What is the Relationship Between Ethics and Risk Management?

Is it helpful if I tell you, “Pack a bag for a trip”? Possibly not, at least without some context. For this post, the luggage’s content is the ethics; the destination represents risk.

All those pleasant words organisations say about their values, mission and purpose are a statement of intent. Many such terms link to ethics – integrity, transparency, honesty, value, accountability, fairness, teamwork, inclusion, and trust. You get the picture.

Bridging the gap between what you pack and where you’re headed is ethics and compliance risk management.

Lost in translation

Grand words without intentional direction never travel well. Corporate values have become synonymous with performative fluff for a disengaged workforce and sceptical consumer and stakeholder community. If you think that’s a bleak assessment, run a search for employee engagement data; at best, only half of us want to go to work.

Yet, we are communal animals (for the most part), and the ethical words are ones most of us would proudly wear as a badge of identity. Why do we, therefore, not engage with these corporate values? Because organisations send employees into ski resorts in sandals. The grumpy and demoralised workforce meets customers who can see and feel the disconnect.

Can’t we just prepare a bit better?

Pack your bags; we’re off

Back to my unhelpful order earlier, where you might ask questions including:

1. Where are we going?
2. What will we be doing?
3. When are we going and for how long?
4. Who are we going with?
5. How will we get there?

That’s ethics and compliance risk management. Where you operate, what you do, how long you’ve been doing it, who you work with, and how you do it (routes to market, value chain, etc.) all have a significant bearing on your risk profile. Let’s demonstrate with a couple of examples.

The transparent and honest casino

If you suspend any moral, religious, or other objections to casinos, they exist for a purpose. They might claim their mission is to give people escape and a good time, but is it? Using the checklist above:

1. Where do casinos operate? Places with favourable regulations, low taxes ideally, and near populations who like to gamble.
2. What do they do? They take more of your money than you will ever win by ensuring the odds are always in their favour.
3. When/how long? As long as possible, using tricks like windowless rooms so we can’t tell the time of day, free drinks (to keep us there and impair judgment), and occasionally distracting entertainment.
4. Who do casinos partner with? Junkets, organised criminals, exploited local communities, touts, entertainers (see the point above), corrupt politicians; not all, but enough for that list not to be libellous.
5. How do they do it? By playing to some of our baser instincts and ensuring the house always wins.

So when a casino picks its values, mission and purpose, might transparency and honesty merit mention. Nah, I didn’t think so. Maybe words like adventure, risk, excitement, and fun might pass the test? Being honest about the clothing required for a trip is ethics and compliance risk management.

The accountable and trustworthy social media platform

Imagine a social media platform that shows you a blend of things you like and those which enrage you to keep you scrolling, clicking, tapping, guffawing and gnawing. I know, it’s so hard to do.

Do you think that the ethical code on the corporate homepage includes some of the words I listed above? Do you believe them? I used “integrity, transparency, honesty, value, accountability, fairness, teamwork, inclusion, trust.” Which of those words might fit? Teamwork, maybe, inclusion, perhaps (assuming a wide caucus of people are allowed to voice their views). What else?

You didn’t pick accountability, transparency, fairness, or trust, right? Is this tech company accountable in the current regulatory environment? Do they treat competitors and uses of their platform fairly? Are their algorithms and reasons for promoting or demoting content transparent? Do you trust them and the feed they show you?

My point is not to slam social media companies – they provide many conveniences, connections and opportunities – it’s that not all ethical buzzwords fit all organisations. As Denzel Washington’s character in The Equaliser – a man very comfortable with a unique brand of ethics – says, “You gotta be who you are in this world, no matter what.”

Ethics and compliance risk management

You cannot have an ethical framework that isn’t aligned with your risk appetite, tolerance, and profile. To move ethics from flimflam and bullshit bingo to something more substantive and representative of an organisation’s realities, we must first answer the who, what, where, how, and when questions. Only then can we pack our luggage such that employees who join us on this journey are prepared and aligned with the reality they will face. Consumers can then make informed decisions.

I disagree if you think that a whiff of honesty would spell doom for many companies. We all make Faustian bargains – the low-cost airline that treats people like livestock or the high-end fashion brand that burn stocks of dead cow wallets and purses at the end of each season.

If you’re still not convinced, have you ever found yourself favouring a jerk over someone a bit slippery and untrustworthy? I am picking the more polarising examples in the interests of word count and expediency, but the point is simple. There’s room for values, mission, and purpose that match risk realities without anyone falling off their seat in astonished shock. This practical approach is ethics and compliance risk management, so pack your bags!