A lot has changed in the world of business since Steven Bardy began his career in the 1980s. Formerly a senior executive of the Australian Securities and Investments Commission, Steven is now a board member at the Financial Markets Authority of New Zealand and a Principia Senior Advisor.

He believes one of the most significant developments in business decision-making over the past four decades is the evolution of the interplay between ethics and the law. Here, he speaks to Principia’s James Dempsey about what has changed and what it means for businesses today.

Q:        So much has changed since you started your career in the 1980s. What was different about how businesses made decisions back then?

A:         Business saw itself in the 80s and 90s as being primarily about maximizing returns to shareholders.  The concerns of employees, the community and other interests such as the environment were secondary, not relevant or ‘nice to haves’ at best.

Q:        How has the approach to business decision-making changed since the early 2000s?

A:         Progressively over the next couple of decades, the more enlightened CEOs and businesses started to recognize the brand, reputational and market value of considering a broader range of stakeholder interests – reflected in the increasing prominence given to ESG (environmental, social, and corporate governance) ratings, evident in annual reports.

‘Social license to operate’-driven decision making also gained currency – although the concept was seen by many as a defensive, rather than a proactive, play. In other words, businesses realized they needed to consider social and community interests before they got regulated to do so.

Q:        What impact did the Global Financial Crisis (GFC) have on decision-making processes?

A:         The period since the GFC – and the reflections that crisis gave rise to – has seen a trend toward decision-making which takes into account a broader view of interests as the norm, rather than the exception.

Paralleling this trajectory has been a somewhat slower, but nonetheless deliberate change, in the significance of ethics. This change had affected how business understands what it means to ‘do the right thing’ and has led to practical changes in how businesses are run.

Q:        What’s changed in the last few decades in terms of how businesses view ‘doing the right thing’?

A:         When I started as a senior executive in a compliance function of a major Australian Bank some 20 years ago, ‘doing the right thing’ was understood as being about staying within the law. For many, this was about staying within the ‘letter of the law’ – and despite our attempts to get businesses to see it in terms of the spirit of the law, there were few incentives to think in terms of that spirit particularly where the interests of the business collided with that spirit.

‘Doing the right thing’ was also not understood as being about what was necessarily right for other stakeholders. With the move to taking into account a broader range of stakeholders, ‘doing the right thing’ is now seen by the more enlightened businesses as not only about complying with the law – in particular the spirit of the law – but about what the business should be doing taking into account these wider interests.

Q:        What is driving these changes in how businesses view ethical decision-making and are they here to stay?

A:         The changes have been driven by a mix of factors. Policy and regulatory changes which have elevated the importance businesses are required to give social, community and environmental considerations have been an important contributor.

These changes, in turn, have responded to elevated community expectations of the contribution commercial and financial interests should be making to community well-being.  It is no coincidence that these expectations have risen in the last decade in the aftermath of the GFC and in the context of increasing concerns about climate change.

Boards and the executive leadership of the more enlightened firms across a range of industry sectors are also starting to see and reap the reputational, brand, and competitive benefits of putting a broader range of stakeholder interests and a less legalistic approach to decision making at the heart of what they do.

Q:        How is social media affecting how businesses make decisions?

A:         Social media has created platforms for communities to articulate and advocate their expectations. Understanding and responding to the ‘power of the crowd’ is increasingly a must-have element of a successful business, with social media monitoring now a core part of stakeholder management and strategy development in leading firms.

Q:        What are the new the challenges you see businesses facing today?

A:         The challenge for firms in building the reputational, brand and competitive benefits of truly ethical decision-making is to respond to these changed and changing expectations. They can do this by:

• Focusing on the ‘spirit’ of the regulations to which they are subject – and reflecting on that spirit in considering the legal and compliance advice they receive;
• Ensuring the ‘spirit’ is at the core of values statements and codes and the measures to embed those values (such as training and incentives frameworks);
• Placing a premium on ensuring a thorough understanding of a broad set of community and stakeholder expectations is central to strategy development;
• Reflecting those expectations in ensuring the ‘should we’ question is consistently posed and answered in day-to-day decision-making.

Q:        What are the practical implications for businesses that want to take ethics seriously, and what should they start doing today?

A:         There is no one size fits all response businesses should be taking.  Those businesses which are taking ethics and ‘doing the right thing’ seriously and are benefiting as a result are characterized by the following:

• A clear set of expectations endorsed and communicated by the Board and executive leadership about what ‘doing the right thing’ means and requires for all employees;
• Executive leadership which leads by example in the decisions it makes, in how it goes about making those decisions and in communicating those decisions across the organization;
• Guidance and training of staff and communication to staff around how the ‘should we’ question can be applied in day-to-day decisions at all levels across organizations;
• An incentive, performance and promotion assessment and management framework which recognizes and values good ‘should we’ decision-making.