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Ethical governance requires management to have tools

Doing “what's right” is not always easy when working in a foreign culture and society, according to Anna Romberg. The picture is from a market in Buchara, Uzbekistan. Photo: ta.che/Bigstock.

Companies are very sensitive to scandals and negative attention. Today, if you apply good business ethics, it is not enough to simply limit your actions to staying within the bounds of the law—you must understand your operations and those of the company from a broader perspective.

What serves as an incentive for a listed company to make ethically sound choices? In her doctoral dissertation, Anna Romberg examines business ethics and corporate scandals from the perspectives of the shareholder, entrepreneur and employee.

“Implementing new governance and management systems, such as ethical guidelines and compliance programs, is not a solution to unethical business phenomena,” says Romberg.

Romberg has a master’s degree in economics from Åbo Akademi University, where her major was accounting. Since graduating, one of her jobs has been with Telia in Stockholm, with Eurasia as a focus—a job that led her to think about ethical issues and questions of how to handle them from a governance perspective.

Portrait picture of Anna Romberg.
Anna Romberg. Born (Paloheimo) in 1979 in Helsinki, Master of Economics from Åbo Akademi University in 2006. She defended her dissertation “‘Is it not just common sense to do the right thing?’ On corporate (mis)conduct, corporate governance and management control in a Nordic context” in February 2021. She is currently the head of the medical technology group Getinge’s Legal, Compliance and Governance department, founder of Nordic Business Ethics. She also has previous experience with Cargotec and Telia (formerly TeliaSonera). Photo: Jani Utriainen.

This is relevant because, for a period of time, Telia had subsidiaries in the former Soviet republics. Telia did business with Uzbekistan between 2007 and 2018, which appeared on the Swedish television program for investigative journalism Uppdrag granskning in 2012. The business in Uzbekistan would prove to have consequences for the company, which have lasted until now, as the company’s directors from that time were acquitted of bribery by the Svea Court of Appeal in February of this year.

“Swedish legislation is not something that companies are particularly afraid of. Instead, it is so-called extraterritorial legislation, such as anti-corruption legislation in the United States, that motivates companies and their directors to implement formal compliance programs. As a company, Telia must, for example, pay billions in damages to the US for the same actions that the directors were acquitted of in Sweden. That is, for having paid large sums to the daughter of Uzbekistan’s dictator.”

Romberg says that the legislation for companies, especially regarding international business, has changed in the last twenty years. Today, for example, management can no longer claim that they did not know what their agents in a foreign country were doing in order to make themselves immune to prosecution (for example, that the agent was bribing people in key positions to push contracts through or gain access to markets). Nowadays, a company’s board is obliged to find out how their business is being conducted in detail: the boards are obliged to ask difficult questions, and so on. Management is responsible for implementing governance and control systems to prevent irregular conduct and to ensure that they have the correct information. You can’t close your eyes and claim that you “didn’t know”.

It is a crime in itself not to have sufficient systems. If the authorities cannot identify bribes, they might be able to argue that the governance systems and controls are not good enough.

“Not so long ago, this could come as a bit of a surprise for people with long careers, that is, people who started working when other rules applied.”

US anti-corruption rules stricter than the EU’s

In the example of TeliaSonera and Uzbekistan, one can take note of one factor that, to a prejudiced layperson, may seem somewhat strange: namely that US legislation is stricter than Swedish legislation. According to Romberg, this is connected to the fact that international corruption has historically been taken more seriously in the US than in the EU. The EU has not yet reached as straightforward legislation as the United States, and there does not seem to be a stronger will among the major member states to bring about such legislation. There are also no signs of demands for stricter anti-corruption legislation at the EU level in Finnish politics.

Because US companies are likely to suffer a disadvantage in competition through their tougher legislation, the US ensures that all dollar-traded companies use US servers for their communications, and if they are listed in the US, that they are absolutely subject to US anti-corruption legislation. In practice, this applies to most major international companies, especially in the West. For Telia, which entered into a settlement agreement with the US Department of Justice and the Securities and Exchange Commission, it meant that billions in settlement had to be paid to the US Department of Justice, while the same evidence led to acquittals in Swedish courts.

Notably still, with regard to the US settlement, it was not a case of judicial process, and therefore there was no conviction. There is a difference between jurisdictions. In Sweden, people should first be convicted before a company can be held accountable. In the US, and also in European countries such as the Netherlands and France, there is another type of mechanism that allows companies to settle with authorities without a formal judicial process—because the burden of proof regarding bribes can be difficult.

“Companies are afraid of ending up in scandals more than anything else, and that applies not only to corruption but anything that can generate negative headlines. A lot is done to avoid negative attention because it is directly reflected in customer relations, and perhaps mainly in share prices, which then leads to the management having problems with the owners and customers, and also becoming a less attractive employer.”

Companies are afraid of ending up in scandals more than anything else, and that applies not only to corruption but anything that can generate negative headlines.

For companies that often appear in the media, this can be seen in the enormous amount of sensitivity around appearances. This is especially so in the US, where people can be fired on what to a Finn would seem to be very loose grounds, for example, due to ambiguous statements that could never lead to prosecution in court but which can create social pressure that is perceived as harmful for the company. Firing people for inappropriate statements is thus part of the company’s defence against scandals and the sensitivity that scandals can have a negative effect on the company’s value.

What Romberg talks about and what she works with within the framework of the Nordic Business Ethics Initiative, of which she is a co-founder, is, however, much broader than just social propriety. What Romberg is trying to grasp is a comprehensive picture of how the company behaves in the world, which involves more than just keeping up appearances.

“What I do in my job is to try to find instruments to help the company management act ethically and explain why they need to do so. To dare to talk about the difficult issues, talk about the dilemmas and ensure that it is not up to the individual to decide what is right or wrong, and to ensure that these issues are transparently addressed as part of the company’s governance.”

If I understand what you are saying correctly, companies’ ethical decisions are still related to making a profit—but what you are trying to show is that unethical action yields less profit?

“Exactly. Short-term gains can bring big costs in the long run. It’s about reputation and how customers relate to you. I usually say that a company can accrue a debt to society and the environment, and in the long run it is not profitable. In Telia’s case, it was extremely profitable to do business with Eurasia for a period, until the invisible debt was made visible by the investigating media.”

A company can accrue a debt to society and the environment, and in the long run it is not profitable.

Companies are not people

One of the things to keep in mind when it comes to business ethics is that companies are not people and therefore not directly governed by conscience or human values ​​but by regulations and governing documents. Companies, at least limited companies, have the task of generating as much profit as possible for their owners.

At the same time, it is people with consciences and values ​​who make decisions in the company’s name and then are forced to live with those decisions (and it is people and the environment who suffer the effects of those decisions). Romberg finds ways for company management to justify why it does pay to act in an ethically sustainable way.

The task is still to make maximum profit, but if you see the whole as a language game, then with the right vocabulary and by introducing logical chains and time perspectives, you can broaden what can and should be taken into account by a management that wants to act ethically but needs to find linguistic tools and thought chains that provide keys to how to steer the company where you want to go. The assumption here is that the company management wants to steer their company in an ethical direction and then needs to be able to convince their owners of why ethical governance is a good investment.

The description of Anna Romberg’s dissertation states that many corporate scandals have shown that the management of ethical risks is, to some extent, handled by external parties, such as active owners, investigative journalists and social interest groups. After a corporate scandal occurs, many wonder how irregularities such as bribery, money laundering and embezzlement could have taken place. The company, board members, managers and auditors are surprised because they have assumed that the company’s governance and control mechanisms have been sufficient.

“Sometimes the existing governance systems hinder the management from being able to act ethically. For example, when the system does not allow the consideration of sufficiently long-term perspectives or if the governance system does not take into account ethical dilemmas, frictions and problematization, the system can become part of the problem. It is also not enough to just do ‘what is right’. Already when you begin to approach the question of whether what we are about to do is ‘right or wrong’, you should be aware that everything may not be right. You should not get close to the border. Something being legal is not the same as it being right.”

Already when you begin to approach the question of whether what we are about to do is ‘right or wrong’, you should be aware that everything may not be right. You should not get close to the border.

“This way of thinking challenges some familiar notions, norms and practices—a new type of information comes into the picture.”

“And business ethics should be uncomfortable. Uncomfortable questions that you may have previously ignored become visible when you broaden your perspective. This also means that new demands are placed on companies’ systems, boards and leaders. One must be able to be transparent in all circumstances and be able to maintain a dialogue regarding ethical dilemmas, voice different opinions and be able to highlight irregular conduct without ‘shooting the messenger’ who brings these things to light.”