ethical decisions

The ethical landscape traversed by company directors has always been complex and the boardroom is the ultimate source of the ethical tone that flows throughout a well-governed organisation. Ethics are the choices we make and actions we take — as informed by the values and principles we hold and the purposes we serve — as individuals, communities and societies.

Scenario

You are one of seven directors serving on the board of Novastores — a listed company and general retailer of food and commodities. The board has been asked to approve a policy to remove tobacco products from sale at all of its stores. This will involve some loss of profit, but the company will be exiting a market with declining sales due to the reduction in demand. The board is asked to approve the policy in general and to set a time frame for complete removal of these products. Total removal could be achieved in 12 months, or at any time thereafter. What should directors consider?

Four different lenses can be used when considering ethics generally, or applied to specific ethical issues and dilemmas arising in the boardroom:

  1. General influences
  2. The broadest lens focuses the board on issues that affect the organisation as a participant in society as a whole. There is now a universal understanding of the dangers of tobacco consumption — a product that cannot be used to any degree without causing considerable harm.

    Public health campaigns have resulted in a progressive decline in sales of tobacco products, especially in the developed world. Yet, despite the concern, tobacco remains a legal product and smokers may expect to find convenient outlets for the purchase of their preferred brands.

    Questions to consider

    • What aspects of the organisation’s strategic environment are relevant to the decision?
    • Are there factors that lie beyond the scope of the board papers? What is the connection between this choice and the long-term prospects of the organisation?
    • Whose interests deserve to be taken into account? What are their interests? To what extent are those interests aligned?
    • How do we wish to position the organisation? As a leader on such matters? As a close follower? Doing the minimum required by law or regulation?

  3. The board’s collective culture and character
  4. The culture and character of the board should reflect the purpose, values and principles (the ethical framework) of the organisation.

    Novastores’ core values are choice, convenience, quality and trust. The company has one core principle: “The customer is always right”.

    Its logo incorporates the words, “Your one-stop shop”. On the other hand, the company has invested heavily in its reputation as a “responsible citizen”, encouraging employees to build and sustain relationships within the local community, especially through the sponsorship of local sporting teams. More recently, the company’s employees have driven a strategy to increase the range of fresh foods with an emphasis on improved personal and community health.

    Questions to consider

    • Does the board as a whole have a culture that enables and supports ethical considerations, including calling on the organisation’s ethical framework?
    • To what extent is the decision before the board clearly linked to the organisation’s purpose, values and principles?
    • What impact will the board’s decision have on the culture of the organisation?
    • Is the board’s decision framed in language that will resonate within the organisation?
    • Where are the potential “ethical blind spots” on the board?

  5. Interpersonal relationships and reasoning
  6. Every director brings an individual decision-making “style” to the board table based on different modes of reasoning. Personal relationships between board members also affect decisions. Directors need to be alive to the need for diverse outlooks and how power dynamics can silence those with unconventional perspectives. The chair has a principal role to play in maintaining coherence while making the most of diversity.

    Novastores was founded as Thompson’s — a family owned company that built a retail empire made up of small to medium shops in rural and regional communities. The company was listed three years ago and still retains on its board three representatives of the Thompson family, including the chair.

    The chair is of the mind that “if it’s not broken, don’t try to fix it”. You are aware that one of your fellow directors recently lost a partner to lung cancer, brought on by exposure to passive smoking.

    Most board discussions are cut short when the chair feels that adequate time has been devoted to the relevant item. The chair’s decision often has more to do with sticking to the timing in the agenda than reaching an agreed view. Consequently, the chair often simply declares a matter has been resolved. Other members of the Thompson family rarely contribute to debate, tending to defer to the chair’s opinions and judgement.

    Questions to consider

    • How do group dynamics impact on board discussions. How does your own default decision-making style fit in?
    • Is there too comfortable a drift towards agreement? Or is there an active effort to promote and manage diversity, and recognise and encourage differences of perspective?
    • Are the opinions of some directors too easily dismissed because they are not subject matter experts? Conversely, are the opinions of some directors given too much weight because they are subject matter experts?
    • Does the board identify and question the assumptions on which recommendations are based? Are directors given the time and opportunity to offer critiques of their own arguments?

  7. The individual director
  8. The narrowest lens recognises that each person is an ethical actor. Awareness of our own motivations, biases and ethical reasoning styles can help us understand what we bring to the board table when it comes to ethical decision-making.

    You are comfortable with the company’s general ethical health. It is conservative in its approach to business — an outlook that complements your own approach. You have a strong, personal commitment to the principle of liberty and the rule of law.

    Questions to consider

    • Do your personal values and principles align with those of the organisation?
    • Do you understand your own motivations and biases?
    • How would your motivations look from an external perspective?
    • Do you recognise your own preferred style of decision-making? Are you open to different approaches?
    • Are you able to recognise and declare when you are out of your depth? If so, have you sought counsel, if appropriate?
    • Are you prepared for potentially difficult debate?
    • Is each director aware of their personal ethical position and how it might differ to that of the organisation?

Analysis

An analysis of the four lenses reveals a company that is on something of an “ethical precipice”. Novastores’ core values and principles are directed in favour of “‘consumer sovereignty”. The emphasis on choice as a core value implies that tobacco products should continue to be made available. While it could be argued that the values of quality and trust might lead to a withdrawal of tobacco products from sale — for example, they have a negative quality because of the danger they pose — to make the decision on this basis would be shaky.

More convincing might be reference to the attitude of employees and the efforts of Novastores to invest in the good health of the community. On that basis, the continued sale of tobacco might seem to be hypocritical, and damaging to employee morale and brand value.

Also, it is clear from Lens 1 that the argument about the merits of tobacco has been settled — at least in the minds of wider society. As such, it is probably just a matter of time before the product is removed from general sale.

In summary, this apparently simple decision gives rise to challenging ethical issues, revealed clearly through the application of all four lenses. Some additional tools of analysis can assist.

With few exceptions, management will present directors with recommendations for how an organisation should act. These recommendations will often be in accordance with the highest ethical standards. However, there will be times when ethical issues are at risk of being overlooked or where the complexity is such that no clear answer can be recommended.

These moments are often of pivotal importance as they represent times when a non-financial risk can be crystallised to the point of representing financial risk. In these moments, it is important to apply a comprehensive framework for assessing the options before the board for more information (see the decision-making matrix).

How will this decision shape the character and culture of the organisation? This is an often neglected question, but may be one of the most important of all for directors. Every decision by a board helps to shape the ethical environment of an organisation. Even apparently mundane matters of policy can be rich in their symbolism, conveying messages about what is truly valued within the organisation.

This is an edited excerpt from Ethics in the Boardroom: A decision-making guide for directors, an AICD/The Ethics Centre resource. Access the report here.