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A constant churn of challenges

Myriad cultural and moral values are in play — and sometimes in conflict — within the global marketplace. In a world where citizen journalism has created infinite networks of information-sharing and potential exposure, it's increasingly challenging for companies to control the narrative around their reputation.

What drives ethical behavior in business?

In the context of reputation management, the shifting role of ethics in business stems from a variety of sources:

• Investors and shareholders are measuring company performance against environmental, social and corporate governance (ESG) indexes, as well as against the quarterly balance sheet.
• Employees, clients and other stakeholders, such as wider society are scrutinizing companies in terms of diversity, equity and inclusion (DEI) commitments.
• Customers wishing to consume ethically are influenced by strong corporate social responsibility (CSR) indicators.

Bringing ethical behavior to the forefront

Ethics are moral principles that determine what's right (ethical) and wrong. The general perception is that an "ethical" company puts stakeholder interests — those of employees, customers, community, the environment and society — above or on par with shareholder interests. This view is, of course, subjective and very much based on an individual's own ethical code — their own decision-making framework.

As Tropp points out, "If you ask a company whether it's ethical, the answer will likely be 'yes'. However, the next step should be to ask for a definition of what its ethics are.

"When we at Gallagher talk about doing business ethically, we mean conducting business in alignment with our beliefs, values and culture...what we call The Gallagher Way — doing what's right by our clients, communities and our people."

The Gallagher Way is pivotal to the way Gallagher does business. And, as affirmed on the Gallagher website, these shared values built us. They guide us. They inspire us.

Compliance and ethics

While many companies have programs in which employees formally sign off their review and understanding of legal compliance obligations, the ethical component is more difficult to document and make meaningful.

As Lisanne Sison, managing director, Enterprise Risk Management at Gallagher, adds, "It's absolutely crucial to be compliant, but merely meeting compliance standards is insufficient for managing an organization's reputation or helping it achieve its objectives. Therefore, without regulations, I think that an ethical culture is the driving force behind an organization.

"Doing business ethically, to me, means more than just focusing on profit," Sison continues. "It's about ensuring that your work aligns with your values and regulatory requirements and that you can trust the organization to do the right thing, even in the absence of specific, documented guidance."

Minimizing the risk of damage through ethical behavior

Reputational factors, though less tangible than the numbers on the quarterly balance sheet, are nevertheless of vital importance in reducing long-term risks.

Public perceptions of the degree to which a company behaves ethically (or unethically) can ultimately affect revenue generation. A company's ethical stance, then, becomes a central pillar of its financial success.

"When identifying an organization's biggest threats and determining the best ways to manage them," comments Sison, "the key to thriving comes down to organizational culture, which is driven by ethical behavior, values, trust in leadership, and the purpose and direction of the organization."

It's advisable for all companies to consciously consider their own "ethical footprint" to ensure they're enabling their teams to make informed decisions about how their behavior is perceived externally and how it aligns to their core values.

"Every company has a culture, whether good, bad or indifferent," comments Ray Iardella, vice president, Investor Relations at Gallagher. "If I were an investor, I would want to have conversations with management and understand the culture before investing."

Being ethical and recognized as such

It's worth noting that the growth of ethical behavior in business can only really be measured internally. Tropp observes, "Quantifying the values of a company is challenging and is something external organizations may struggle with."

Advertisers certainly have a keen understanding of this: According to a Statista August 2023 survey among chief marketing officers (CMOs) in Canada and the US, 56% of respondents said they were allocating between 11% and 40% of their marketing budget to promoting business sustainability efforts.

Tropp comments, "I genuinely believe that a substantial portion of the reason we are seeing a heightened focus on these matters is because people are learning about them through social media platforms."

Iardella points out, "Demonstrating ethics is challenging as it cannot be easily benchmarked against financials. However, we strive to showcase it by encouraging interaction and transparency during earnings calls and investor days."

The shift from hierarchical to circular business culture

Until the end of the 20th century, the top-down hierarchical "shareholder" model dominated how business was done. Here, the CEO's primary responsibility is profit maximization to grow value for the shareholders.

Towards the end of the 20th century, the "stakeholder" model gained traction. Here, the CEO's primary responsibility is to bring value to all stakeholders.

"Our mission statement includes four stakeholders: clients, employees, insurance carrier partners and shareholders," notes Iardella. "We prioritize taking care of our employees, developing and growing them. Clients are crucial to our business. If we fulfill our responsibilities to these stakeholders and conduct ourselves in the right way, shareholders are likely to be rewarded."

The circular culture and the engaged employee

The emergence of the stakeholder model was paralleled by a shift towards companies using their employees' insights to improve the way the business operated.

"This shift," says Tropp, "led to the development of a more 'circular' business culture — one where ideas and input from middle management and employees were valued and implemented. This concept of listening, requesting input and respecting it became the foundation for developing a company's culture. Change and authenticity can only come from within, drawing on the commitment and expertise of all staff. It's the internal dynamics and culture of the company that truly drive change. This is how good cultures in corporations evolve and are maintained."

The senior management cohort plays an essential role in establishing and maintaining a "circular" culture: without senior managers' buy-in and demonstrable commitment to seeking and taking on board feedback, the circular flow of information and reality-led improvement will seize up, and the wheel of the virtuous circle will stop turning.

Digital risk exposure

The closer alignment of employees' personal values with their work, coupled with the parallel desire to influence what happens in the workplace via the circular model, could be seen as reflections of broader trends in society that have been facilitated by "digital democratization."

As well as opening an infinite supply of alternative viewpoints, the internet has created avenues for individuals to share information about companies and their behaviors more quickly and widely than ever, creating another risk vector for companies.

Iardella points out, "It can be challenging for organizations, especially larger ones, to consistently demonstrate ethical behavior. With the number of employees and their access to the web and social media, a company's reputation can be at risk from a small group of individuals. Therefore, it stands to reason that maintaining trust, ethical behavior and transparency becomes more difficult as a company grows."

Embedding an ethical culture: "Walk the talk"

Changing culture is hard and often involves a change of leadership or a new vision. Commitment to change of this kind requires embodiment of values from top to bottom.

Sison says, "Studies I've seen recently indicate that executive and senior leaders are more likely to declare that their company has a strong ethical culture than are individual contributors and front-line employees. This is a gap in alignment that can lead to risks for those organizations."

Iardella adds, "When companies are trying to present themselves in the best light, there can be a difference between how they present themselves externally and what is embedded in their culture. In my experience, companies that are overly aggressive about trying to present themselves as super ethical or super focused on sustainability really aren't doing all the things that should be integral to their organizations."

Ethical behavior matters

The risks related to reputation management and staying competitive are influenced by the changing landscapes of ethical behavior in business, shareholder and stakeholder interests, employee aspirations, and the internet's ability to broadcast vulnerabilities.

Statements of values, acting as a flag to rally around, are an important part of embedding a set of ethical practices and behaviors if the statements are authentic and are adhered to from leadership down.

Generational and societal shifts will keep coming:

• Stasis is no longer an option.
• A company can benefit from documenting its ethical stance as a consistent decision-making framework.
• Companies relying on global supply chains may face delays in shipments and communication with suppliers.
• Monitoring how this — and, vitally, the way ethics are put into practice — affects a company's ability to respond to changing circumstances and has a measurable impact on talent and its profitable and sustainable growth.

In a world of public, rapidly distributed scrutiny, the need to be viewed as operating ethically is more important than ever.

Published January 2025