Ethical Lens October 2014

ETHICAL LENS CIMA ROUNDUP OF RESPONSIBLE BUSINESS ISSUES - OCTOBER 2014

IN THIS ISSUE

CIMA communicates on engagement to the UN Global Compact More business ethics in external reporting $150 bn – the cost of unethical behaviour Global business post 2015 Second wave of sustainability?

ETHICS ARE IMPORTANT TO ME BECAUSE...

‘Acting with integrity and doing the right thing benefits all of us in the long term. Ethical behaviour is about more than just compliance, it’s also about dealing with others as we would wish them to deal with us, and it’s an essential part of maintaining trust and confidence in the profession.’

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Velia Soames, Director, Professional Standards and Conduct

NEWS CIMA communicates on engagement to the UN Global Compact The UN Global Compact is an initiative for companies that are committed to aligning their business with ten universally accepted principles in the areas of human rights, labour, environment and anticorruption.

As signatories, CIMA has recently submitted a ‘Communication on Engagement’. This is a statement of our work and support of the Global Compact initiative, where you can read about our education and applied research in areas related to the initiative, and dissemination of the ten principles. Find out about our research, syllabus, code of ethics, partnerships, and much more, that support the growth and development of responsible business practices. » Read the report

REPORTS & EVENTS CGMA: anti-corruption and Siemens culture change case study

Ethical cultures and performance event by CIMA Centre of Excellence

Today, organisations’ value chains include a multitude of business relationships which impact the bottom line. Efforts to combat corruption are now more far-reaching and globally unified than ever before, and it is therefore very important that businesses develop and maintain effective internal compliance systems and controls to increase transparency and reduce their own supply chain risks.

The CIMA Australasia Centre of Excellence organised its first Innovation Forum for Management Accounting in November last year, hosted in Melbourne by Dr Noel Tagoe, CIMA Executive Director for Education.

As part of the ‘Rethinking the value chain’ series, CGMA and Transparency International have co-produced a guide highlighting corruption risks and anti-corruption legislation globally. Additionally a Siemens case study ‘Ethical culture change’ explores how they established an environment that promotes integrity. » Read the ‘Rethinking the value chain’ briefings

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This interactive forum provided an opportunity for practitioners and academics to get together to discuss the findings from the latest management accounting research.

The forum began with Professor Maggie Abernethy, University of Melbourne, presenting her recent project on the effect of ethical work climate on accounting manipulation and the use of performance measures in managerial incentive plans. » Find out more about the CIMA Australasia Centre of Excellence

Tomorrow’s relationships

Beyond the check-box

In partnership with CIMA, KPMG, CIPD and Linklaters, Tomorrow’s Company has released a guidance document about the value of people and relationships.

In April 2014 CIMA and St Paul’s Institute jointly hosted an event which looked at the importance of leading by example rather than relying on written policies and rules.

Establishing that ‘effective relationships are ones that are mutually beneficial and create value for all parties involved’, this guide provides ways to systematically improve relationships through which long-term sustainable success will be secured.

The event was chaired by Lawrie Holmes (FM Magazine Editor), with an expert panel including Hannah Laming (Peters & Peters), Jeremy Osborn and Douglas Johnston (EY), and Sue Garrard (Unilever).

To help boards and senior management think more deeply about effective relationships, the guide is accompanied by a number of resources, including two toolkits for building effective relationships. » Read the ‘Tomorrow’s relationships’ guidance

The evening explored developments in regulatory frameworks, how leading organisations can work towards embedding good practice, use sustainability strategies, and create a culture that is beyond checkbox compliance. » Watch the highlights and read the summary report

IFAC Insights, ideas and information from the Global Knowledge Gateway The IFAC Global Knowledge Gateway provides insights, ideas and information from around the globe, related to ethics, governance, sustainability and a range of other areas. You can find out more about the Gateway in this short YouTube animation.

Latest on the Global Knowledge Gateway, read about the importance of reason before ethics – which explains how following an ethical code to the letter is not sufficient, but how the code need to be followed by reflection, analysis and understanding to successfully resolve an ethical issue. Also read about the IESBA Code and ethical norming, which explores the possibility of a set of universal standards that would take account of value differences across cultures. » Visit the IFAC Global Knowledge Gateway

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SUSTAINABILITY & INTEGRATED REPORTING Trends in corporate sustainability reporting

Assurance for <IR> : discussion opened in South Africa

Transparency with stakeholders, promoting sustainability progress or success, and reputation management are the main motivations for CSR reporting, according to the 110 companies surveyed by 2degrees on trends in CSR reporting. The survey also found that the biggest challenges with reporting were time, getting stakeholder engagement, and getting people to read the report.

IIRC have started the discussion around independent assurance of <IR> (integrated reporting). Independent assurance would add more credibility and trust to an integrated report. A guide has been newly published to help stakeholders understand the role of assurance in integrated reporting.

It seems that whilst reporting is on the up, organisations now face the challenge of effectively communicating the report, and putting it to use. In a joint CIMA/St Paul’s Institute report, Douglas Johnston, EY, explains the value of making sustainability strategy – social, ethical and environmental – part of the core business strategy. He also clarifies that an organisation’s sustainability agenda is not an ‘extra add-on’, it’s essential to create a business model for the long term.

At this point there are still a number of challenges to overcome, including establishing what level of assurance is necessary, how much assurance will cost, and if there is availability of suitably skilled and experienced assurance practitioners. The discussion kicked off in South Africa in August. Feedback is welcome until 1 December 2014. » Read ‘Assurance on <IR> - an introduction to the discussion’

» Access the full infographic with more key findings

Infographic by 2Degrees Network. Access in full at www.2degreesnetwork.com/services/stakeholder-dialog/

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Singapore reports on sustainability

More ethics in external reporting

A NUS Business School and Singapore Compact study of 537 listed companies found that 30% of respondents report on sustainability.

The Institute of Business Ethics (IBE) briefing ‘Business ethics in corporate reporting’ underlines that financially focused reports do not provide a sufficient depth into a company’s performance.

Looking at social, environmental and other indicators (including compliance with law and regulation), the study found that the 30% that reported still rated low on disclosure of information across these key indicators, with an average disclosure rate of 45%.

Yet, companies reporting on sustainability are increasing, with organisations adopting the GRI (Global Reporting Initiative) framework almost doubling (from 10 to 19) amongst the companies surveyed in the past three years.

Quoting the intellectual property bank Ocean Tomo, the briefing highlights that 30 years ago around 80% of the market value of a company was recorded on its balance sheet, which has fallen to about 20% in 2010. Today, a large part of the value attached to the company is found in less tangible assets, such as brand, employees, and the values of an organisation. Reflecting these developments, business ethics and related metrics are now increasingly present in external company reporting.

» Access the NUS Business School findings

» Read the full IBE briefing

RESPONSIBLE BUSINESS $150 bn – the cost of unethical behaviour

UN Global Compact – where the rubber hits the road

The investment management organisation Ecclesiastical writes in a recent report that ‘undoubtedly there may be a short-term disadvantage from acting ethically, but the long-term implications from poor ethical behaviour can be catastrophic, not least when corporate behaviour is under public scrutiny as never before’.

The June UN Global Compact UK Network event was focused around the ‘Guiding Principles on Business and Human Rights’, and how they are embedded and impacts are assessed. It is now three years ago since the Guiding Principles were introduced, seeking to protect human rights in business, based on three main principles:

They have calculated around $150 billion having been spent by businesses in the UK and US on penalties, compensation and legal provisions since the 2008 financial crisis, which could have been avoided had organisations acted more ethically and within the law.

CGMA recently published a top five list for implementing a successful ethics strategy, which underlines the importance of not only having an ethics code or policy, but to ensure that it is truly embedded in the organisation and regularly communicated to staff. » Access the Ecclesiastical report, or the CGMA top five list

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the state’s duty to protect, corporate responsibility to respect, effective remedies when human rights are breached.

The panel saw representatives from BP, Nestlé, Rio Tinto, Kuoni, and Marshalls. A reoccurring theme of the discussion was the challenge of finding the right balance for approaching human rights issues. On the one hand, ‘what gets measured gets managed’, on the other, panelists agreed that too much box-ticking, labeling or siloing will limit the ability to act. » Read an event-summary on CIMAsphere, or access case studies from the UN Global Compact UK Network event

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Anti-corruption – when is it time to exit?

In a recent article Transparency International (TI) addresses five myths about global corruption. Small-scale corruption is indeed a large problem, they report, with over one in four of those surveyed for the annual Global Corruption Barometer reporting having paid a bribe to access the most basic services. Further, corruption fuels other global challenges including human development, levels of equality and economic growth.

Clifford Chance recently released a briefing note about organisations that have decided not to do business in certain high risk markets. Organisations should assess whether they would have the ability to reduce or eliminate corrupt practices before they decide whether to stay or leave - read the briefing note for a breakdown of key factors to consider. » Read the Clifford Chance briefing note, or access the TI article

‘No’ to UK whistleblowing incentives

Supply chains and the stakeholder

FT Adviser reports that whistleblowing contacts received by the Financial Conduct Authority (FCA) in the UK have increased 414% since 2008/09. 20% of these were related to unauthorised business, fraud and market abuse.

A Harvard Business School (HBS) working paper about supply chains and the importance of stakeholder pressure says that ‘a supplier offering the lowest prices might not be the lowest-cost supplier in the long run if its poor labor and environmental performance leads to negative publicity for the buyer’.

UK Parliament has been considering introducing incentives for whistleblowers, similar to those offered in the US. A commission was formed to investigate the benefits and draw backs of this, and has now recommended against incentives.

In a separate article FT announced that proposals are being assessed related to a new corporate offence where companies could face prosecution for failing to prevent economic crimes such as fraud and money-laundering in the UK. This proposed offence follows on from the UK Bribery Act, where organisations could face prosecution for failing to prevent bribery. » Learn about UK whistleblowing from Navex Global, or read about corporate failure to prevent economic crimes

Similarly, an article in the Guardian recognised that it’s easier to change branding and marketing than to fully embed sustainable and ethical practices throughout your supply chain, but confirms that empty marketing is never sufficient to safeguard your business: ‘The internet and social media leave almost no dark rocks for corporations to hide under. Supply chains and their ethics are firmly in the spotlight and will rightly remain so.’

The HBS working paper offers suggestions on how to screen suppliers, including using suppliers with third party certifications (such as environmental management, occupational health and safety) or those that voluntary selfdisclose on their practices. » Access the HBS paper, or read the Guardian article

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Global business post 2015

Leading by example to embed values

Business, investors, educators and governments met with the UN Secretary-General Ban Ki-moon to discuss the post-2015 development agenda in July. The SecretaryGeneral underlined that ‘our world’s toughest challenges demand solutions that involve business’.

Setting the right values and culture is integral to a company’s success, according to a new report from the Institute of Business Ethics. Leadership need not only to support, but also ensure that they lead by example, to fully embed ethical values.

In relation to the post-2015 agenda, the Global Compact has released a paper which attempts to bring the perspective of responsible business to ongoing discussions during the formulation of a new set of sustainable development goals (SDGs).

Following the 2008 financial crisis, businesses, and entire industry sectors, are struggling to regain trust from its customers and the public. Commenting on the report, Dina Medland further links the issue of trust in business with the importance for boards and leadership to take a serious approach to business ethics and values.

» Read about the Post 2015 Agenda, or access ‘The role of business and finance in supporting the post-2015 agenda’.

» Access the report ‘Ethics, risk and governance’

Second wave of sustainability?

A recent Economist article argued that the second wave of sustainability is under way.

It suggests that the first wave of sustainability includes actions such as cutting waste and saving energy. Although these are good for the environment, they are also both tangible and measurable cost-saving measures of immediate interest to business. The first wave allows businesses to ‘do well by doing good’.

The second wave is about the longer term. It is more complex, as it includes actions that may not be cost saving. A recent CIMA report explains how we are already ‘”drawing down” on 50% more natural capital a year than the earth can replenish’. Despite less immediate paybacks, it is essential that businesses embrace the long term view, they need to adapt or will fail.

‘The first wave of sustainability rewarded itself. The new wave will not do that. It is more akin to investing now to have a license to operate in the future, when consumers, lobbyists and regulators will be ever more demanding about the way firms behave.’

» Read the Economist article

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MORE FROM CIMA ETHICS Ethics support guide This guide provides an overview of all ethics support and resources available. It also includes suggestions on how to incorporate these resources in events and training activities, or how to use them individually to test your ethical decision-making skills. » Access the Ethics support guide

Anti-bribery guidance CIMA members and students worldwide have a responsibility to be fully aware of the implications of anticorruption legislation in their market as well as the implications of laws with global reach such as the UK Bribery Act 2010 and the US Foreign Corrupt Practices Act, FCPA. Guidance, including a webcast, survey report and fact sheet, is available online. » www.cimaglobal.com/bribery

HELPLINES AND SUPPORT Global Guidance Line

UK Legal Helpline

This service, aimed at CIMA members and students outside the UK, allows the caller to discuss a concern and get help to decide next steps and other potential areas of support. This is not a substitute for technical or legal advice. Operators speak multiple languages, the service is available 24/7, and the caller will remain anonymous.

LAW Express - for CIMA members and students in the UK and Europe. This service gives access to information online at no charge, and a low cost professional legal advice phone-line.

CIMA Ethics Helpline This free confidential helpline offers ethical guidance and assistance with applying the Code of Ethics, available to all CIMA members and students.

Find information about CIMA’s helplines and support at www.cimaglobal.com/helplines Access the Code and all ethics resources at www.cimaglobal.com/ethics Alternatively, send your ethics query in an email to ethics@cimaglobal.com

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