Let’s get down to business, or should I say business ethics training. It’s been at the forefront of my mind recently, and not only because I work for a governance, risk and compliance company. I’ve seen so many articles in the news recently, about businesses behaving badly and making poor decisions that result in damaging consequences. The bottom line is this: the way your organization’s employees and managers behave directly correlates several business metrics, including, as I found out recently, shareholder value!
Business Ethics Contribute To Shareholder Value
According to insight from Ecclesiastical Insurance Group, there has been a widespread breakdown in business ethics. This statement does not surprise me, as I’ve written about companies’, like Uber’s, lack of business ethics before. I’m frankly still astonished that companies engage in unethical behavior; I just don’t understand WHY. Is it just a lack of an effective business ethics training model or a poor choice in employees? Although, with respect to the latter the saying goes your employees are only as good as the training you provide them.
As I continued reading, I discovered that one of the biggest impacts corporate misconduct can have is a negative one and that is on shareholder value. That is because unethical behavior can often lead to large payouts and legal penalties which obviously have a direct impact on shareholder value. Let’s take the BP oil spill for example. Four years ago, BP’s negligence in sealing an exploratory well caused it to explode, sinking the Deepwater Horizon drill rig and ultimately unleashing a gusher of oil into the ocean as well as killing 11 people. Initially the company tried to cover up how bad the spill actually was, misleading both Congress, the public, and shareholders. Now, fast forward a couple of years and BP has spent close to $42 billion dollars (they are still finding oil sludge on coral communities) in both fines and other penalties regarding their neglect of ethical conduct in the beginning. The final cost is still unknown today and the share price has not recovered. That should be a wake-up call to any small or large business.
According to the Ecclesiastical article, “Since 2009 across developed markets in Europe and the US, we put the full cost of corporate malfeasance conservatively at $150-250 billion (£88.5-147.5bn), or approximately 15% of global dividends of $1.03 trillion (£610bn) in 2013. “This is shareholder value destruction on a huge scale, however, many shareholders may not be aware of the breadth of the problem. It also represents ongoing risks for shareholders, as poor behaviors and practice will lead to increased legal and regulatory costs, as well as reputational damage to the companies they are invested in.”
With that kind of money, each business could easily afford to buy their own business ethics training school and probably employ an entire staff of compliance professionals. Hey maybe that’s not such a bad idea.
The article mentioned bankers at the heart of the corporate misconduct and I couldn’t help but think about another blog I wrote that covers compliance in the banking industry. The article reports:
[Whilst the report notes that the failure of business ethics goes well beyond the banking sector, the industry is at the heart of where it went wrong. It states, “[The banks] have destroyed more shareholder value, and received more opprobrium than any other comparable sector.”
This comment is supported by the fact that since 2006 at least 6,000 bankers have been sacked or suspended and all major UK banks have incurred significant fines for corporate misconduct over this period.]
To avoid not only decreasing your shareholder value, but also to avoid litigation, you need to address employee misconduct head on and train employees to step back and consider the ethics of how a decision can impact customers, employees, shareholders and the business as a whole.
Business Ethics Starts With Your Employees
To build your business on a solid ethical framework, you must begin by training your employees on professional ethics and the importance of integrity. Business ethics training is an excellent way to set standards of behavior and underscore the values your organization upholds. I came across an article which outlines the top five advantages of training employees about work ethics. I will provide a quick synopsis of each:
1.) An advantage of teaching work ethics to every employee is that it makes it clear that professional behavior is a must. It contributes to an overall pleasant and friendly work atmosphere.
2.) A great business ethics training program helps focus your employees’ attention on personal responsibility. They are taught that they are expected to deal fairly with everyone and to work to the best of their ability.
3.) An ethics training program promotes teamwork by instilling trust in colleagues. People are more likely to be nice to one another when they appreciate and respect one another.
4.) Employee morale rises in an atmosphere that promotes good behavior and honest interactions.
5.) Another advantage of teaching best business ethics practices is avoiding scandal. Many businesses have failed due to situations where their employees or managers have engaged in wrongdoing.
To make sure you are getting everything you need out of your business ethics training program, you can request a demo of our training solution. We have a full library of ethics training courses and interactive vignettes which provide engaging experiences for your employees and keep important ethics and compliance topics top of employees’ minds.