Ethics and business – let’s get it right
Ethics can be defined as a framework of personal rules, utilised to direct and manage our future actions in such a fashion that it complies with our moral standards, irrespective of any legal obligations.
Organisations, by themselves, have no moral standards or ethics and are they moral standards and ethics determined by the actions of their functionaries eg. The Board of Directors, senior management etc.
In this day and age, where the reputational value of an organisation is easily damaged by reports in the media or even on social media, the reputation of an organisation became a valuable commodity that should be protected at all costs. Stakeholders in organisations, including members of the public, developed increased expectations in relation to the ethics of organisations.
The public is aware of ethics in business, and no one can escape the scrutiny
An increased awareness that the interest of organisations and communities are undoubtedly interdependent upon each other also raised the expectation amongst stakeholders that organisations should comply with the standards of good citizenry as it made perfect financial sense.
Legislation around ethics in business
In order to accommodate these expectations and to prevent scandals like Enron-Worldcom,the importance of Social Responsibility and Ethics became integral on the part of organisations and was later introduced as law by the Companies Act, in that every state-owned company, every listed public company and any other company that has, in any two of the previous five years, had a public interest score of at least 500 points, was obliged to appoint a Social and Ethics Committee (SEC).
The responsibilities of a Social Ethics Committee
The SEC must:
- Comprise of not less than three directors or prescribed officers
- A prescribed officer is defined as
- “…a person who exercises general executive control over and management of the whole, or a significant portion, of the business and activities of the company; or regularly participates to a “material” degree in the exercise of general executive control over and management of the whole, or a significant portion of the business and activities of the company”
- The company secretary or CFO will subsequently comply with this requirement
- At least have one functionary who must not have been involved in the day to day activities of the organisation.
The SEC has a dual mandate to both monitor an organisation’s performance and to report its findings to both the governing body (Board of Directors) and the shareholding.
The Social and Ethics Committee is enjoined by the provisions of Regulations issued in terms of the Companies Act to monitor and report on the following matters:
| A | Social and Economic Development |
| The Organisation’s obligations to : | |
| support and respect the protection of internationally proclaimed human rights; and | |
| ensure that the organisation is not complicit in human rights abuses. | |
| uphold the freedom of association and the effective recognition of the right to collective bargaining. | |
| uphold the elimination of all forms of forced and compulsory labour. | |
| uphold the effective abolition of child labour. | |
| uphold the elimination of discrimination in respect of employment and occupation. | |
| support a precautionary approach to environmental challenges. | |
| undertake initiatives to promote greater environmental responsibility. | |
| encourage the development and diffusion of environmentally friendly technologies | |
| encourage the development and diffusion of environmentally friendly technologies | |
| follow the Organisation for Economic Co-operation and Development recommendations regarding corruption. | |
| follow the Organisation for Economic Co-operation and Development recommendations regarding corruption. | |
| adhere and strive to enhance its pursuance and compliance with the Broad-Based Black Economic Empowerment Act | |
| B | Good Corporate Citizenship |
| The Organisations obligations to : | |
| promote equality | |
| prevent unfair discrimination | |
| reduce corruption | |
| partake in community development | |
| keeps records of sponsorship donations and charitable giving’s | |
| C | Environment, Health and Safety |
| The Organisations obligations to : | |
| Consider the Impact of the company’s activities on its products or services | |
| D | Consumer Relations |
| The Organisations obligations to : | |
| give consideration to the organisation’s advertising | |
| give consideration to the organisation’s public relations | |
| comply with consumer protection laws | |
| E | Labour and Employment |
| The Organisations obligations to : | |
| Consider the company’s standing in relation to the International Labour Organisation Protocol on decent work and working conditions | |
| Educational development of employees |
SEC and corporate governance
The correlation between the subject matter of the monitoring and reporting function and existing compliance obligations are obvious, as most of these obligations have already been created in other legislation eg The Basic Conditions of Employment Act. The functions of the Social and Ethics Committee is without doubt a valuable tool in Corporate Governance and Compliance Management.
