What is Ethical Business Practice (EBP) and why does it matter?

EBP differs from traditional compliance programmes in that it creates a balance between the policies / procedures / controls of compliance and the values / leadership / culture emphasis on ethics.

EBP focuses on:

  • quality of leadership, aligned to purpose and strategy
  • the existence of shared values, identified through dialogue
  • a belief that ethics is everyone’s responsibility,
  • psychological safety
  • failure seen as an opportunity to learn, using rootcause analysis to fix the real problems
  • ethical decision making as a skill that can be practiced and taught
  • ethics ambassadors rather than large central compliance functions, and
  • properly aligned systems and processes such asincentives and performance management).

There is a direct relationship between being purpose and values-based, having a conscious focus on organisational culture and superior performance. Effective relationships are based on trust. Excessive or exclusive focus on compliance undermines trust. Trust matters because people achieve more when they work collaboratively together toward desired outcomes. Trust is based on evidence that the person/entity can be trusted, i.e., evidence of their behaviour over time. Evidence of trust can include demonstrating what people do, and their intentions in acting, and the outcomes that they produce, not only when things go well but also (and especially) when things go wrong or mistakes are made (such as do they hide bad things or seek to put them right?).Although evidence of trustworthiness may come from existing compliance and regulatory systems (like complying with rules and operating quality systems) it is increasingly recognised that it is insufficient without evidence of how the culture of an organisation influences conduct.Ethical Business Practice (EBP) is about creating effective ethical cultures within organisations and the relationship between businesses and regulators is called Ethical Business Regulation (EBR). In a further book by one of the authors, the concepts of EBR have been further developed to encompass outcome based cooperative regulation.

Ethical Business Regulation (EBR) recognises that traditional legal and economics- based theories of behaviour and regulation (especially the theory of deterrence) have been shown to be ineffective and must be re-thought as a result of the scientific findings of behavioural psychology and other disciplines. New approaches are emerging involving building relationships between businesses, regulators and other stakeholders that are open and problem-solving, based on trust on both sides. EBR is not about going soft on intentional wrongdoers and/or criminals. It is about motivating the majority of people and companies who want to do the right thing appropriately; for example, supporting them to allow them to learn from mistakes. Punishment is reserved for those intentional and criminal acts.

For organisations that are trying to do the right thing it is better to create the conditions for the organisation to learn from mistakes without fear the information will be used against them, and to apply the correct intervention to ensure they act to fix things. This important aspect of EBP comes from aviation safety, where it is called ‘open and just culture’. This is key because it allows organisations to do in depth root cause analysis and deal with the actual problems that lead to unethical behaviour and non- compliance.

A business that adopts EBP should have the advantage that it deserves the trust of its staff, suppliers, customers, investors, regulators, communities, society.It is likely to perform and innovate well. Evidence already supports this. It will tend to identify and resolve problems quickly. It will have a culture of psychological safety where people can admit and examine mistakes and put things right and therefore be accountable. It supports well-being which supports performance. EPB&R is already being implemented in various sectors and parts of the world. Early progress is being made in water, food, pharma, environment sectors.

I hope this short summary will motivate you to want to learn more. Looking forward to seeing you in Bled in October!

The basic concepts and evidence are explained in the book by Ruth Steinholtz and Christopher HodgesEthical Business Practice and Regulation: A Behavioural and Values-Based Approach to Compliance and Enforcement (Hart, 2017). Available from Amazon.

Ruth Steinholtz


Share the Post:

Related Posts

Video Interview with Ruth Steinholtz

What do pro-cycling and business ethics have in common? Try think about this relationship: individual commitment + team effort, but also: fighting doping and corruption for clean and fair competition.

Read More

Video interview with Anand Kumar Guruswamy

Meet a key-note speaker Anand Kumar Guruswamy, a Senior Corporate Counsel at Infosys Limited, in the following video-interview. Listen to what message he has for the conference participants. Learn what he is most proud of from a decade of his compliance practice at Daimler and Infosys. 

Read More

Join Our Newsletter