A company’s leaders are responsible for creating a culture of personal accountability and consequence, but as Deloitte’s Lisa Barry and Frank O’Toole write, many companies continue to fail the ethics test
A company’s leaders are responsible for creating a culture of personal accountability and consequence, but as Deloitte’s Lisa Barry and Frank O’Toole write, many companies continue to fail the ethics test
Pinocchio was heading for trouble. His unscrupulous new friends Fox and Cat had plans for the puppet who believed their story – that money trees do in fact grow in the field of miracles – no hard work required. These intriguing characters belong in a book – not on your payroll, in your brand or on your board.
The spotlight is harsh: investors, analysts and regulators are keeping a closer eye than ever before on corporate ethics. Ethics are heavily influenced by good governance. Yet good governance cannot be achieved without ethics – at both the organisational and operational levels. This co-dependent relationship needs policies and values which promote and deliver good corporate citizenship, as people committed to making ethical decisions and who act in accordance with them.
Directors should be looking to achieve three key objectives through governance: creating and maintaining a culture of compliance; minimising contradictory incentives and opportunities for non-compliant behaviour; and maximising the capacity to detect and respond to non-compliant behaviour through appropriate internal controls.
The Cole Inquiry has generated much of the current debate and attention around ethical conduct and corporate culture. It has turned the spotlight on these issues and placed the limelight at the top end of town. Yet many organisations in Australiaare still not aware that, since 1999, Australia’s federal criminal code contains a section that requires a Board of Directors to establish a corporate culture that shows zero tolerance for corruption and which actively encourages compliance.
This legislation mirrors the widely used US legislation that was first introduced in 1977 and was updated when the US and Australia, along with many other countries, signed up to the OECD convention on combating bribery of foreign public officials in international business transactions in 1997.
This year the OECD issued a report critical of Australia’s efforts in this area. It noted that there has never been a case on matters in Australia despite the world focus on the lack of good governance in business. This report, along with the Cole Inquiry coverage, will surely be the genesis for change.
Governance and ethics
The increase in corporate regulation, increased scrutiny from shareholders and the general public as well as increased requirements around disclosure and transparency have demonstrated across the world that, to get it right, an organisation has to get its culture right. Ultimately, good governance and compliance will be dictated by the culture of an organisation.
The evidence overwhelmingly shows those organisations with strong, constructive cultures outperform weaker and less adaptable organisations. These strong commercial advantages and imperatives for developing an ethical culture and promoting ethical conduct across the organisation are recognised by the best run companies in Australia and around the globe.
Given that culture is considered by many to be a soft currency, are corporate Australia and its Boards of Directors asking the right questions? Questions such as: How does an organisation avoid those events that cause so much corporate and personal pain through high profile external attention and reputation damage? Are the Boards doing enough to ensure maximum opportunity for ethical behaviour?
In the absence of prescribed required behaviours, ethical conduct is mostly based on conceptions of ‘right and wrong’, derived from values. As values are by nature unique to an individual, their personal history and environment, it is difficult to apply a standard across the board. Therefore, in order to allow for the practical application of the concept of ‘ethics’, a number of criteria have been developed from applied ethics philosophies and industry forums, based to a large degree on a test of “reasonableness”. Amongst others, the criteria include integrity, impartiality, accountability, transparency, honesty, fairness and lawfulness (abiding by the encoded rules of society).
So how do you know if your organisation’s culture is protecting people or putting them at risk? Some questions:
• Does your organisations culture support ethical behaviour at all levels?
• Are current HR policies supporting ethical behaviour?
• How often do executive leaders engage the organisation in a discussion about the value of ethics?
• Is your organisation pursuing transparency – open organisations create strong ethical branding
• Do you have the basics in place such as training on ethical expectations built into your onboarding process?
• Like cultures that emphasis safety, do you use routine events like opening a meeting to share a story to demonstrate how ethics is distinguishing your brand in the market?
• Does your organisation report on ethical performance standards?
Cultural assurance drivers
It’s apparent that HR leaders across the globe are teaming up with key CXO members to create this kind of cultural assurance. Here’s why.
While values live within individuals, culture lives within a system anchored by ‘culture-bearing mechanisms’. Mechanisms in this context are things such as the organisation’s expectations of leaders, planning and decision making models, performance management and incentive processes. These mechanisms will not encourage an ethical culture of themselves. They need the messages and the content that hardwires a single and unconditional view of what ethical behaviour constitutes.
This accounts for the difference between rhetoric concerning ethics and actual business practice. A surface approach to ethics, which is associated with self-interest, will not promote ethical behaviour, while a deep approach, motivated by the desire to act correctly, does have the potential to do so. The difference between the rhetoric and business practice suggests that most businesses either intentionally or unintentionally adopt a surface approach to ethics.
Now, more than ever, CEOs understand that it their absolute responsibility to lead an ethical and profitable organisation. They need to clearly express the ethics, branding and business performance equation and connect their people to this. With the talent shortage upon us, companies that don’t bother to take a proactive stance will be in a weaker hiring and retention position.
This positive positioning needs to be underwritten with zero tolerance for poor practice no matter how small the issue. In this way a culture of personal accountability and consequence develops. Put simply, you can trust and be trusted at work.
Yet many companies have and will continue to fail the ethics test because their checkpoints are set only to detect major risks after the fact – the framed code of ethics up on the wall providing the ultimate delusion of company protection. The organisational worth of honesty at work has never been starker and HR leaders are the ones who can drive this. Ask yourself, are we doing enough?
Lisa Barry is the head of Deloitte’s Human Capital practice and Frank O’Toole heads up Deloitte Forensics’Investigations & Risk group in Sydney.
