The value of ethics

In the wake of the performance of former Barclays' chief executive Bob Diamond before the Treasury Select Committee, more criticism was directed at the MPs for their handling of the questioning than at the American banker. Critics argued that the Parliamentarians had failed to adequately probe Diamond and also lacked the terrier like qualities to prompt revealing answers.

But some observers did focus on one particular exchange between Labour MP John Mann and the banker. Mann challenged Diamond to name Barclays' three founding Quaker principles. Diamond fell silent, allowing Mann to remind him they were 'honesty, integrity, and plain-dealing,' before sardonically offering to tattoo them on the knuckles of the former Barclays' boss.

It later emerged that Mann had spoken to a former Barclays' bank manager, who recalled a time when employees were required to learn those principles on joining. He was shocked that Diamond had either forgotten or did not know them.

Since Diamond's demise, several commentators, such as John Plender at the Financial Times, have been moved to analyse 'what went wrong with the culture of this once venerable enterprise?' In many ways, it is ironic that it has become fashionable to revere corporate principles of old when they were penned at a time when business was done very differently to the way it is now.

Profits are being squeezed and companies are operating in an age of unprecedented political and public scrutiny at a time when there is enormous pressure to behave appropriately.

But Barclays' Quaker principles are, like those of so many other companies, just words. They do not necessarily have any impact on culture. Indeed, as evidenced by the collapse of Enron, they can often be a smokescreen for an unethical culture. Enron's Code of Ethics won awards, but it was its internal culture which led to its downfall. Similarly, the fact that the Editors' Code was on display in newsrooms didn't stop some journalists from acting in ways that broke that code and even the law.

But agreeing on the words that will help shape the required culture is a good place to start. Historically, the ways the words have been decided has left something to be desired. In part because mission statements have  sought to set out ideals that are too vague and grandiose for most people including employees, to relate to.

'They are probably more prone to satire than any other communication out there. But what's the alternative?' asks James Thellusson, corporate affairs director at Lexis, The Recommendation Agency. The key to making them relevant to is steer them away from being a set of lofty ideals, says Roger Steare, the Cass Business School's corporate philosopher in residence, who advises the clients of PwC on corporate ethics. He says: 'Mission statements are mostly created by arrogant leaders and their communications people because it's something that's taught in business schools.'

But Tim Johns, partner at the Change Agency, thinks communications has an opportunity to be part of the solution.

'There is still a lot of talking going on and not a lot of listening, both internally and externally. And this needs to change because we no longer naturally defer to leaders or authority,' he explains. 'The opportunity is there to use communications to change the world as an enabler by allowing managements to have a more effective dialogue with internal and external audiences. But it's slow to change.'

Thellusson believes more people need to be involved in the creation of value statements in order to make them more meaningful.'There are several problems with the way a conventional mission statement is devised. Firstly, they are often concocted in the pressure pot of the boardroom and not properly tested with employees who are generally cynical about them. And secondly companies don't always do a good job of explaining why they are formalising their values to staff; they need to explain the process and show that employees at all levels can exert influence and decision-making power,' Thellusson explains. To make matters worse, he argues, the documents are often put in a drawer and forgotten about once the process of creating them is complete.

Steare thinks any statements should be closely tied to relevant company objectives. 'So in the case of a bank, they should be asking What are banks for? They are a utility. The job of a bank is to act as a financial intermediary. They also operate in terms of moving cash around the economy. This should be clearly outlined in a statement of purpose,' he explains.

However, as Patricia Hamzahee, a partner at Kreab Gavin Anderson, points out, the words are just the first step. 'Mission statements serve a purpose; they are a piece of the puzzle. Building an ethical business is about building a culture and a mission statement is not culture.'

And culture is ultimately determined by behaviour. 'Values are just words, regardless of whether they were created bottom-up or top-down. In today's transparent society it is not words that matter. It really is not what you say, it is what you do,' says Johns.

'Communicators need to think more like behavioural psychologists. They must get a better understanding of human decision making.' Citing a thesis outlined in psychologist Jonathan Haidt's The Righteous Mind: Why Good People are Divided by Politics and Religion, Johns adds: 'We are intuitive about how we make decisions. We tend to intuitively make a decision and then rationalise the decision afterwards.

'We seek out things that support our view and ignore those that don't. Human resources have historically been fixated with process but they are beginning to be at the forefront of this kind of thinking. And this needs to become part of the skill set of the communications professional, otherwise HR is going to eat our lunch if we are not careful.

'Telling someone to do something or that something is right won't make them do it, it has to be their decision. Communications needs to change tack.'

Steare thinks workplaces can corrupt well-meaning people if people are not incentivised to act the right way. 'The problem at work is that people tend to be more obedient but less caring. The workplace is more of a command and control culture. The corporation was invented in the 17th century and it hasn't really changed in structure since. Company directors not elected and corporations are more like aristocracies. It's more like North Korea than a democracy,' he argues.

But while corporations have retained some antiquated structures, reporting lines have transformed as companies have become more international, says Mike Ward, partner of the Brand Inside. 'There are dotted lines all over the place: company structures are looser than ever before and loyalty is much more unusual. Line managers have a life expectancy of a year and the old collegiate departmental style of organisations has disappeared,' he explains.

'Many managers are in other countries and more people work from home. There is less need to be loyal.'

So how do you stop undesirable practices becoming a cultural norm? The experts all agree that, fundamentally, the leadership on values has to come from the top. And it is not just enough to be actively upholding the company culture, fellow employees throughout the organisation need to be able to see it.

Ward cites former Asda chief executive Archie Norman as the classic example of transforming culture from the top by leading by example and networking throughout the organisation. Norman was the only applicant for the job and steered the supermarket away from bankruptcy and towards rude health, securing a £6.7 billion sale to Walmart eight years later.

Norman famously stopped having board meetings two weeks before Christmas and would help out with shelf stacking around the country. 'He lost a lot of senior people but he gained the respect of the people on the floor,' Ward notes.

Norman has said that the root of most business difficulty is in the organisation and culture, adding: 'The culture is probably even more important in retail than other companies because the colleagues come face-to-face  with customers every day... Service comes from the heart and the job of the employer is to create self-esteem and a belief in what [colleagues] are doing.'

'It's hard to get an ethereal set of values translated into something that is understood by those at the coal face, but Asda has spent a lot of time talking about values and they have created a culture of peer challenge,' explains Ward.

But for those who can't spare time on the literal or metaphorical shop floor Johns says there are lots of tools at the disposal. 'There are countless tools to help show employees what is happening at the top. Webcasting and video can hugely affect employee morale,' he says. One of Bob Diamond's predecessors at Barclays, Matt Barrett, used to regularly host town hall meetings when he would perch on a stool, glass of whisky in one hand, and answer questions from staff. But to overhaul a company's culture requires an investment of time from managers. Hamzahee agrees that bosses have neglected employees for too long. 'A chief executive will often spend most of their time with investors and analysts or the media but if you are trying to change a culture then you need to focus on the employees,' she explains.

Companies also need to work on their incentives, and that doesn't necessarily mean bonuses. 'You need to punish and reward certain behaviours and you can do that by promoting the right kind of people to senior positions,' she adds.

The problem is that people take their lead from the behaviour of others. If one person is bending the rules, more will follow unless there is a culture that challenges undesirable conduct early on. Ward recommends finding natural champions in organisations. 'On average, five per cent of the staff in any organisation are champions who are popular, able and willing to challenge and guide the behaviour of their peers.

'Identify them and then provide them with the tool to allow them to challenge their peers. One of the most effective means of changing behaviour is getting peers to say I saw you do this, I don't think that's the way you should behave.'

Arguably, business ethics has been neglected in recent decades. In the boom years, attentions were more focused on the ever increasing returns. And it was this laissez faire approach to ethical behaviour that has helped to create a culture of unequal pay and bonuses that is widespread today. While the financial services sector may serve as a whipping boy, this is an issue that affects companies across the FTSE 100 and beyond.

'When several bosses vowed to waive their bonuses it was an admirable intention, but to waive something that is not yet earned tells you a lot about the mindset at the top of many companies,' observes Hamzahee.

There has always been evidence that bonuses and ostensibly performance related pay do not necessarily help create returns or a favourable culture. If managements are forced to network more within their companies and listen more to employees at all levels of their organisation, it will become harder for the pay differentials between those at the top and those at the bottom to endure.