Ethical business culture is, according to the King IV report, an outcome. It is the result of how the people in that company or organisation think, act and react.

Unlike preceding King reports, the latest version stresses the importance of ethical leadership. It is not about rules and regulations, but about the values and examples set by boards and executives. Good business ethics therefore begin with solid personal ethics. 

The evolution of responsible, ethical business leadership

Since the 70s the range and number of demands on business leaders have increased dramatically. First, it was all about the shareholders, then came stakeholders, shared value, collective value, human rights, environmental sustainability and, the most recent addition, technological responsibilities.

Shareholders

Traditionally, the ethical responsibility of business leaders was to build financially strong businesses and ensure profits for shareholders. The business of business is business and its only social responsibility is to maximise profits – this was the simple dictum powerfully formulated by Milton Friedman in 1970. All other social responsibilities were seen as an unnecessary burden on business.

Stakeholders

The philosopher and Professor of Business Administration Edward Freeman published his stakeholder theory in 1984. This shifted the focus to a broader circle of partners that included employees, suppliers, local communities and local and regional government. Suddenly leaders had to consider a vastly different set of participants when making business decisions. The purpose of business now was to increase stakeholder value.

Shared value

Although the focus had shifted to creating stakeholder value instead of purely pursuing profit for their shareholders, businesses still were not seen as agents of social change despite most having corporate social responsibility initiatives.

It was Michael Porter and Mark Kramer's article 'Creating Shared Value' in Harvard Business Review in 2011 that changed this perception. They argued that the ethical responsibility of business is to create social value through pursuing financial value.

Business with its principle of efficiency was well placed to address social problems like housing, food security and healthcare. Private partnerships with the public sector had the potential to significantly increase broader social value that benefitted all and gave a more human face to capitalism.

Collective value and human rights

Four years later, Thomas Donaldson and James Walsh – professors in Legal Studies and Business Ethics, and Management & Organisations respectively – introduced a caveat: the purpose of business is to 'optimise collective value’ but only if it also honours and protects human dignity. In other words, every business decision is subject to not only financial consideration, but – as a primary value – also human dignity.

Ecological value

These expanding ethical responsibilities are well captured in the Ten Principles of the UN Global Compact founded in 2000. The agreement encompasses issues like labour conditions, human rights, corruption and – significantly – draws attention to the environmental impact of business. The ethical and legal demands of green, sustainable business are significant additions to business responsibilities.

Technology

The issue that is currently at the forefront of ethical business is the use of technology, which includes: the use of artificial intelligence to automate business processes; facial-recognition software; and the protection of data privacy. Business leaders will increasingly face the very complex trade-off between retaining employees and increasing automation.

Three guiding factors for South African company leaders

If you take into account the South African context, the situation is – for at least two reasons – more complex.

Firstly, many of the responsibilities of business are fixed in legislative demands, which limits the freedom of choice and adds both social and financial costs to business.

And secondly, the shortcomings of the state – evident in electricity provision, transport decay and social unrest/crime – erode the basic public services and conditions which a business could expect to be in place. This adds enormous strain and requires almost superhuman leadership resilience.

There are three characteristics that describe ethical leadership in the current South African context:

• An acute awareness of the shifting social demands on business. You must know and understand what and with whom you are dealing.
• Vibrant personal values that are strong enough to withstand external pressure and are clear enough to guide you through ambiguities.
• A value-driven organisational culture where ethics are embedded in every aspect of the business.

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