While directors are bound by fiduciary and statutory duties, including the duty to act in the best interests of the organisation, it is imperative that board decisions take an ethical lens and consider the perspectives of different stakeholders. The AICD’s new online course, Ethics in the Boardroom, has been developed in collaboration with The Ethics Centre to help directors understand the ethical underpinnings of decision-making. But why is it so important for directors to actively consider ethics in their decision-making?
Following the Hayne Royal Commission, the AICD consulted with members on a Forward Governance Agenda aimed at lifting the standards and practice of directorship in Australia. During this consultation, members sent a clear message that they saw ethics as fundamental to governance and wanted to see the AICD emphasise this as component of membership. The AICD’s new online course, Ethics in the Boardroom, is complimentary to all members and will help directors deal with ethical issues in the boardroom. Here we explore 5 reasons why directors must actively consider ethics in their decision-making.
1. The expectations of society
Customers and the public have signalled their preference for socially and ethically responsible organisations. Regrettably, a procession of high-profile outcomes of unethical behaviour from organisations fuelled public ire, and according to the Edelman trust survey, prior to March 2020, trust in institutions was extremely low. However, the handling of the COVID-19 crisis has led to public trust rebounding to all-time highs, with business currently listed as the most trusted institution. This trust is fragile and will only be maintained by our institutions demonstrating a commitment to ethical practices
2. Access to capital markets
Interest in responsible, ethical investment is increasing. Investment into ESG funds has increased 10x in 2 years, and this trend is likely to continue. Companies that fail to meet investor expectations around ethical governance, are risking reduced access to capital markets.
3. Acting in the best interest of the organisation necessarily considers broader stakeholders
Derek Parfit argues that a person who always acts in their own interests is self-defeating. That there would be outcomes preferable to that person that would only be achievable if at some point they did not act in their own interest. The same is true for directors when contemplating their organisations. The sustainable pursuit of growth is a concern for society, and for any organisation. Ethical board decisions align with the duty to act in the best interests of the organisation as a whole, taking into account different stakeholder perspectives.
4. Legal action
In December 2020 class action proceedings against Worley were dismissed. This was interpreted as a signal to boards and directors that they may successfully defend class action lawsuits if they can demonstrate they took steps to ensure a reasonable decision was made. Good decision-making practices are essential for boards.
Recent and incoming regulation has increased expectations on the transparency and consistency of reporting metrics. This is highlighted by European legislation, which includes mechanisms such as the Sustainable Finance Disclosure Regulation (SFDR), Non-Financial Reporting Directive (NFRD) and EU Taxonomy. The standardisation and formalisation of reporting across the globe will lift standards, effectively forcing companies towards a more ethical position.
Strengthen your ethical decision-making skills
Directors must ensure they understand the ethical underpinnings of decision-making.
Members of the AICD can now demonstrate their commitment to ethical leadership and the ethical responsibilities of directors by completing our complimentary one-hour eLearning Course, Ethics in the Boardroom. On successful completion you will receive a Certificate of Completion.