ETHICAL LEADERSHIP
” What is moral is what makes one feel good” – Ernest Hemingway
Part One
There is no grey area regarding the principle of ethics. It is the code which allows you to lead authentically with pride, and with zero doubt about tomorrow. An unethical decision made in a split second will come back to haunt you and your team if they are complicit in the act. The Companies Act of 2008 is specific regarding the implications of a breach of ethical code and bears both criminal and civil sanction.
We are the sum of decisions which we make and are rewarded not only for our efforts but also for our intentions, how we execute them and who we expect to participate in the deal. A good reputation takes a lifetime to build and only a second to lose. A question to ponder is “Are we born with integrity, or do we develop it?” It is a concentrated effort to do right by yourself, your team, shareholders, and financial suppliers of capital.
Right or wrong can be defined by duty or intentions and if you must question a decision, then it is usually wrong. Immoral actions are ultimately self-defeating. Doing the right thing is not necessarily the easiest path, but it is the only way. If you are an ethical person, you never have to fear the Law, “the law is here to protect you and yours” Warren Buffet. Yearly Buffet sends letters to his management team advising them to act with integrity. He states, “The company can afford financial losses, but not losses in reputation.”
Case studies have proved that one breach of ethics leads to multiple instances of malfeasant behaviour – if they got away with it once, the pattern continues. We can be tempted to act outside of the ambit of the law for many reasons, as per a few real-life examples provided:
The case of a director who had an Invoice Factoring arrangement with his bank comes to my mind, in fact, it is a memory that I will never forget, a horrible memory. This person had an unrealistic personal lifestyle driven by over-excessiveness and greed. He ‘looted’ his business to finance his lifestyle. Eventually, pressure caused him to falsify invoices which he submitted to the bank for payment. The last time that I saw him his behaviour was very strange, it was the day that the bank sent him a letter advising him of his fraudulent activities. He was pointing his gun in his office, at nobody. One minute he was laughing and hugging me, and the next he was crying and shouting at me, repeating this cycle for about an hour. I knew him because I was working with a company to whom he owed a substantial amount of money. That was the last day that I saw him.
What about the case of leaders who falsely report on asset values and who inaccurately report on provision accounts in financial statements? Well, this is usually done because of financial stress and/or to falsify the results and/or to incorrectly state the share value. A less obvious problem with this action is that it is impossible for the leader to act on his own. He inevitably must involve certain staff members in the act. What a predicament he put his team in when they had to explain to auditors their figures that did not make sense. So, while he got away with this practice for a few financial periods, his ‘luck’ ran out. Apart from losing his business, he lost his reputation in the industry, with the financial suppliers, with staff and with his family. This would not have been necessary had he restructured his personal lifestyle and his business.
I have worked with a company whose culture it was to commit fraud from the top down. Breach of ethics became a natural phenomenon with the staff, as this practice became the norm. The result was that there was no respect for the leader. People knew that if they acted inappropriately with their duties, there was not much that the leader could do to them – they had him in a ‘tight spot.’ The result was anarchy and once again, the business did not survive. Historically, it was a great business.
From these examples, unethical practices never have a happy ending.
The case of WorldCom Inc. is a great example of senior members of the financial team ‘accommodating’ the CEO once, but sadly and to their detriment, this became a habit. In terms of the law, even acting under instruction from the CEO does not exonerate you from liability. The CEO instructed his accountants to incorrectly reflect provision values, amongst other devious transactions. Initially, the accountants resisted. The CEO placed them under pressure, and they buckled. This pattern then repeated itself continuously. In terms of the Companies Act, anybody who is deemed to be complicit in the act is guilty of criminal and civil liability. The accountants were criminally convicted for fifteen years. Now, I am sure that you will agree with me when I say that no CEO has absolute control and power over me. Rather walk out and seek other avenues.
The reality is that the whistleblowing process does not work. If you whistle blow you will for sure battle to find employment or put your life at risk. So many employees are between a rock and a hard place. The only solution is to record your dissatisfaction with the request and to leave the organization. Easier said than done, though. The unemployment situation is a problem in South Africa and the geopolitical landscape. But at least you will sleep and night and not worry about The Hawks knocking on your door. Peace of mind and conscience are important for a person’s state of well-being.
Feigning innocence is no longer acceptable in the eyes of the law – for you and for your exco team members. Everybody in this position must do everything they can to protect their reputation. Absent a good reputation, you have nothing left. There is a legal obligation for professional employees to report any such conduct to the governing body of their profession. Failure to do so, whether they perpetuated the fraud or not, can result in professionals losing their accreditation. So, before you are tempted to give instructions that are ‘dodgy’ think about the lives of the individuals that you are placing at risk, or put another way, be less selfish.
I believe that we should not become defined by the environment around us. If we all fight the system, we will create a better environment. We need to make South Africa a better country, a place where investors are confident to invest. I believe that one of the biggest contributors to loss of GDP, and investment and a contributor to increased living costs is the mismanagement of State-Owned Entities. Every person who acted in a malfeasant manner started with one transaction, then another and another, with the result that our country is now in a precarious position, to say the least. This has negatively affected the life of consumers.
I have a few tips on how to avoid creating an unethical culture:
- Develop a culture of perfection, integrity, strong governance, and good management controls.
- Lead with authenticity and lead with personal and work pride.
- I do not recommend managers or shareholders should participate in performance-based bonuses as the position that they hold can tempt them to act in their own interests.
- Develop a strong Code of Ethics and be a walking example of authentic and ethical behavior.
- Use the auditing process to its fullest benefit. It requires a change of mindset from the usual one where the audit process is an irritation. This opportunity will highlight weaknesses in your system.
- Familiarize yourself and your exco team with the Companies Act. When your employees think that you are being unreasonable, point them in the direction of legislation. Similarly, allow your employees to point you in the right direction.
Positive leaders stay grounded in ethical values and have a human growth mindset. They are fixed and flexible at the same time, never straying from ethics, but are always willing to change with the times and are not selfish in their quest for results.
Part Two of this blog deals with the personality traits of ethical leaders.
Thank you for reading this blog. Stay tuned for more insightful discussions on boosting your business’s success. Join us next week, and let’s keep growing together! And don’t forget to listen to my podcasts for in-depth insights on leadership and related topics.
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