the individual (important as it is) transcends all other considerations? What if it is through competition alone that we find the ultimate expression of our humanity?

One can only reply that an authentic commitment to leading an ethical life may require us to live in a way that makes only partial sense in a world dominated by an orientation to the principles of laissez faire. The noted Australian social researcher, Hugh Mackay,4 argues that a commitment to ethics may only make full sense when viewed against a background of community. That is, the possibility of leading an ethical life probably depends on the prior existence of a society and not just an enterprise association.

Most people have a fairly good feel for what it means to live in a 'society'. But what about an ‘enterprise association’? John Casey has tried to describe the latter:

We might imagine a city founded purely as a trading post. The laws of the city will reflect its original purpose, and have to be understood in relation to this purpose. Contracts will be vigorously enforced however unreasonable or unjust, because it is of the highest importance to retain the confidence of those with whom the city trades. Indeed, the notion of a contract being 'unjust' will have no meaning. All education will be subordinated to the need to produce an 'enterprise culture', and no subject will be studied as an end in itself. The rulers of the city will regard themselves essentially as the managers of the enterprise. Their tasks will be to maximise wealth and promote trade.

Is this so very far from what we now experience? Some may say that this is an accurate and even attractive picture of the type of world in which we live. But does such a view of our relationships miss something of vital importance? For example, do we exist simply to "facilitate the exchange of commodities" or is there something more? Is there, for example, a need to value friendships, to realise that other people can make a claim on us? Is living in a society only possible when we recognise that each person is bound to others within a network of formal and informal relationships?

The professions, and the community that warrants their continued existence, face the challenge of making a choice about the kind of society to be preferred. Do we desire a community of citizens in which something like the professions make sense? Or do we want the enterprise association in which each of us is little more than a purveyor or consumer of commodities? The latter consigns us to a place where the active pursuit of public service will seem strange and alien - just a shadow of a once remembered past.

Corporate secretaries ought to be at the forefront of debates about such matters. Beyond this, they need to demonstrate a practical commitment to being ethical and doing that which is right and good. Above all else, this will be the bedrock of their contribution to the task of building and maintaining a more ethical society.

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