CEO letter: How ethical is our conduct?

Kirsten (KP) Patterson

Tēnā koutou katoa,

A lawyer writing about ethics (even a now reformed inactive one) is often seen as the opening line of a joke or cartoon. No longer is the test of whether it is ‘legal’ or ‘allowed’ sufficient to determine whether our business models are ethical. We are, and we should be, being held to a higher standard from consumers, shareholders and stakeholders than just what the statutory minimum floors prohibit or protect.

Social media is also driving and demanding transparency and accountability in our ethical conduct in ways not seen before. Industries once seen as ‘blue chip’ no longer pass the ethical investment test, and many are seen as sunset. Directorships of tobacco giants are no longer celebrated on LinkedIn. Corporations such as Walmart are redefining their sales boundaries following calls for gun reform in the US.

Digital disruption is also increasing the speed in which boards are facing and navigating ethical issues around data and privacy. Technology is developing at such a rapid rate that legislators and regulators are having difficulty keeping up and preserving privacy as a human right.

But it is clear from the recent examples of Facebook and Cambridge Analytica being summoned to appear before an EU Parliamentary Committee and the US Senate that ethical debates are not something we can afford to ignore in the boardroom.

Closer to home, in Australia, the banking enquiry has the role of the board in ethics and culture front page. There is much to be learnt and there are likely to be salient lessons for other industries as the enquiry continues to play out over the coming months.

Here in New Zealand, potential legislation and social changes, such as legalising cannabis and euthanasia, could create new challenges for the directors of tomorrow.

Where before we might only see directors out of the boardroom for health and safety site visits, the growing emphasis on good ethical practice, human rights in business, and transparency in the supply chain has more and more boards conducting site visits and factory tours of offshore production sites. It’s not just ‘fast fashion’ industries under the spotlight as contracting processes and power imbalances are under greater scrutiny.

Directors also need to prepare their organisations for the debates around automation and machine learning. The ethical dilemmas and pending decision points around autonomous vehicles are a good example of the power of the decisions machines will make in future. At a superficial level we all understand that should the car have to choose between hitting and likely killing one person versus a dog, or one person versus a group of school children, it will choose the smaller collateral damage in pursuit of the greater good.

But how comfortable are we with ethical decisions being hard-wired into the algorithms to which we are handing over our car keys? Are we discussing the issue of what happens when our car decides that we and our families are the acceptable collateral damage in the car’s accident assessment?

Currently we get to exercise our ethics as drivers against a backdrop of ‘self-defence’. How will autonomous vehicles change that conversation, and test our ethics when we have to sign waivers and user agreements that hand over authority for life and death decision making? How do we as directors govern in an environment where our programmers and products will be making these types of higher level decisions?
How do we respond to individual customer pressure wanting exemptions from inbuilt community protections? To whom do we owe a duty of care?

As McKinsey’s Marvin Bower, whom Harvard referred as the father of modern management consultancy, said: “There is no such thing as business ethics. There is only one kind – you have to adhere to the highest standards.”

Thank you for choosing to commit yourself to high standards and the IoD Code of Practice for Directors. New Zealand has never needed IoD members more.

Haere taka mua, taka muri; kaua e whai. Be a leader, not a follower.

Ngā mihi,

Kirsten (KP) 

2018 June/July BoardRoom