managing responsible business

Managingresponsible business

Managing responsible business | 1

Contents

Foreword from the Chartered Institute of Management Accountants (CIMA) . . . . . . . . . . . . . . . . . . . . . . . . . 2

Foreword from the Institute of Business Ethics (IBE). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2. Survey results and discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

2.1 The challenge for business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

2.2 Prioritising issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

2.3 In focus: the environmental imperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

2.4 Managing business ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

2.5 Involving the fi nance team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

2.6 Experiencing ethical confl ict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

3. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

4. Research methodology and demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

5. References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

6. Appendix – defi nitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

About CIMA and the IBE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

2 | Managing responsible business

CIMA is very pleased to have teamed up with the

Institute of Business Ethics to bring you the results

of this survey. We are committed to contributing to

the debate on corporate responsibility and business

ethics, and are particularly excited to be playing

an important role: tapping into global trends and

translating them into the latest thinking on business

ethics management. This research forms part of our

responsible business programme, which covers a

number of ethics and corporate responsibility outputs.

In this study, 1300 fi nance professionals told us how

they are involved in managing their organisation’s

ethical performance. 84% said that business has a

moral obligation to help address global issues such as

climate change and poverty, and over half report that

‘environmental impact’ is more important to their

company now than it was two to three years ago.

If there is a global trend towards the increasing

importance of business ethics and corporate

responsibility then there are encouraging signs that

organisations are beginning to tackle these issues.

However, there also appears to be a lack of practical

action taking place, with only one third of the

organisations surveyed publicly reporting on ethical

performance or CR. Even fewer (30%) actively collect

ethical management information, despite nearly half

of those who fail to do so thinking their organisation

would benefi t from it.

Finance professionals have a growing role to play

in managing ethical performance. Over half (59%)

contribute to managing their organisation’s ethical

performance, and 73% believe that it will be a part of

their role in the next few years. Many contribute by

demonstrating high professional standards: ‘upholding

their professional code of ethics’, ‘ensuring the

integrity of management information’ and ‘leading

by example’. Only 16% believe they contribute via

the analysis or collection of ethical management

information, with even fewer (15%) saying they

contribute by reporting ethical performance against

their goals.

These survey results represent a welcome fi rst step

in the process of pushing ethical business issues

higher up the agenda. While it is heartening to note

that management accountants across the world

have grasped the bigger picture when it comes to

realising the importance of business ethics issues,

it is also clear that this area needs to be embedded

in organisational strategy and reported on more

thoroughly. Responsible, sustainable business is an

area that management accountants are well placed to

drive forward and continue to infl uence. CIMA looks

forward to leading the way in supporting them as they

take on this challenge.

Charles Tilley

Chief Executive

Chartered Institute of Management Accountants

www.cimaglobal.com

Foreword from CIMA


The Institute of Business Ethics (IBE) is delighted

to have worked with CIMA in designing and

analysing a survey to explore how management

accountants contribute to their organisation’s ethical

performance. The IBE has worked with CIMA on a

number of projects, most notably in assisting with

the development of the ethics syllabus for the CIMA

Certifi cate in Business Accounting.

Ethics is increasingly being acknowledged as an

important aspect of business practice. Organisations

that take ethics seriously also tend to take their

reputation, their governance, and ultimately their

business seriously. In today’s world, shareholders and

stakeholders have high expectations of organisations;

they expect them to be run to high ethical standards.

For the IBE, this survey is important as it identifi es

how businesses are responding to the increasing

attention to high standards of business conduct and

what this means for the fi nance function.

The results of the survey set out in this report, under

the authorship and editorial control of CIMA, make for

interesting reading. In particular, it is encouraging that

nearly nine out of ten CIMA members said that their

senior management are taking ethical issues seriously.

It is clear that management accountants and other

fi nance professionals play a vital role in supporting

this management commitment and upholding the

integrity of their organisations. The importance of

this role will increase as more organisations seek

not only to act ethically, but to prove that they are,

to both internal and external audiences. The skills

of fi nance professionals in collecting and analysing

management information can contribute to managing

non-fi nancial performance and so assist in providing

the assurance that organisations are living up to the

ethical standards they set for themselves.

CIMA’s own professional code of ethics demands that

its members act with integrity. It is clear from this

survey, that they have a strong sense of their own

ethical responsibilities, both as fi nance professionals,

and as employees of organisations. In leading by

example, CIMA members contribute to the ethical

culture of the organisations in which they work.

At a time when the business climate is becoming

diffi cult, doing business ethically may become more

of a challenge. However, IBE research has indicated

that companies which are explicit about their ethical

values may fi nd that they are the ones who ride an

economic downturn best.

Philippa Foster Back OBE

Director

Institute of Business Ethics

www.ibe.org.uk

Foreword from the Institute of Business Ethics


In March 2008 CIMA, together with the Institute of

Business Ethics (IBE), surveyed fi nance professionals

about their attitudes to ethical standards. 1300

responses were received (7.8%). 51% are based in the

UK, and 70% work in the private sector.

84% of fi nance professionals believe business has a

moral imperative to help address global issues, but

companies are not doing enough. They are tackling

ethical issues on a superfi cial level but are failing to

strategically manage their ethical performance. When

business ethics is not properly managed it can have

serious impacts on the bottom line. This study shows

that companies may not be prepared for the growing

importance of emerging issues such as environmental

impact and work/home balance.

CIMA believes that businesses need to move on

from an operational, check-box approach. They need

to consider ethical performance at the strategic

level, integrating it into the way they do business.

Companies need to stop seeing business ethics as

an add-on and instead embed it into core business

processes.

Finance professionals also need to be aware that

managing ethical performance is going to become

more important to their role. While many are

indirectly contributing to business ethics in their

organisation, their potential direct contribution is

being overlooked. They are in a position to add value

to companies by contributing to managing ethical

aspects of performance, but their skills are not being

used effectively.

Managing performance against ethical goals will

become an increasing part of fi nance professionals’

roles. Companies need to change the way they train

and incentivise their fi nance teams so that their skills

can be harnessed to help collect, analyse and report

on ethical management information.

We believe that to move forward, steps need to

be identifi ed that will help companies achieve true

integration of ethical concerns and opportunities into

the way they do business. Organisations need clear

recommendations on how to implement practical

actions to back up their ethical codes. CIMA will

continue its work on responsible business in 2009 and

beyond, leading the way in taking this area forward.

Executive summary

Results at a glance

• 84% believe business has a moral imperative to help address global issues.

• Companies still tend to address ethical issues on a superfi cial level.

• ‘Safety and security’ and ‘security of information’ are considered the most important ethical issues.

• New issues such as environmental responsibility and work/home balance are receiving more attention.

• Finance professionals are becoming more involved in ethical performance management.

• A key role for CIMA members is to ensure the integrity of management information.

• Three out of ten respondents have experienced pressures to compromise ethical standards.

1300 responses were received globally


What is business ethics?

Business ethics is the application of values – such as honesty, integrity and fairness – to business

behaviour. It is about how a company does business, rather than what it does. It applies to any or all

aspects of business conduct, from boardroom strategies to sales and marketing techniques; accounting

practices to treatment of suppliers and customers.

Standards of business ethics are usually set out in an organisational code of ethics or conduct. This can

cover such diverse elements as treatment of suppliers, anti-competitive practices, bribery and corruption,

environmental pollution, product safety and impact on local communities.

A commitment to high standards of business ethics involves the management of non-fi nancial aspects of

performance. This can encompass what is talked about as corporate social responsibility (CSR), corporate

responsibility (CR) or corporate citizenship. While opinion is divided as to whether these terms all mean

the same thing, they all have in common that they are about organisations taking responsibility for the

way they conduct their business and the impact of their operations, beyond a concern for the fi nancial

bottom line.


CIMA, in association with the IBE, carried out survey

research to explore how management accountants

contribute to their organisation’s ethical performance. We

wanted to fi nd out what steps companies are taking to

manage their performance against ethical goals, and to

explore the role of the fi nance function in supporting this.

The purpose of this research was to identify how

businesses are responding to ethical challenges and

what this means for the fi nance function. It looks at

the contribution accountants currently make to their

organisation’s management of ethical performance,

and asks whether this role is likely to develop. It also

explores what the most important ethical issues are

for companies today and how these will change over

the next few years.

We examine whether companies are using the skills

fi nance professionals have in collecting and analysing

management information to help manage ethical

performance and meet ethical commitments. If

their skills are not being used in this way, do fi nance

professionals have a different part to play?

The results of this survey have wide implications.

Companies will need to consider whether they are

adequately managing their ethical performance,

and whether they are able to assure their boards

of this. They will also need to decide whether the

fi nance function is contributing suffi ciently to ethical

management processes.

There are implications for those responsible for

educating management accountants, too. They

will need to consider whether they are adequately

equipping them to contribute to the ethical culture

and performance of a company. CIMA is already

leading the way in educating fi nance professionals in

business ethics: it is a fundamental element of the

CIMA syllabus and an important part of continuing

professional development.

Note: the charts may not add up to 100% due to

‘data roundings’ during analysis.

1 Introduction

Companies are increasingly trying to demonstrate

that they do business responsibly. More and more are

adopting codes of ethics (or similar documents), and

a growing number report publicly on their corporate

responsibility. A recent IBE survey showed that 71% of

companies with an ethics policy now provide training

on its application, while other IBE research indicates

that those who seek to embed their codes in this way

fi nancially outperform those that do not1. A loss of

trust between a business and any of its stakeholders

(such as employees, customers, investors, suppliers

or civil society) impacts negatively on business

performance. Conversely, in a time of reduced

economic activity, a reputation for integrity may help

maintain the loyalty of staff and customers.

Although the importance of an ethical culture and

a responsible reputation is being recognised, we still

hear in the media of organisations being criticized

because of ethical failings. Whether it is accusations

of high-risk trading strategies by banks, extractive

companies accused of environmental degradation or

allegations of slave labour in the factories supplying

Western supermarkets with clothes and toys, almost

every sector has been touched by ethical scandal.


the need for a code, far fewer are doing anything

to embed it (see Fig 1). A gap exists between what

businesses are saying and what they are actually

doing to bring their ethical values to life.

The IBE suggests that, in addition to training, codes

need to be backed up by other initiatives to support

an ethical culture, such as exemplary leadership,

awareness raising, speak-up mechanisms, incentives

and ethical assurance programmes.

Respondents are noticing their organisations’ failure to

reinforce ethical values. Almost four out of ten (38%)

agree or strongly agree that ethical standards are

not fully monitored or evaluated in their workplace.

Companies that adopt business principles without

embedding them risk damaging their credibility in the

eyes of employees.

2 Survey results and discussion

2.1 The challenge for business

Many organisations are addressing their ethical

responsibility by adopting a code of ethics. 72% have

a code of ethics or similar statement of business

values, showing that they recognise the importance

of responsible business practice. The number putting

codes in place has been steadily increasing: research

into UK companies in 20052 found that 65% of

workplaces had one. It is a shrinking minority that

have yet to see the importance of guidance for their

staff on ethical matters.

Despite the increasing number of codes and policies,

many organisations remain exposed to ethical

risk because they are not backing up their written

statements with action. Only 46% of those in this

survey provide ethics training, and fewer than one

in fi ve offer incentives to staff for upholding ethical

standards. While many organisations have recognised

Figure 1 Ethics advice/services provided

A statement of its ethical values, business principles or commitments to its stakeholders?

A code of ethics or similar document to guide staff about ethical standards in their work?

Training on ethical standards at work?

A hotline for reporting conduct that violates the organisation’s standards of ethics?

A helpline where you can get advice or information about behaving ethically at work?

Incentives for staff to uphold the organisation’s standards of ethical conduct?

0 10 20 30 40 50 60 70 80 90 100%

72

Base: All respondents (1300)

217

72235

46469

40538

355511

196813

NoDon’t know Yes

Does your organisation provide?


2.2 Prioritising issues

So what are the key areas that companies should

be taking action on? ‘Security of information’ and

‘safety and security’ are considered to be the most

important, and will remain so in the future. On a

scale where 1 is ‘not at all important’ and 5 is ‘very

important’, these issues received mean scores of 4.52

and 4.48 respectively. Around half of respondents

(51% and 49%) think these are more important now

than they were a few years ago and many (51% and

41%) expect them to become even more important in

the next few years.

2 Survey results and discussionSaf

ety

and s

ecuri

ty

Figure 2 Importance of ethical issues to UK fi nance professionals

Envi

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pac

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Bri

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acili

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aym

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Whis

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pea

king

up

Dis

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aras

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bully

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f in

form

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sues

/sourc

ing

Man

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ights

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issu

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5

4

3

2

1

0

100%

90

80

70

60

50

40

30

20

10

0

Mean scores = where 1 is not at all important and

5 is very important

Please note: mean scores are from current survey and percentage scores are from IBE ‘Use of Codes of Ethics in Business’ survey 2007

based on 200 responses from CEO or person responsible for business ethics function in FTSE 350 companies which were also known to

have a policy or code.

Base: All headquartered in UK (544)

Mean scores

<250 employees

251 – 5000 employees

5000 + employees

Percentage scores from IBE survey 2007

Our results

Currently, how important are the following ethical issues to your organisation?

Which ethical issues are signifi cant to your organisation? (IBE survey 20073)


This trend is possibly a refl ection of the heightened

perception of the threat of terrorism which has been

a feature of recent times. This receives a high profi le

in the media, pushing issues of personal safety to

the fore. Advances in technology and fears for global

security also mean that more information is stored,

and that it is of a more sensitive nature, than ever

before.

Security of information is more important to UK

fi nance professionals than it is to the companies in

the FTSE3504 (see Fig 2). While these companies

also believe that ‘safety and security’ is the most

important issue, they do not rate ‘security of

information’ as highly as other issues including

environmental impact, bribery, whistleblowing and

discrimination. So why is security of information so

important for fi nance professionals? This is perhaps

due to their role as guardians of commercially

sensitive information. Finance professionals often

have greater access to confi dential data than others.

They are responsible for information and for ensuring

its integrity, and so they understand the importance

of maintaining its security.

Almost half (43%) say work/home balance will

become more signifi cant in the next two to

three years. These issues are considered the least

important now, with a mean score of 3.56 (where

1 is not at all important and 5 is very important).

Only a third (31%) think that work/home balance

issues have become more important in the last

few years. However, work/home balance is in the

top three issues predicted to grow in importance,

after environmental impact (68%) and security of

information (51%).

There is overwhelming evidence that environmental

impact is fast becoming a key concern for business.

Although it is not as important as other issues now,

the highest number of respondents – over half

(57%) – feel it has become more important in recent

years. Even more (68%) see it continuing to grow

in the future. Companies need to understand that

environmental performance is becoming a key issue,

and would be well advised to prepare themselves to

manage it appropriately.

‘Work/home balance issues look set to

become more important.’

‘Environmental impact will become

increasingly important to business.’


2.3 In focus: the environmental imperative

84% of respondents agree that business has a

moral obligation to help address global issues

such as climate change and poverty. 68% believe

environmental impact will get more important.

This is an issue companies cannot afford to ignore.

Despite widespread agreement that tackling

environmental impact should be a priority for

business, many companies are targeting their carbon

footprint rather than integrating environmental

concerns into their strategy and policy. 79% say their

organisation is taking steps to reduce environmental

impact. In 89% of cases these steps are to reduce

their carbon footprint, for example by improving

energy effi ciency, reducing international travel or

recycling waste. Far fewer are making long-term

commitments such as integrating environmental

concerns into strategy (54%) or implementing an

environmental policy (62%).


Figure 3 Taking action to reduce environmental impact

Taking action to reduce its carbon footprint(e.g. recycling, energy saving, reducing

international travel)

Implementing an environmental policy

Embedding environmental concerns and/or opportunities in business strategy

Integrating environmental concerns and/or opportunities into the product development and

innovation process

Reporting externally on its environmental performance

Implementing a sustainable procurement policy

Monitoring suppliers’ environmental performance

Other

0 10 20 30 40 50 60 70 80 90 100%

89

Base: All who are taking steps to reduce impact on the environment (1035)

62

54

43

42

35

24

4

What is your organisation doing to reduce its impact on the environment?

In a 2007 study5, more FTSE350 companies (21%)

were making operational energy effi ciency and

environmental impact reductions than, for example,

making longstanding commitments (9%) or

monitoring company progress (7%). This reinforces

our fi ndings – that businesses are failing to take

the necessary steps to manage their environmental

performance, despite its growing importance.

Less than half of those that are taking any steps to

reduce environmental impact (42%) are reporting

externally on their performance. We expect reporting

on environmental performance to become more

prevalent as environmental issues become more

important.

Companies are missing out on opportunities to

beat competition and boost the bottom line. A

CIMA survey of economic trends6 found that 85%

of FTSE350 fi nance directors were convinced that

there are business opportunities in developing

environmentally friendly products. By contrast, less

than half (43%) of those who are addressing their

environmental impact in this survey have done so

by integrating environmental considerations into

product development. Environmental concerns

and opportunities are still not part of the product

development and innovation process in the majority

of cases, even where companies are taking steps to

reduce their carbon emissions. Opportunities exist,

but few businesses are embracing green innovation.

They need to move beyond carbon reduction in order

to create competitive advantage in this area.

Larger organisations are more likely to address

environmental impact than SMEs. 87% of respondents

from companies with over 5,000 employees say that

their organisation has taken steps to improve their

environmental performance, compared with 71%

of SMEs. This could refl ect the greater resources

available to the largest companies, or it could be due

to the existence of environmental regulation that only

applies to larger companies.


Alternatively, larger companies might be going green

because they are under greater stakeholder pressure

to do so. Their environmental impact is likely to be

much bigger – and more conspicuous – than that of

SMEs. This means they have a greater job to do to

manage stakeholder concerns and might be under

more pressure from them to take action. A CIMA

survey into economic trends7 shows that for UK

Finance Directors the onus is on large companies to

take action on the environment. The study found that

the majority of UK FDs (72%) thought that business

should be doing a lot more for the environment,

compared to less than one in three – 28% – who

thought the same of SMEs. In this survey, 1 in 5 (20%)

SMEs have not started to address environmental

issues, compared to only 1 in 20 of the largest

companies (over 5000 employees).

‘It is not only bad news for big

companies: SMEs need to clean up their

act too.’


Large companies are being held accountable for their

environmental impact, but overall few businesses

are taking the right steps to manage this. Recent

media focus on climate change and reducing CO2

emissions has been taken on board and as a result

many are trying to lower their carbon footprint.

While this is commendable, they are still not doing

enough to manage their environmental impact at

the strategic level. They are not reporting on their

progress and companies – particularly large ones – are

not meeting stakeholder expectations. It is not only

bad news for big companies: SMEs need to clean up

their act too, and take more action on environmental

degradation and climate change as these issues grow

in importance.

Figure 4 Taking action on environmental issues

In terms of environmental issues...

should small businesses (<250 employees) be doing:

1 Nothing more? 15%

2 A little more? 56%

3 A lot more? 28%

should larger businesses (>250 employees) be doing:

1 Nothing more? 5%

2 A little more? 23%

3 A lot more? 72%

Source: CIMA quarterly economic trends survey –

March 20088. Base =201.


Figure 5 Reducing impact on the environment

100%

90

80

70

60

50

40

30

20

10

0

71

20

9

Up to 250 employees(SME)

Base: All respondents (1300) NoYes

251 to 5000 employees(large company)

More than 5000 employees(very large company)

85

9

7

87

5

8

Don’t know

Is your organisation taking steps to reduce its impact on the environment?


2.4 Managing business ethics

Most organisations are not gathering ethical

management information. Despite almost three

quarters having a code of ethics or equivalent, less

than a third (30%) actually collect information to

manage their performance against their ethical

goals. There are signs that companies are considering

their performance in relation to ethical standards,

as over half (56%) have key performance indicators,

or KPIs. However, they are still not demonstrating a

considered and strategic approach. Companies have

not implemented the necessary information gathering

systems to ensure they live up to their stated ethical

standards. They are at risk of poor ethical performance

or even scandal and the ensuing reputational damage

this would bring. Corporate responsibility has been

steadily moving up the agenda, but companies are still

failing to manage these issues effectively.

Public reporting on ethical performance is also

sporadic. Only 35% of companies report publicly on

their corporate responsibility or ethics. Although they

have a stated standard of business conduct, they are

neglecting to report their performance against these

and so cannot be held accountable.

‘Less than one in three collect ethical

management information.’

Figure 6 Managing ethical performance and corporate social responsibility (CSR)

100%

90

80

70

60

50

40

30

20

10

0

35

46

19

Does your organisation publicly report onEthical Performance/Corporate Social

Responsibility (CSR)?

Base: All respondents (1300) NoYes Don’t know

Does your organisation collectethical management information?

30

42

28


In recent years codes have become more common

and even enshrined in legislation9. This survey

shows that many companies have a code but are

failing to collect or analyse information about their

performance against it. Failing to manage ethical

issues effectively can affect fi nancial performance and

can leave organisations vulnerable to reputational risk.

Once reputation has been destroyed it is diffi cult to

repair, and public trust is hard to win back. By failing

to evaluate their ethical performance, companies risk

facing real damage to the bottom line when poor

ethical practices are uncovered.

Relatively few respondents see this pattern changing

in the near future. Fewer than one in fi ve (19%) think

their organisation will begin to collect in the next

two or three years – the same number as said that

their company would not. Almost half (48%) believe

collecting ethical management information would

benefi t their organisation. Finance professionals can

see the value of managing ethical performance, but it

appears their employers have not yet recognised the

potential benefi ts.

Company size affects how likely an organisation

is to report and/or collect ethical management

information. The difference is striking: 19% of SMEs

collect ethical management information compared

with 44% of organisations with over 5000 employees.

The pattern is even more pronounced when it comes

to reporting. Whereas only 17% of SMEs report

publicly, 61% of very large organisations (over 5000

employees) do the same.

It is possible that this effect of company size is due

to larger companies being more likely to be listed and

so more likely to produce public fi nancial accounts

into which corporate responsibility and ethical

information can be fed. They may also be bound by

legislation that requires them to disclose social and

environmental information, such as the UK Companies

Act 2006 which applies to medium and large quoted

companies10.


Figure 7 Collecting ethical management

information in the future

Maybe

Yes

No

Don’t know

‘Finance professionals recognise the

potential value of managing ethical

performance.’

Base: All who state no or don’t know to collecting ethical management information (913)

Do you think your organisation will begin to collect ethical management information within the next two or three years?


Most of the largest companies do collect and report

ethical management information, so those that

do not risk being viewed as lagging behind their

peers. A minority of 13% do not collect or report.

These companies are not managing their ethical

performance and risk suffering commercially as a

result, because ethical lapses can impact on fi nancial

performance. There are strong arguments in favour of

the view that managing non-fi nancial, ethical, impacts

is simply part of good business management.

Ethical management information is normally gathered

as part of regular management processes and is

considered at the highest levels of the company.

Ethical performance data tends to be collected

annually or quarterly, where it is collected at all.

Figure 8 Effect of company size on ethical performance management

100%

90

80

70

60

50

40

30

20

10

0

17

72

11

Up to 250 employees

Base: All respondents (1300) NoYes Don’t know

251 to 5000 employees

More than 5000 employees

Up to 250 employees

251 to 5000 employees

More than 5000 employees

40

37

23

61

13

26

19

64

16

33

34

33

44

13

43

Does your organisation publicly report on ethical performance?

Does your organisation collect ethical management information?

‘Information about ethical performance is

considered at senior levels.’


Anecdotal evidence suggests that general

management information is usually gathered more

frequently than this, but it is still encouraging that

in 67% of cases it is collected as part of regular

management processes. This implies that many of

those companies that are addressing their ethical

performance are doing so as part of core business,

rather than as an add-on. In these organisations,

managing ethical performance is integrated into the

management of other aspects of performance.

It is also encouraging that ethical management

information, when collected, is seen by senior people

in the company. 86% report that data on corporate

responsibility and ethics goes to senior management,

and 68% say it goes to the board. Those organisations

that have taken practical steps to manage their ethical

performance are considering the issues in the same

way as they do other management information.


Figure 9 How ethical management information is collected

As part of the organisation’s regular management information gathering systems

As a separate internal exercise e.g. staff survey

Internal audit report

Through appraisals/PDP

Analysis of speak up (whistleblowing) data

Feedback after ethics training

External assurance provider

Don’t know

Other

0 10 20 30 40 50 60 70 80 90 100%

67

Base: All who collect ethical management information (387)

How is information about your organisation’s ethical performance collected?

56

53

42

30

28

22

2

6


2.5 Involving the fi nance team

The increasing importance of ethics is already

affecting the fi nance function. Well over half (59%)

already contribute to managing ethical performance

in their organisation. For 55% it is actually a part

of their role, and this is expected to rise – almost

three quarters (73%) believe it will be an element of

their job in two to three years’ time. Although over a

third (37%) say their role does not currently involve

managing ethical performance, only 14% expect that

this will still be the case in a few years’ time.

The proportion for whom it forms a major part of

their role is also predicted to rise – jumping from

9% now to 14% in two to three years. Increasing

numbers of fi nance professionals will manage ethical

performance as part of their role, and for some it will

become a major part of their role. Businesses will

have to equip fi nance teams with the skills to manage

ethical performance. For fi nance professionals, there

will be a need to rethink their position in the company

as their role is changing.

Figure 10 Frequency of analysis of ethical management information

30%

25

20

15

10

5

0

7

More frequently than monthly

Base: All who collect ethical management information (387)

How frequently is ethical management information analysed?

Monthly Quarterly Annually Less frequently than annually

Don’t know

18

26

24

3

23

‘73% believe ethics will be part of their

role in two to three years.’


While many contribute to managing ethical

performance where they work, their skills are not

being put to the best use. Surprisingly few – only

15-16% – are involved in the collection, analysis or

reporting of ethical management information. On the

other hand, almost all (94%) contribute by upholding

CIMA’s code of ethics, 90% by ensuring the integrity

of management information, and 87% by setting a

good example. These are key elements of being a

professional accountant, but they are arguably indirect

contributions to the overall ethical performance of the

organisation. All employees have some responsibility

for ensuring their organisation lives up to its ethical

values, and fi nance professionals are contributing

to this. However, they have yet to take on a more

specifi c role in managing ethics.


Figure 11 The role of fi nance in ethical performance management: now and in the future

70%

60

50

40

30

20

10

0Now


To what extent is managing your organisation’s ethical performance a part of your role now?To what extent do you predict that managing your organisation’s ethical performance will be a part of your role in two or three years’ time?

Major part of my role

Not at all a part of my role

46

In two or three years

37

9

8

59

14

14

13

Part of my role but not a major one

Not sure

‘Businesses are overlooking the potential

contribution of the fi nance function to

managing ethical performance.’


Finance professionals contribute to ethical

performance in ways that are related to doing

their job professionally, but relatively few put their

skills to use producing or analysing data on ethical

performance. Businesses need to resource their

management of non-fi nancial performance more

effi ciently. At present, the skills of the fi nance

function in data collection, analysis and reporting are

being largely overlooked.

The survey shows that formal responsibility for

ethics is at the top of organisations. Responsibility

tends to lie with the board (67%) and/or chief

executive (55%). It lies with the fi nance director in

34% of organisations, about the same number as

HR director and the audit committee. Only one in

three (34%) respondents have formal responsibility

for ethics themselves. This is another indication that

fi nance professionals are not generally contributing

in concrete, direct ways to management of ethical

performance. However, it is encouraging that

businesses are placing responsibility for ethics at

senior levels, even if they are not yet adequately

involving the fi nance function.

Figure 12 How fi nance professionals contribute

Ensuring the integrity of management information

Upholding my professional code of ethics

Leading by example

Incorporating ethical standards into strategic business decisions

Reporting ethical concerns to the organisation

Contributing to developing the code of ethics or similar document

Reporting ethical performance against our goals

Collecting ethical management information

Analysing ethical management information

Other

0 10 20 30 40 50 60 70 80 90 100%

90

Base: All who said yes or don’t know to contributing to managing ethical performance (817)

34

94

30

87

20

49

6

50

3

26

3

15

2

16

1

16

1

2

1

Contribute to managing ethical performance

Greatest part of your contribution

In what ways do you contribute to managing the ethical performance of your organisation?Which makes up the greatest part of your contribution?


2.6 Experiencing ethical confl ict

Finance professionals experience similar pressure

to compromise ethical standards as the rest of the

population. Overall 70% report that they ‘never’

feel under pressure to compromise standards of

ethical business conduct, while 27% do feel that they

‘sometimes’ are. These are broadly in line with IBE’s

results for UK employees in any role in 200511.

Finance professionals are less likely to observe

unethical conduct than other employees. Fewer than

one in fi ve (16%) have witnessed conduct that goes

against the organisation’s ethical standards in the past

12 months. A relatively low number of UK fi nance

professionals (10%) have witnessed wrongdoing in the

past 12 months compared with 20% of employees

in the IBE’s 2005 national employee survey12. This is

particularly surprising given that the IBE found that

managers and supervisors were even more likely to

have witnessed wrongdoing at work. We would expect

many of the respondents in this study to be at this

level of seniority in their organisation. It is possibly an

indication that fi nance professionals are not as aware

of ethical issues as the public in general. If this is true

businesses will have to target fi nance professionals

to ensure they have a good understanding of the

company’s ethical standards. Alternatively, it might

be that professional accountants are less likely to be

in workplaces where misconduct is endemic, because

being associated with this could prove a risk to their

qualifi cation.


Figure 13 Pressure to compromise ethical standards

80%

70

60

50

40

30

20

10

0Always


Do you ever feel under pressure from your colleagues or manager to compromise your organisation’s standards of ethical business conduct?

1

27

70

2

Sometimes Never Don’t know


Most respondents reported wrongdoing when they

had come across it, but many were dissatisfi ed with

the response. Seven out of ten of those that had

witnessed an ethical transgression in the past 12

months reported it. Only 56% were satisfi ed with

the way that the concern was handled, leaving 31%

dissatisfi ed and 13% indifferent.

It is encouraging that the majority of fi nance

professionals report wrongdoing when they observe

it, but by not handling concerns in a satisfactory

way, companies risk losing the confi dence of their

employees and discouraging them from reporting

issues in the future. The most common reason for not

reporting wrongdoing was not thinking that it would

make a difference (27%). For many others, the issue

simply resolved itself (22%).

‘The CIMA survey will reassure the public that

accountants take ethics seriously and the vast

majority will speak up if they come across an

ethical concern. However, for employers there is

a very clear message: your staff are less likely to

tell you something is going wrong if they think it

won’t make any difference.’

Cathy James

Legal Director of Public Concern at Work

Figure 14 Witnessed violation of ethical standards

90%

80

70

60

50

40

30

20

10

0

20

Yes

Base: All who work in UK (666)

Please note: 2005 data is taken from the IBE ‘Ethics at Work’13 survey based on responses from 759 UK employees including 316 with managerial or supervisory roles

In your current role, have you personally observed conduct that violated organisational ethics standards, policy, or the law in the last 12 months?

2005 2008

No Don’t know

10

74

86

63


An overwhelming majority of

fi nance professionals believe that

business has a moral obligation to

help address major ethical issues.

Responsible business practices

can also strengthen the bottom

line. By not managing their ethical

performance, companies are

vulnerable to fi nancial shocks from

reputational damage and loss of

public trust.

Many organisations have suffered fi nancially because

they did not properly manage ethical risks. It is

impossible to know how many more are losing ground

to competitors because they are not taking advantage

of the opportunities that embedding ethical

considerations into strategy can provide.

Our results show that companies still have a long

way to go to manage their ethical performance

effectively. CIMA believes that a radical change in

approach is needed. Companies must stop seeing

business ethics as an add-on or something that is ‘nice

to have’ and instead integrate it into core business

processes. Companies have adopted codes and have

delegated responsibility but they have not yet begun

to manage their ethical performance in the same way

they manage other parts of the business. Effective

management of ethical performance needs to be

recognised as an element of good business practice

as well as a moral imperative. Not enough companies

are taking concrete action to assess performance

against their own ethical standards. This suggests

that they still need to be convinced of the value of

systematically measuring and monitoring ethical

performance.

3 Conclusions


Organisations must also be prepared to tackle new

ethical issues as they become more important.

Environmental issues are moving to the fore, driven

by the urgency of climate change. In CIMA’s view,

companies must respond by moving on from largely

superfi cial efforts to reduce waste and energy

consumption. They must address this strategically and

integrate environmental concerns and opportunities

into the way they do business if they are to remain

competitive and stay ahead of legislation. Work/home

balance issues are also set to be more signifi cant in

the future. Businesses need to start thinking now

about how they can monitor and improve their

performance in this emerging area.

There are also implications for individuals. As

companies begin to embed their ethical goals into

the business, the fi nance function will need to

become more involved. Finance professionals must be

prepared to contribute directly to managing ethical

issues beyond carrying out their day-to-day role in a

professional way, and be prepared to gather, analyse

and report new kinds of information.

Organisations need to harness the skills of their

fi nance professionals to manage ethical performance,

but they also need to equip them for this expanding

role. They need to ensure their fi nance function

has the training and support available to be able to

step up to the challenge of contributing to ethical

performance management. There is an implied need

for training in this area, and professional institutes

and other educators must be aware of the function’s

changing role. Organisations will also need to think

about culture and the perception of ethics internally

and change the way this is viewed by employees if

they are to get the necessary buy-in from their staff.

These issues must become part of job roles, and

employees must be trained and incentivised to live up

to companies’ ethical standards.

In order to make these changes, companies and

individuals need a clear roadmap of how to effectively

manage the ethical performance of an organisation.

It appears that some organisations have begun to

embed such standards and issues into their core

business decisions but the majority have not. The

challenges now are to identify the steps companies

must take, and to provide guidance on how to take

them.

As CIMA’s responsible business programme progresses,

we look forward to following up this initial research.

Further analysis into the ways that companies are

managing ethical performance and the drivers for this

will help business to embrace this growing agenda.

More work is also needed to fully understand how

fi nance professionals can help businesses on their path

to ethical performance management and whether

there is a skills gap that needs to be fi lled. We will

explore how organisations are managing performance

against their ethical standards and what this means

for management accountants through our ongoing

programme of work on responsible business practice.


This research was carried out through a quantitative

online study. Potential respondents were emailed a link

to a questionnaire in March 2008. The target sample was

16,670 CIMA members in the UK, Ireland, Malaysia,

Sri Lanka, Australia, South Africa, Hong Kong and

Singapore. 1300 responses were received in total,

equalling a response rate of 7.8%.

39% of respondents work for SMEs (organisations

with less than 251 employees), 43% for large

organisations (251 – 5,000 employees) and 19% work

for very large organisations (5,001+ employees).

The majority are employed by the private sector

(70%), and a signifi cant minority by the public sector

(19%). Only 6% work for non-profi t organisations and

4% work in practice. The most popular areas of work

for respondents were manufacturing (22%), fi nancial

services (15%), other commercial (12%) and business

services (10%).

4 Research methodology and demographics

Most respondents (65%) have job titles that clearly

refl ect a fi nancial role: management accountant,

fi nance manager, fi nancial controller, fi nance director,

fi nance/business analyst or other accountant. Of the

remainder, 12% are either CEO, CFO, MD or another

director.

42% of respondents work for companies

headquartered in the UK. Of these, 91% also work in

the UK. 51% of total respondents work in the UK. In

this report any comparisons with IBE research refer

to the responses from those whose organisation is

headquartered in the UK only.

Figure 15 Sectors respondents work in

Public

Not for profi t

In practice

Other

Private

Please indicate which of the following broad sectors you are currently employed in?


5 References

1 Institute of Business Ethics. 2007. Does Business Ethics Pay? Revisited – The value of ethics training.

2 Institute of Business Ethics. 2005. Ethics at Work – A national survey.

3 Institute of Business Ethics. 2007. Use of Codes of Ethics in Business – 2007 survey & analysis of trends.



6 Chartered Institute of Management Accountants. 2008. CIMA Quarterly Economic Survey 2008 - Wave 1.



9 Sarbanes-Oxley Act of 2002 (Pub.L. 107-204, 116 Stat. 745, enacted 2002-07-30) (USA).

10 Companies Act 2006: Elizabeth II. (Section 417). The Stationery Offi ce, 2006.




14 Institute of Business Ethics. 2006. Living Up To Our Values – Developing ethical assurance.


Defi nitions

Business ethics, in the context of this report, is the

application of values – such as ‘integrity’, ‘fairness’

and ‘respect’ – to organisational behaviour. It is about

the way an organisation does its business, rather

than what it does. It applies to any or all aspects of

business conduct, from boardroom strategies to sales

and marketing techniques; accounting practices to

treatment of suppliers and customers. Sometimes

business ethics is referred to as business principles,

and usually an ethics policy or code or a corporate

responsibility policy sets out a company’s standards of

business ethics.

Ethical performance is the extent to which an

organisation’s behaviour aligns with its stated ethical

values and commitments. Ethical performance is

usually concerned with the discretionary decisions

made by a business or by its employees, rather than

simply legal compliance.

6 Appendix

Ethical management information allows an

assessment of the organisation’s ethical performance,

such as effi cacy of relevant policies and procedures,

occurrence of breaches of relevant policies or codes,

stakeholder opinion and other metrics. It may include

specifi c ethics information, such as the number of

employees attending ethics training or calls to an

ethics helpline, as well as routine management and

risk information. Often such information will originate

from multiple sources within the business, and can be

either quantitative or qualitative.

(Further reading: ‘Living Up to Our Values’, Institute of

Business Ethics14)


CIMA

CIMA, the Chartered Institute of Management

Accountants, is the only international accountancy

body with a sole focus on business. It is a

world leading professional institute that offers

an internationally recognised qualifi cation in

management accountancy, focusing on accounting

in business, in both the private and public sectors.

It is the voice of 164,000 students and members in

161 countries, CIMA is committed to upholding the

highest ethical and professional standards of members

and students.

The Chartered Institute of Management Accountants

26 Chapter Street

London SW1P 4NP

+44 (0)20 7663 5441

www.cimaglobal.com

About CIMA and the IBE


The IBE was established by business people in 1986 to

encourage high standards of business behaviour based

on ethical values. It aims to lead the dissemination

of knowledge and good practice in business ethics.

The IBE helps organisations establish effective ethics

programmes and strengthen their ethics culture.


24 Greencoat Place

London SW1P 1BE

+44 (0)20 798 6040

www.ibe.org.uk


Is global ethics a myth?19 November 2008 | 1 Birdcage Walk | London

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responsibility? Attend a free evening event in London which promises

to be a dynamic debate, fuelled by opinions from three high profi le

panellists and questions from the audience.

Speakers include:

• James Caan (leading entrepreneur)

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• Moderated by Jon Snow (broadcaster)

Bookings:

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ISBN 978-1-85971-601-4 (pdf)

The Chartered Institute

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United Kingdom

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F. +44 (0)20 7663 5442

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© CIMA 2008

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