Managers, ethics and better business performance by Ann Francke, Chief Executive of CMI on 29-Oct-2014

W inning hearts and minds is not just an empty strap line: doing the right thing is in every organisation's interest. Good management cares about morals and values and our research shows why - because they bring clear benefits to organisations. They're fundamental to the decisions employees make, the actions they take and the business outcomes that follow says Ann Francke, Chief Executive of the Chartered Management Institute (CMI).

The research, published in collaboration with MoralDNA, shows that higher scores for managers' ethics are linked to higher performance across eleven key indicators, including management effectiveness, customer satisfaction and employee engagement. But, the report also warns that poor ethical behaviour is seen as a major challenge for large employers and the public sector.

The MoralDNA of Performance is based on profiles of over 2500 UK managers, measuring them on three fundamental ethical preferences – the ethics of care, of reason and obedience – and ratings of those managers' organisation's performance across a range of key business measures. The analysis reveals clear links between ethics and performance and the report's conclusion points towards a need for far-reaching changes in business culture to drive long-term prosperity.

Key findings of the report include:

• Managers who work in growing organisations score higher for ethical behaviour than those in declining organisations – 37% of managers in growing organisations give themselves top marks for ethical behaviour, compared to 19% in declining organisations. Those in declining organisations are also much more likely to say that their organisation behaves unethically (22% vs 6%).


• Ethical leadership is a critical driver of performance: where leadership styles are coaching, visionary and democratic, three quarters (75%) of respondents say the effectiveness of management is excellent, as compared to only 18% where a command and control leadership ethos prevails.


• Ethics are key to employee engagement: managers in organisations with excellent staff satisfaction score 13% higher on the ethic of care. There's also a connection when it comes to an employer's ability to attract new staff, with the difference between the best- and the worst-rated employers linked to an 8% difference in the ethic of care.

Yet, despite the evidence of links between good ethics and business performance, almost a third of managers (29%) rate their organisation as mediocre or worse when it comes to standards of ethical behaviour. This equates to nearly one million (928,000) managers across the UK. The report highlights that, worryingly, senior managers have a rosier picture of current standards than those in junior roles – 48% of senior managers believe their organisation has excellent ethical behaviour, compared to only 22% of junior managers. The report suggests that some leaders may need to check if employees share their perceptions about company culture and work to close the gap.

Those employers facing the biggest challenges include large employers and the public sector. Managers in big organisations are four times more likely than those in small firms to rate behaviour in their workplace as ethically poor (12% vs 3%), with less than half as many rating their organisation as excellent – only 23% compared to 59% of those in small organisations. Worryingly, some 13% of managers in the public sector rate their organisation as poor and just 20% as excellent, making them the worst performing sector.

When it comes to management and leadership in the 21st century, the truth is that who cares, wins. Ethics should be at the heart of every organisation's culture, whatever their size or sector and this research shows clear connections to business performance. Every manager has a part to play: leading by example, making value-based decisions and rewarding the right behaviour, not just results. If employers get the ethical culture right, they'll reap the rewards through better performance, stronger employee engagement and improved relationships with their customers.

The report highlights that managers in organisations with excellent customer satisfaction score 9% higher on the ethics of care and reason than those who admit their organisation does a poor job for customers. These findings are backed up with twelve interviews with leaders from employers as diverse as HSBC, medium-size manufacturer Acme Whistles, the NHS and the police show the importance of focusing on culture, not rules.

The report's authors warn against trying to promote ethics through a proliferation of rules and regulations. Professor Roger Steare at Cass Business School, founder of MoralDNA and the report's lead author, said, "All too often, employers and policy makers resort to rules and regulation when making knee-jerk responses to ethical failures, whether in business or public services. The problem is that this shuts down the debate and dissent you need in decision-making and stops people thinking through the consequences of their actions. They become compliant robots. We have to focus on culture which means thinking about purpose, shared values, better decisions and inspiring leadership."

Based on the survey results and the case study interviews, the report identifies key steps for employers to focus on including:

• Focus on purpose and values: the best organisations have a purpose that serves others and strong values that inform better decisions.


• Live your values every day: just writing down some values somewhere doesn't do the trick; they need to be lived every day. Leadership needs to set the example of the behaviour they'd like to see and set the standard.


• Build a sustainable culture: to make an organisational culture last and bring the best out of employees, create a non-hierarchical, open environment that encourages constructive dissent.

Individual managers are also encouraged to:

• Care more: Make time to look at how you make decisions. What are your ethical preferences? What example do you set? Are you open to challenge? Do you listen to others? Taking a step back to reflect is a critical component in moral reasoning.


• Stand up for values they believe in: Be authentic and be yourself. If you see something you do not agree with, speak up and challenge it.


• Ask the right questions: These are key questions that can help you better understand ethical dilemmas include:
  • What are the Rules and what’s our duty?
  • How do we act with Integrity and with which values?
  • Who is this Good for and how might they benefit?
  • How might we Harm and would this be fair?
  • What's the Truth and can we sleep at night?


• Be a leader: Provide values-based leadership. People will follow you because of your character and values, not because of the size of your job title. You need to set the example through your attitude, your tone, your behaviours and your actions.

The empirical evidence and the leaders interviewed in this report agree. A stronger sense of ethics at work brings better results for business. The ultimate message? Get the culture right – and the rest will follow.

The full report and recommendations can be found here: www.managers.org.uk/moralDNA

To support managers, CMI has revised its Code of Conduct and Practice to help guide professional managers and make the right ethical decisions for their organisations. The Code can be viewed here: www.managers.org.uk/code

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