The term ethics comes from the Greek “éthos”, which referred to the character of people in ancient Greece. However, this word evolved and began to refer to the way human beings act, in terms of correct or good behaviour.
In this way we can establish that nowadays ethics refers to the behaviour of the person and not to the thought, being able to validate that we are the actions we perform and not what we say. Ethics is not something in which we can “do” what we understand and what we want at the moment, it obliges us to act correctly in all areas of our lives.
Ethics has acquired new dimensions of responsibility in our time. Hans Jonas[1] in his work “The Principle of Responsibilities”, argues that ethics has hitherto been applied to the evaluation of action with an immediate scope, it had to do with the here and now. Today the sphere of action of people has been widened, since much of what they do will have future consequences.[2]
Based on the above, ethics becomes profitable for companies because it is a necessity in today’s business and financial systems, as behaving in the right way creates a good reputation for companies, with their customers and/or suppliers and thus builds customer loyalty.
Corporate Excellence and the Reputation Institute define corporate reputation as “the set of perceptions of the company held by the various stakeholders with which it relates, both internal and external, as a result of the company’s performance over time and its ability to deliver value to those stakeholders”[3].
Reputational risk can therefore be defined as an event that can lead to the loss of positive perceptions of the company, causing potential damage to financial capital, social capital and/or market share related to a company’s reputation. The biggest challenge presented by this type of risk is the difficulty of repairing or repairing its reputation, as they tend to be large cases with wide media coverage, given that in the 21st century social networks are often complicit in these impacts being disseminated on a massive scale.
The connection between reputational risk and ethics go hand in hand as we observe daily actions that cause corporate scandals damaging companies, resulting in the deterioration of the trust of customers, suppliers or investors, which are the driving force of the capitalist economic system of these times.
It should be noted that companies all over the world, no matter what size they are, have realised that unethical practices have a major impact on a negative reputation, which in some cases can be catastrophic and can drive financially strong companies into bankruptcy.
For these reasons, AML legislation usually requires that AML compliance programmes have a code of ethics which must be observed by the company’s employees, partners and management bodies.
Similarly, there are tools and guidelines for risk management, such as the ISO 31000 standard on the value of risk management in organisations, which presents the types of reputational risks that exist. Namely:
Leadership: These will depend on the overall management of the organisation in the exercise of its power.
Environmental (legal): These are those caused by regulatory or legislative changes affecting a given sector.
Natural: These are determined by the natural environment and are characterised by the difficulty of being foreseen in advance.
Operational: These are those intrinsic risks that can be carried out in the productive processes of the business.
Understanding the types of risks listed in the aforementioned standard provides companies with the tools to avoid or minimise reputational risks, highlighting the importance of knowledge and risk management in order to take the necessary measures to anticipate the occurrence of a specific situation of danger. Similarly, ISO 31000 indicates the importance of having the capacity to resolve a crisis, since applying the correct approach to a possible situation of reputational risk can achieve minimal results, in the event that it has occurred.[4]
Therefore, the correct application of ethical values in a company creates confidence for customers, suppliers and investors, thus making the company sustainable over time.
By Iris Villafaña and Heiddy Moronta
[1] Hans Jonas 1903 – 1993, born in Mönchenglandback, Germany. The work of this thinker focuses on the ethical and social problems created by technology. He formulated a new and characteristic moral supreme principle: “Act in such a way that the effects of your act are compatible with the permanence of a genuine human life”.
[2] https://www.gestiopolis.com/etica-profesional-empresarial-teoria-casos-estudio/
[3] Corporate Excellence and the Reputation Institute, a business foundation created by companies with the aim of professionalising the integrated and comprehensive management of intangibles (reputation, communication, brand, etc.) as strategic resources that guide and build value for companies around the world.
[4] https://www.isotools.org/2019/08/22/la-gestion-de-riesgos-reputacionales-en-las-organizaciones/31000
