There is little sign that EU corporate governance legislation, frameworks and codes are paying sufficient attention to the need for board members to demonstrate ethical principles or commitments, according to research by the Institute of Business Ethics (IBE).
Its report A Review of the Ethical Aspects of Corporate Governance Regulation and Guidance in the EU, produced in association with ecoDa, the European Directors' Association, examines corporate governance policy debates and frameworks across the EU and within its member states.
Julia Casson, author of the report and director of Board Insight Ltd, said: 'We began this report wanting to understand whether there was guidance for companies in governance policies, at national and EU level, on ethical business practice. Although we did find similarities in corporate governance requirements around practice and certain issues, there seems to be a general lack of ethical language in corporate governance provisions. This is in spite of the fact that boards are expected to set the values which will guide their company's operations.'
The research suggests that in some cases, boards look at key governance issues in terms of what is 'good for business' rather than engagement with any moral imperative. IBE says this is the case even though what is generally viewed as unethical behaviour, including at the most senior levels, has led to business failure on numerous occasions.
The report says that 'the link has yet to be explicitly made in corporate governance discourse that what is ethical is very often good for business, or at least that what is unethical generally impacts negatively on business'.
However, the research identified the beginnings of a greater focus on board behaviour and conduct in the governance proposals put forward by some member states, especially in guidance for directors. Some governance codes contain 'various rules of conduct' (i.e. commitment, leadership, discretion, independent judgment, integrity, acting in the corporate interest and acting in the interests of stakeholders) and refer to behaviours required by boards.
Philippa Foster Back, IBE director, said: 'Attention to ethics is increasingly a core feature of boardroom agendas. Many companies recognise business ethics, sustainability and social responsibility, and also boardroom ethics, as characterising the right way to run a business as well as being essential for long term success. This is in spite of the apparent lack of explicit engagement at EU level with ethical principles in corporate governance guidance, and the limited requirement, or indeed encouragement, that boards operate with high ethical standards.'
