730 CORPORATE GOVERNANCE

Blackwell Publishing Ltd.Oxford, UK

CORGCorporate Governance: An International
Review0964-8410Blackwell Publishing Ltd. 2005
November 2005136730738Original Articles
CORPORATE GOVERNANCE AND BUSINESS ETHICS
CORPORATE GOVERNANCE

Corporate Governance and Business

Ethics: insights from the strategic
planning experience*
Ingrid Bonn** and Josie Fisher

In this paper we develop an integrated approach towards corporate governance and business
ethics. Our central argument is that organisations can learn from the development of strategic
planning in the 1970s and 1980s. We identify three weaknesses – a bureaucratic and formalised
approach, lack of implementation and lack of integration throughout the organisation – which
were prevalent in strategic planning in the past and which are potentially just as problematic
for an integrated corporate governance approach to business ethics. We suggest ways these
weaknesses might be avoided and provide questions for boards of directors to consider when
integrating ethical concerns into their organisations’ corporate governance structures.

Keywords: Corporate governance, business ethics, strategic planning

Introduction corporate social responsibility and business

*An earlier version of this
paper was presented at the
2004 Australian and New
Zealand Academy of Manage-
ment Conference, Dunedin,
New Zealand.
**Address for correspondence:
Graduate School of Manage-
ment, Griffith University, PMB
50 Gold Coast Mail Centre,
Queensland 9726, Australia.
E-mail: I.Bonn@griffith.edu.au
orporate governance is concerned with
C the processes by which organisations are
directed, controlled and held accountable
(Australian Standard AS8000, 2003). It deals
with the rights and responsibilities of an
organisation’s board, its management, share-
holders and other stakeholders (OECD, 2004)
and requires balancing their interests with the
economic goals of the organisation as well as
the interests of society as a whole. Sir Adrian
Cadbury (2000) made this point very clear:
Corporate Governance is concerned with hold-
ing the balance between economic and social
goals and between individual and communal
goals. The corporate governance framework is
there to encourage the efficient use of resources
and equally to require accountability for the
stewardship of those resources. The aim is to
align as nearly as possible the interests of indi-
viduals, corporations and society.
Cadbury’s definition suggests that corporate
governance is an overarching concept with
implications for an organisation’s approach to
ethics in addition to ensuring that regulatory
responsibilities are fulfilled.
Over the past decade, there has been an
increased interest in corporate governance.
This can partly be attributed to a rising num-
ber of corporate crises and failures. Events
such as the Exxon Valdez disaster, where an
entire ecosystem was threatened, or the
Ford Pinto scandal (where the organisation
decided to put profit ahead of human safety
by not recalling cars despite their known
defects) have sparked discussions about the
role of large corporations in society and
raised questions about their ethical stan-
dards, management decisions and corporate
governance practices (Kiel and Nicholson,
2003). Corporate failures such as Enron and
WorldCom in the United States and HIH
Insurance, Ansett and Pan Pharmaceuticals in
Australia have raised concerns over the effec-
tiveness of corporate governance and corpo-
rate accountability.
The above examples of corporate failures
and managerial misconduct highlight the
need for organisations to pay more attention

© Blackwell Publishing Ltd 2005. 9600 Garsington Road, Oxford,

Volume 13 Number 6 November 2005 OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
CORPORATE GOVERNANCE AND BUSINESS ETHICS
to corporate governance practices. In this
paper we focus on how organisations can
address concerns about corporate social
responsibility and, particularly, business
ethics in their corporate governance struc-
tures, and how they can encourage high
standards of ethical behaviour throughout
their organisations. We first discuss the
relationship between corporate social respon-
sibility, business ethics and corporate gover-
nance. We then draw an analogy between the
approach towards strategic planning in the
1970s and early 1980s and the approach
towards corporate governance and business
ethics at present. We argue that there are les-
sons to be learnt from the development of stra-
tegic planning that can be used to provide
guidance for an integrated corporate gover-
nance approach that incorporates principles
relating to ethical conduct. We identify three
areas of potential weakness in incorporating
business ethics into corporate governance that
were also evident in the development of stra-
tegic planning, namely (1) a bureaucratic and
formalised approach, (2) lack of implementa-
tion and (3) lack of integration throughout the
organisation. We discuss the ways strategic
planning has overcome these areas of weak-
ness and suggest how corporate governance
can deal with them. We then provide a number
of questions that can guide boards of directors
when integrating ethical concerns into their
organisation’s corporate governance structure
and evaluating their success in doing so.
Corporate social responsibility,
business ethics and corporate
governance
It is widely claimed that businesses have obli-
gations that go beyond profit maximisation
and that businesses should make a positive
contribution to society (see for example,
Boatright, 2003; Carroll, 1999; Fisher, 2004;
Robbins et al., 2003; Shaw and Barry, 2004).
Corporate social responsibility, according to
Epstein, “relates primarily to achieving out-
comes from organizational decisions concern-
ing specific issues or problems which (by some
normative standard) have beneficial rather
than adverse effects upon pertinent corporate
stakeholders” (1987, p. 104). It involves
“bringing corporate behavior up to a level
where it is congruent with the prevailing
social norms, values, and expectations” (Sethi
quoted in Boatright, 2003, p. 374). Corporate
social responsibility encompasses those expec-
tations society has of organisations at a given
point in time. They are “the behaviors and
© Blackwell Publishing Ltd 2005
731
norms that society expects business to follow”
(Carroll, 1999, p. 283). Society expects busi-
nesses to make a profit and obey the law and,
in addition, to behave in certain ways and
conform to the ethical norms of society.
These behaviours and practices go beyond
the requirements of the law, and seem to be
constantly expanding (Carroll, 1999).
The relationship between corporate social
responsibility and business ethics can be char-
acterised in various ways. Carroll’s “Pyramid
of Corporate Social Responsibility” (1991, p.
42), one of the most widely cited approaches,
identifies four dimensions of corporate social
responsibility: economic, legal, ethical and
philanthropic (or discretionary). More re-
cently, Schwartz and Carroll (2003) pro-
posed a three domain account of corporate
social responsibility. These domains are con-
sistent with the earlier model except that
philanthropy is no longer a discrete category.
The domains are represented by a Venn dia-
gram with the overlapping circles represent-
ing economic, legal and ethical responsibilities
resulting in seven combinations. In both
models, ethics is one aspect of the corporate
social responsibilities of business.
As pointed out above, corporate governance
is concerned with the processes by which
organisations are directed, controlled and held
accountable and requires balancing the inter-
ests of various stakeholders and society as a
whole with the economic goals of the organ-
isation. While corporate governance is con-
cerned with all of the dimensions of corporate
social responsibility identified above, it is the
way that ethics is dealt with at the governance
level that is the focus of this paper. In other
words, we focus on organisational approaches
to ethics at the level of corporate governance.
Corporate governance principles and
business ethics
The need for organisations to make explicit the
behaviour expected from board members is
widely recognised. For example, the Austra-
lian Stock Exchange (ASX) Corporate Gover-
nance Council advises organisations to
“clarify the standards of ethical behaviour
required of company directors and key
executives . . . and encourage the observance
of those standards” (2003, p. 25). The ASX rec-
ommends establishing a code of conduct that
identifies practices for directors, the CEO and
other key executives necessary to preserve the
ethical reputation and integrity of the com-
pany and that outlines the responsibility of
individuals to report unethical practices. The
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732
ASX also suggests a number of areas with
which a code of conduct should deal: conflicts
of interest, corporate opportunities, confi-
dentiality, fair dealing, protection of and
proper use of the organisation’s assets, com-
pliance with laws and regulations, and en-
couraging the reporting of unlawful/unethical
behaviour (ASX, 2003).
Similar guidelines for corporate governance
have also been developed by the OECD, the
Higgs report in the United Kingdom, the New
York Stock Exchange (NYSE) and the Council
of Standards Australia. The Higgs report, for
example, states that “[t]he board should set
the company’s values and standards and
ensure that its obligations to its shareholders
and others are understood and met” (2003, p.
21). The report further outlines the personal
attributes that should be possessed by non-
executive directors: “First and foremost, integ-
rity, probity and high ethical standards are a
prerequisite for all directors” (p. 29).
In addition to making board expectations
explicit, there is also a recognised need for
companies to provide information relating to
expected behaviour to all employees. The
Investment and Financial Services Association
Limited (IFSA) Guideline 17 (2003, p. 36), for
example, recommends the adoption of a com-
pany code of ethics. The NYSE Rule 10 states:
“Listed companies must adopt and disclose a
code of business conduct and ethics for direc-
tors, officers and employees . . .” (2003, p. 15).
The ASX (2003) identifies ten corporate gover-
nance principles, two of which are of interest
here because they clearly refer to ethics – Prin-
ciple 3: Promote ethical and responsible
decision-making and Principle 10: Recognise
the legitimate interests of stakeholders. One
obvious way for a board to respond to these
principles is to introduce a code of conduct/
ethics for all employees in addition to a code
that focuses on the board and top executives.
The above recommendations suggest that
an organisation’s approach to ethics must
have its foundation in its corporate gover-
nance framework. However, we argue that
this is just the first step. Pan Pharmaceuticals
Limited, an Australian publicly listed com-
pany, is an example of an organisation that
despite meeting its corporate governance
requirements was forced into receivership
because of its unethical behaviour. Pan
Pharmaceuticals was Australia’s largest con-
tract manufacturer of complementary medi-
cines such as herbal, vitamin, mineral and
nutritional supplements. They also manufac-
tured some over-the-counter medicines, in-
cluding pain relievers and cold and flu
preparations. In its 2002 annual report, Pan
Pharmaceuticals stated that the board “accepts
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CORPORATE GOVERNANCE
and observes the recommendations of the Cor-
porate Governance Council of the Australian
Stock Exchange Limited”. However, in April
2003 the Australian medicines watchdog, the
Therapeutic Goods Administration (TGA),
suspended the licence held by Pan Pharma-
ceuticals to manufacture medicines after TGA
inspectors found serious deficiencies and fail-
ures in the company’s manufacturing and
quality control procedures, including the sys-
tematic and deliberate manipulation of quality
control test data, substitution of ingredients
and substandard manufacturing processes.
The Expert Advisory Committee which re-
viewed the audit reports advised the TGA
that the failures in manufacturing practices
were so bad that they created immediate risks
of death, serious injury or serious illness and
that no confidence could be placed in the
quality of any products manufactured by Pan
Pharmaceuticals. This led to the biggest pro-
duct recall in Australia’s history and the com-
pany went into liquidation in September 2003
(Australian Consumers’ Association, 2003;
Therapeutic Goods Administration, 2003).
As the example of Pan Pharmaceuticals
demonstrates, accepting and observing the
recommendations of the Corporate Gover-
nance Council is not enough to ensure ethical
behaviour throughout the organisation. In the
next sections we discuss what organisations
can do to move beyond mere compliance with
corporate governance principles in order to
develop an integrated approach towards cor-
porate governance and business ethics that
encourages high standards of ethical be-
haviour throughout the organisation. We
approach this task by drawing an analogy
between the approach towards strategic
planning in the 1970s and 1980s and business
ethics at present. We believe it is appropriate
to draw such an analogy for three main rea-
sons. First, strategic planning can be regarded
as an on-going process by which senior man-
agers identify objectives and choose a set of
strategies for the organisation. This process
requires input from middle managers as well
as employees at the operating level (Floyd and
Wooldridge, 2000). Similarly, a commitment to
business ethics involves establishing policies
and processes that identify and support the
ethical objectives of the organisation. This pro-
cess also requires continuous input from all
levels within the organisation (Ferrell et al.,
2000; Schermerhorn, 2002).
Second, strategic planning is goal-oriented
and encourages a medium- to long-term per-
spective of what an organisation wants to
achieve (Hill et al., 2004). Likewise, the identi-
fication and adoption of ethical principles has
the purpose of encouraging certain kinds of
© Blackwell Publishing Ltd 2005
CORPORATE GOVERNANCE AND BUSINESS ETHICS
behaviours and outcomes, is regarded as posi-
tive for business in the long-term (Grace and
Cohen, 2005) and, together with other corpo-
rate governance principles, can drive business
performance (KPMG, 2003). Third, strategic
planning requires cross-sectional communica-
tion and cooperation and serves an important
integrative function within the organisation
(Viljoen and Dann, 2000). In exactly the same
way, a commitment to business ethics requires
the engagement of everyone in the organisa-
tion (Grace and Cohen, 2005) and involves
identifying shared values and objectives
towards which the entire organisation works.
Building upon these similarities, we argue
that there are lessons to be learnt from the
development of strategic planning that can be
used to provide guidance for an integrated
corporate governance approach that incorpo-
rates principles relating to ethical conduct.
Strategic planning and
business ethics
When the concept of strategic planning was
developed around 1965, many large organisa-
tions embraced it as a formal technique and
established elaborate strategic planning sys-
tems. The notion of strategic planning, accord-
ing to Mintzberg (1994a), became a virtual
obsession within a decade. However, by the
early 1980s there was widespread disenchant-
ment with the planning activities from the
previous decade. The main problems with
strategic planning were: (1) a bureaucratic and
formalised approach, (2) lack of implementa-
tion and (3) lack of integration throughout the
organisation (Bonn and Christodoulou, 1996).
In the following three sections we discuss
these problems in relation to strategic plan-
ning and how they were overcome. We also
identify similar problems with implementing
corporate governance principles relating to
ethical conduct and suggest ways to deal with
them.
Bureaucratic and formalised approach
Strategic planning processes in the 1970s and
early 1980s were characterised by a high
degree of formalisation and regulation. The
planners relied extensively on planning tech-
niques and analytical methodologies and car-
ried out a series of mechanical steps with the
result that the form had become more impor-
tant than the content. Managers described the
strategic planning process as a “repetitive
bureaucratic nightmare” which had “devel-
oped a life on its own” (Bonn and Christo-
doulou, 1996, p. 545). The strong emphasis
© Blackwell Publishing Ltd 2005
733
on analysis and formalisation left little room
for flexibility, creativity and strategic insight
(Mintzberg, 1994b).
During the past two decades organisations
have tried to improve the flexibility of their
planning systems and to rely less on rules
and regulations. Wilson (1994) argued that
strategic planning has moved towards an
executive-driven activity, which balances
“hard” quantitative and “soft” judgemental
tools and approaches. Bonn and Christo-
doulou (1996) found that greater flexibility
in the planning system was reflected in the
changing role of informal planning. Informal
planning discussions were seen as impor-
tant for improving the quality of strategic
thinking in the organisation and helped the
participants in strategy meetings to focus on
issues of strategic importance.
There is a similar risk that the current focus
on compliance with corporate governance
guidelines could lead organisations to focus
on formalisation and “box ticking”, replicating
the experience with strategic planning. The
various corporate governance guidelines that
have been developed suggest that organisa-
tions actively set boundaries for business
activities and clarify the expected standards of
behaviour for their boards of directors, senior
managers and employees. Such policies “pro-
vide guidance to personnel to help them
recognize and deal with ethical issues, pro-
vide mechanisms to report unethical conduct,
and help to foster a culture of honesty and
accountability” (NYSE, 2003, p. 15). One re-
sponse is to design and implement a code of
ethical conduct (sometimes referred to as a
code of conduct or a code of ethics), which is
described as a rational, top-down approach
(Johnson and Smith, 2002).
However, as the experience with strategic
planning has shown, a strategic plan that was
developed through a formalised and bureau-
cratic approach did not necessarily produce
the desired behaviour within the organisation.
Similarly, the existence of a code of ethical
conduct does not ensure ethical behaviour
throughout the organisation. On the contrary,
managers and employees may regard the code
of ethics “as one more set of procedures to be
undertaken to keep the bosses, the auditors or
the regulators happy” (Bartlett and Preston,
2003, p. 45). They may feel that complying
with such a code will add to their workload
and does not provide clear tangible benefits,
resulting in a lack of interest and commitment.
Enron, for example, had adopted a code of
ethics and used formal means to implement it.
The company’s actions, however, clearly dem-
onstrated that its code did not ensure ethical
behaviour (Adam and Rachman-Moore, 2004).
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Cleek and Leonard (1998) identified the
objectives of a code of ethics as increasing
social responsibility, providing guidelines for
acceptable employee behaviour, improving
management, assisting organisations to com-
ply with government guidelines and im-
proving corporate culture. However, they
concluded that the mere existence of a code of
ethics was not a significant factor in influen-
cing behaviour; rather, it is the way the code
is communicated, enforced and used that
has a greater impact. Research conducted by
Schwartz (2004) identified relevance and set-
ting realistic standards as being important in
influencing the effectiveness of a code of
ethics. Cassell et al. (1997) advised that the
prevailing contextual framework must be
taken into account when formulating, imple-
menting and enforcing a code. They concluded
that the impact of any code will be mediated
by its design process, its content, the way it
is presented and its enforcement.
The above discussion highlights the need to
ensure that a code of ethical conduct helps to
promote ethical behaviour within an organisa-
tion, rather than existing on paper only. To
have credibility, a code of conduct must be
context specific and tackle the significant
issues confronting the organisation and its
environment. An organisation, for example,
may have operations in particular countries
where there is strong public concern relating
to the use of child labour or the abuse of
human rights. Another organisation might
have to deal with pollution arising from
manufacturing processes or possible health
threats from the use of certain products. In
order to identify the key issues, boards should
encourage talks with their main stakeholders,
either in “one off” meetings or through more
permanent advisory panels. Stakeholders may
include shareholders, employees, customers,
suppliers, analysts and institutional investors
and/or community organisations. Such con-
sultative dialogue with the organisation’s
various stakeholders will help to eliminate
“blind spots” and group think.
As the experience with strategic planning
has shown, there is a need to use a flexible
approach towards the development of guide-
lines for ethical conduct. This includes exten-
sive discussion and debate between board,
senior managers, middle managers and other
employees on a regular basis, involving both
the content and implementation of policies
and processes that address ethical behaviour.
Such involvement of different levels of the
organisation helps to develop a code of ethical
conduct that is understood and owned by
everyone in the organisation, thus fostering
commitment and dedication. This also in-
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CORPORATE GOVERNANCE
cludes paying attention to informal aspects of
ethical conduct. Informal discussions about
ethics may help to identify potential “grey
areas” and improve the quality of ethical
thinking within the organisation. There
should be regular staff development and train-
ing programmes and an opportunity to make
amendments to the code of ethics and its pro-
cedures, if appropriate (Kitson and Campbell,
1996).
Lack of implementation
During the 1970s and 1980s top managers
tended to spend insufficient time on strategic
planning and delegated the planning function
to either a corporate planning department or
a corporate planner (Steiner, 1979). Planning
staff often cut senior executives out of the
strategy development process and turned
them into little more than rubber stamps
(Wilson, 1994). Line managers were also ex-
cluded from the planning process and their
expertise was largely ignored (Bonn and
Christodoulou, 1996). The failure to involve
line personnel in the planning process resulted
in line managers disassociating themselves
from the conclusions of the strategic planning
process and paying little or no attention to
strategy implementation. In addition, strategic
plans were rarely reviewed and many top
managers rejected the formal planning mech-
anism by making intuitive decisions that con-
flicted with the formal plans (Steiner, 1979).
These problems with strategy implementa-
tion led to a number of changes during the
1990s. The staff-driven process of corporate
planning was replaced by a more consultative
approach, which involved divisional and busi-
ness unit managers in its process. Planning
meetings were used as a forum to address
strategic issues on a regular basis and to help
generate stronger commitment from line
managers. Prime responsibility for developing
strategy was moved to line managers charged
with strategy implementation. This decentral-
isation of strategic planning to divisions or
business units was accompanied by a shift of
strategic planning responsibility from plan-
ning staff to line managers. In addition, the
role of the corporate planner changed from
being a “doer” of planning to becoming a
coordinator and facilitator who assisted line
managers with the planning and who ensured
that an organised and efficient planning pro-
cess took place (Bonn and Christodoulou,
1996).
Implementing business ethics is similar
to implementing strategy (Murphy, 1988).
Schwartz (2004) identified senior management
support, training and reinforcement as being
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CORPORATE GOVERNANCE AND BUSINESS ETHICS
important factors in determining the effective-
ness of codes of ethical conduct. Reporting
violations and consistent enforcement of the
code were also found to be important. The
research by Adam and Rachman-Moore (2004)
showed that informal methods such as follow-
ing the example set by management and con-
forming to the social norms of the organisation
were also important in code implementation.
The Australian Standard AS8000 (2003)
advises against succumbing to the temptation
to merely satisfy legal requirements, rather, it
is claimed that “[t]he board and senior man-
agement should strive to achieve a culture of
good governance” (p. 12). Similarly, KPMG
(2003) identify three possible approaches to
the ASX Corporate Governance Principles:
simple compliance, meeting best practice
and driving business performance. If the
principles are regarded as simply another
compliance issue, adopting them will not
enhance performance. However, the require-
ment to implement these principles can pro-
vide the impetus to introduce performance-
enhancing change throughout the organisation.
In order to take advantage of this opportunity,
strong leadership and commitment from the
board is required.
The implementation of codes of ethical con-
duct to drive business performance requires
the establishment of appropriate structures
and processes for monitoring and improving
ethical behaviour. This includes identifying
key performance indicators, which are used to
provide reliable information about the organ-
isation’s ethical performance. The perfor-
mance indicators should not just be extensions
of the organisation’s financial reporting sys-
tem, but include non-financial measures such
as organisation reputation and community
perception. Monitoring the organisation’s
ethical performance identifies whether the
existing approach is meeting expectations
in terms of how the policies, procedures
and codes of conduct are implemented and
whether existing processes are achieving their
performance potential or whether they require
improvement.
An increasing number of large companies,
particularly in the United States, have estab-
lished Ethics Committees. Their task is to deal
with policy formulation and with specific
violations of the organisation’s ethical code
or complaints from employees and other
stakeholders (Kitson and Campbell, 1996).
Although such committees might be useful,
there is a danger of them becoming the sole
body responsible for dealing with business
ethics. As the experience with strategic plan-
ning has shown, corporate planning depart-
ments in the 1970s and 1980s tended to
© Blackwell Publishing Ltd 2005
735
exclude line managers from the planning pro-
cess and top managers were likely to spend
insufficient time on strategic planning. The
result was a lack of ownership in the planning
results and, as a consequence, a lack of imple-
mentation. Ethics Committees may encounter
similar problems, namely a delegation of
ethical issues by top managers and a lack of
involvement from line personnel. Such delega-
tion may prove particularly harmful since
senior managers are regarded as role models
within the organisation, so their behaviour is
crucial in determining whether the implemen-
tation of ethics policies will succeed (Johnson
and Smith, 2002). To overcome these potential
problems, Ethics Committees should ensure
that top managers and line personnel address
ethical issues on a regular basis and that the
prime responsibility for developing policies,
procedures and codes of ethical conduct is
given to line managers who are responsible for
implementation. Hence, Ethics Committees
should predominantly coordinate and facili-
tate the development of guidelines dealing
with ethical behaviour and ensure that the
organisation has efficient processes in place to
deal with ethical issues.
Lack of integration throughout
the organisation
Strategic planning in the 1970s and early 1980s
tended to neglect the organisational culture in
which it took place (Steiner, 1979). Wilson’s
(1994) research showed that culture was the
respondents’ main concern in the field of
strategic management. Cultural problems
included issues such as internal politics,
bureaucracy, poor communication, lack of
willingness to respond to change, lack of
organisational learning, and lack of market
and customer orientation.
Over the past two decades organisations
have responded to the “cultural challenge” by
trying to integrate the strategic planning sys-
tem throughout the organisation as a whole.
Organisational culture has become a critical
ingredient in the implementation of strategy
and organisations have started to recognise
that the values, motivation and behaviour of
the organisation’s members are critical deter-
minants in the success or failure to implement
strategy. In particular, organisations have
actively tried to shape their culture by estab-
lishing effective communication processes
throughout the organisation, by providing
programmes for education and training, and
by placing strong emphasis on leadership by
example (Bonn and Christodoulou, 1996).
Similarly, organisational culture can either
promote or hinder ethical behaviour. Adam
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736
and Rachman-Moore (2004) found that the
majority (67.7 per cent) of employees they sur-
veyed identified the social norms of the organ-
isation and the behaviour of management to
be most influential in determining ethical con-
duct. The social norms of the organisation are
influenced by formal and informal controls
that “arise as groups attempt to regulate the
behaviour of their memberships according to
various mores, norms and values which have
become socially established and sanctioned in
different intra-organizational contexts” (Cas-
sell et al., 1997, p. 1081). These controls are
embedded in organisational contexts in which
competing influences have arisen in day-to-
day social interactions (Cassell et al., 1997)
and influence particular aspects of behaviour
within the organisation.
Hence, if an organisation’s commitment to
business ethics as identified in its corporate
governance framework is to have a lasting
impact, the ethical principles must be an in-
tegral part of how the organisation operates
and be reflected in the organisation’s code of
ethical conduct, formal and informal controls,
policies, processes and procedures. Ethical
principles will be regarded with cynicism if
there are inconsistencies in an organisation’s
approach towards ethics and, in particular, if
members of the board of directors and top
management assert them, but behave unethi-
cally (Minkes et al., 1999). The board and man-
agement, therefore, have to ensure that there
is a high degree of congruence between the
ethical standards of the organisation and their
own behaviour and activities. Pinchot and
Pinchot (1992) suggested that executives
should cultivate their ethical competence with
the same enthusiasm they devote to cultivat-
ing their technical, marketing and financial
skills. When the board makes strategic deci-
sions concerning, for example, acquisitions,
divestitures or international expansion, these
decisions should be informed by, and be con-
sistent with, the organisation’s stated ethical
position.
In addition to “walking the talk”, the board
and senior management need to actively pro-
mote, manage and monitor a culture that
emphasises ethical behaviour and integrity
within the organisation. A statement of the
organisation’s commitment to ethics should be
included in the mission statement, in the
organisation’s overall strategies and goals, as
well as in supporting functional strategies
such as human resource management and
marketing. Ethics should become everyone’s
business and “the way we do things around
here” (Bower, 1966, p. 22) should be consistent
with the organisation’s ethical values. This
requires the establishment of training pro-
Volume 13 Number 6 November 2005
CORPORATE GOVERNANCE
grammes for employees and the provision of
communication channels for receiving feed-
back on initial and ongoing problems and
difficulties.
Practical considerations for an
integrated approach to
business ethics
The above discussion has identified a number
of important considerations that boards of
directors need to address if they want to suc-
cessfully integrate ethical concerns into their
organisations’ corporate governance struc-
tures. These considerations give rise to a num-
ber of questions that can be used by boards to
evaluate their approach to business ethics.
First, boards need to identify their current
values, attitudes and beliefs and whether they
are appropriate for their organisation. Does
the board agree on what an ethical issue is?
Who initiates discussion about ethical issues
and when? How does the board debate ethical
issues? Who is involved in the discussion?
Second, boards should closely examine their
behaviour towards ethical issues. Does the
board take ethical issues into account when
making key strategic decisions? What impor-
tance does the board assign to these ethical
issues? To what extent do board members
“walk the talk” regarding ethical issues?
Finally, boards need to evaluate the or-
ganisation’s current strategies, policies and
procedures and investigate whether they en-
courage ethical behaviour and reflect the
organisation’s ethical values. Does the organi-
sation have a code of conduct and who knows
about it? Are all employees involved in the
development and implementation of ethical
guidelines? Are relevant training programmes
established that promote the organisation’s
stand towards ethical behaviour? Are relevant
structures and processes for monitoring and
improving ethical behaviour established? Is
the organisation’s focus on ethical behaviour
embedded in the organisation’s culture?
Conclusion
Concerns about the activities of organisations
have resulted in an increase in the attention
being paid to corporate governance. Bodies
such as the OECD and stock exchanges have
developed corporate governance principles
that include reference to business ethics. We
have argued that an organisation’s approach
to ethics must be addressed in its corporate
governance framework. However, this is just
the first step if the organisation is interested in
© Blackwell Publishing Ltd 2005
CORPORATE GOVERNANCE AND BUSINESS ETHICS
more than simple compliance with corporate
governance principles. Measures must be
taken to ensure that organisational behaviour
is consistent with the ethical values espoused
in the codes of conduct for boards of directors
and employees, as well as the organisation’s
mission statement, its overall strategies and
goals, and its supporting functional strategies.
We have employed an analogy with stra-
tegic planning to provide insights into how
ethical concerns can be integrated into an
organisation’s corporate governance structure.
Our main argument centred around three
major weaknesses – a bureaucratic and formal-
ised approach, lack of implementation and
lack of integration throughout the organisa-
tion. These weaknesses were prevalent in
strategic planning in the 1970s and 1980s and
are potentially just as problematic for an
integrated corporate governance approach to
business ethics. We have provided a number
of practical suggestions formulated into ques-
tions for boards of directors to consider when
integrating ethical concerns into their organi-
sations’ corporate governance structures.
An integrated approach towards corporate
governance and business ethics should help
organisations to implement high standards of
ethical behaviour throughout the organisa-
tion. Such a proactive approach provides
evidence of the board’s commitment to good
corporate governance and may help to
enhance the organisation’s reputation and
competitiveness.
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Ingrid Bonn is a Senior Lecturer in the
Graduate School of Management at Griffith
University, Australia. Her research interests
are in the areas of corporate governance
and corporate social responsibility, strategic
decision-making, and performance and
longevity of organisations. She has published
articles in academic journals such as Long
Range Planning, Journal of Organizational Change
Management, Management Decision and Asian
Business & Management.
Josie Fisher is a Lecturer in the New England
Business School at the University of New
England, Australia. Her research interests
include corporate governance and social
responsibility, business ethics and bioethics.
She has published in a variety of refereed jour-
nals including the Leadership and Organization
Development Journal, Journal of Business Ethics,
Journal of Medical Ethics and Medicine, Health
Care and Philosophy.
© Blackwell Publishing Ltd 2005