Where do you start looking for ethical risks?

  • 11 November 2014

Some ethical risks are relatively easy to spot: over generous gifts from suppliers for example. Other ethical risks can be more difficult to find, yet may carry just as much exposure to your firm’s reputation. How do you make sure that both the easy and the difficult are picked up by your risk radar?

That’s not the only problem. It’s easier at times to spot the symptoms of an ethical risk, rather than its underlying cause. So the over generous gifts from suppliers could be a symptom of something wrong with supplier relationships. While you can focus on controlling over generous gifts, it is more productive in the long run to recognise and influence the underlying circumstances that make such gifts tenable.

To ensure that you pick up both the obvious and less obvious, the cause as well as the symptom, it helps to structure your thinking around three primary sources of ethical risk: the market, the firm and the employee. I’ll outline each below.

Three Sources of Ethical Risk

Ethical risks at the market level come from the business environment within which your firm operates. It can be gauged from factors such as:

  • how intense is competition within your market and how might this influence decision making?
  • what level of regulation is the market under and to what extent are those regulations expressed in ethical terms like conflicts and fairness?
  • is there over-capacity amongst suppliers to the market and how have those firms organised their businesses as a result?
  • are information asymmetries prevalent between provider and consumer, and what standards are used to offset that affect?

Ethical risks at the firm level come from how the firm is organised and the way in which it approaches ethics. It can be gauged from factors such as:

  • how prominent and vocal is the firm’s leadership on values and standards of behaviour?
  • how have the firm’s values been embedded across its management systems?
  • does the firm maintain a culture of openness and in what ways can it evidence this?
  • how does the firm guide its employees in how they should behave at work, both explicitly and implicitly?

Ethical risks at the employee level come from how the behaviour of individual employees is managed. It can be gauged from factors such as:

  • how consistently does the firm respond when an employee acts in ways contrary to the firm’s values?
  • how well does the firm manage an employee who raises a concern about behaviour at work?
  • how does the firm respond to an employee who upholds the firm’s values in difficult situations?

Tangible Benefits

Adopting a structured approach to mapping out the ethical pressures that your business is subject to ensures that ethics initiatives deliver tangible benefits to the business. Once mapped, of course, they then needed to be weighed up and priorised.