Can you incentivise ethical behaviour?
In the wake of the Financial Services Royal Commission, many employers are asking whether they should award bonuses to people who choose to do the right thing.
Boards and CEOs are discussing whether people need an incentive to make ethical decisions and how “ethical incentives” could avoid the risk of encouraging unintended behaviours.
Incentives have a tarnished reputation, with poorly-constructed programs blamed for driving a culture of greed in banks and insurance companies. The international anti-corruption organisation, Transparency International, says performance incentives should not just focus on getting sales, for instance, but also consider how those sales are achieved.
“ … incentive schemes should move beyond mere alignment with values and ethical codes and actively encourage ethical behaviour,” according to the authors of Transparency International’s 2015 report Incentivising Ethics: Managing incentives to encourage good and deter bad behaviour.
“This means that they should not be based solely on financial targets, but should contain non-financial targets that reflect and drive ethical behaviour. Ultimately, this mix of incentives should support the long-term sustainability and success of the company.”
Senior principal advisory at research company Gartner, Arj Bagga, says the Royal Commission has sparked many conversations with his clients, who want to know if they can use ethical behaviour as a measure in the “performance systems” they use to encourage the best work from their people.
A limit on rewards?
Bagga says they can – but within limits. Financial rewards or goods (such as restaurant vouchers) are only effective up to the value of $300, he says.
“Anything over $300 has an incrementally lower benefit on employee performance.”
The reason for this is that financial rewards are an “extrinsic” motivator, meaning that it comes from outside the person, and are much less effective than an “intrinsic” motivator (an inner desire).
“After $300, it starts to extrinsically motivate them too much, whereby they just associate ethical behaviour with financial reward, which is not what you want,” says Bagga.
“You actually want them to be intrinsically-motivated, because, if you remove the reward down the line, because of cost cutting or whatever it might be, employees will then stop acting ethically, just because they’re not being rewarded.
“What we want to do is have a balance between the intrinsic and extrinsic motivation.”
Recognition vs cold hard cash
The most intrinsic powerful motivator is recognition – commending people for their ethical behaviour. Such public recognition can increase employee performance by up to 3 per cent, he says.
However, the effect of that recognition can be supercharged by attaching a financial reward “which we found can increase performance by a further 5 per cent”.
While research has shown that the effectiveness of financial rewards can quickly fade, Bagga says the impact of the small reward can be sustained by using ethical behaviour as a measure in performance reviews.
Because their promotions depend on it, people will continue to try to display the desired behaviours, he says.
Making the right choice
A further question is how to identify ethical behaviour, when it is essentially just doing what would be expected of a decent person. Bagga says managers can reward those instances where people make ethical choices in situations where there is no clear answer.
This could be when, for instance, a salesperson sells a product that earns a lower commission, or no commission, but is a better choice for the customer.
Transparency International, while supporting the use of incentives, points out some of the risks around trying to identify and reward ethical behaviour: the measures are subjective, corrupt employees may be convincing actors, not all ethical acts will be recognised which could cause resentment, and discussion about behaviours may lead to some difficult performance review discussions.
Bagga says ethical behaviour is a good business strategy. If organisations can ensure their people recognise what ethical behaviour is, adopt an ethical mindset and then act upon it, they can increase employee performance by up to 12 percent, he says.
Short term pain, long term gain
Some employers may not be sympathetic to the idea their people forego revenue as they look for the best option for customers. However, Bagga says that view would be myopic.
“It may impact you in the very short term but, longer term, it will actually increase your brand awareness in the marketplace and it will increase your ability to attract talent,” he says.
“In Australia, specifically, ethical behaviour is one of the core reasons a person chooses to join an organisation.”
Australian survey respondents rank “ethics” and “respect for the organisation” higher than manager quality and future career opportunity when they are assessing career paths.
Bagga says that it is not just the financial services companies that are interested in the idea of “incentivising” ethical behaviour.
“I’ve also had conversations with mining companies and telecommunications companies, who are trying to get on the front foot of this and make sure they are bullet proofing themselves against any unethical behaviour that could occur in their organisations because they understand, through the Royal Commission, what the implications of those could be on the performance of their business and the perception of their brand.”
Cashless recognition
- Introducing ethics and values measures into performance reviews
- Good ethical conduct being a prerequisite for promotion.
- Spot awards for good ethical practice, recognising special contributions as they occur, usually over a relatively short-term period.
- Awards for people who speak up or challenge questionable conduct.
- Recognition and/or prizes for people who excel in ethics and compliance training.
- Recognition for outstanding contribution to the ethics and compliance programme.
- A company-wide ethics award scheme.
- Coverage of examples of good ethical or anti-corruption practice in the company newsletter.
- Thank you letters from the CEO or senior managers for people who display ethical behaviour.
- Dinner with the CEO as a prize for people who demonstrate ethical behaviour.
Source: Transparency International
This article was originally written for The Ethics Alliance. The Alliance is a community of organisations sharing insights and learning together, to find a better way of doing business.
This article was originally written for The Ethics Alliance. Find out more about this corporate membership program. Already a member? Log in to the membership portal for more content and tools here.
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BY Fiona Smith
Fiona Smith is a freelance journalist who writes about people, workplaces and social equity. Follow her on Twitter @fionaatwork
The transformative power of praise
What is it about the legal industry that makes it so depressing? Well, it is not the work – but it could be exhaustion mixed with a lack of control about how much work they can handle and a shortage of appreciation from their bosses.
Psychologist and a scientist in behavioural neurogenetics, Bob Murray, says human beings are designed to work as little as 10 hours per week.
“If we work for more than 10 hours a week, it becomes stress,” he told a recent seminar in Sydney.
While that may seem an extreme position at first glance, it is important to understand what Professor Murray means by “work”.
“Work” is the stuff we do that is a grind. It is, perhaps, the administrative work that takes us away from the tasks that are meaningful or enjoyable.
“Work means not necessarily enjoying yourself, not necessarily relating. Human beings are relationship-forming animals. We are driven to surround ourselves with a network of supportive relationships and we can work hard and long… providing that we do it in the company of other people that we actually like, and that we enjoy the process of doing things with them.
“It’s not a question of how many hours you work. It’s whether you enjoy the process of doing that work. And whether you enjoy the people that you do it with”.
Murray said people come to work to be part of a tribe and to learn.
“So people in law firms are willing to stay there for long hours, providing they’re enjoying the process of learning what they’re doing,” he said.
Murray says 30 percent of all lawyers think about suicide once a year and 40 percent are clinically depressed.
A national survey of almost 1000 lawyers finds that excessive job demands, minimal control over workload and spillover of work commitments into personal life are some of the work-related factors correlated with poorer mental health outcomes.
“Concerns about the structure and culture of legal practice in Australia are also highlighted,” say the authors of the study, Lawyering Stress and Work Culture: An Australian Study, 2012-2013.
He says one relatively simple thing that employers and managers can do is to praise their people. However, only around 5 percent of people get praised once a day.
Praise is powerful because of its effect on the “feel good” chemicals we produce, like dopamine, which helps our brains work faster, smarter, and more creatively.
However, poorly given praise tends to antagonise people. Murray says there are three elements to effective praise:
What: The giver has to be specific about what they are praising. A generic “well-done team” can have the opposite effect.
How: This is the effort or the way someone has gone about something. It is the kind of praise you may give a child who comes last in a race, but stuck it out to the end, gave it their best effort and didn’t let the team down. It is not necessarily tied to success, but encourages and rewards the right behaviours.
Who: This is praise for the relationship. “ I really enjoy working with you. It’s great to have you as part of you of my team.” Murray says this kind of praise is less used in law firms than other kinds – but is the most powerful.
This article was originally written for The Ethics Alliance. Find out more about this corporate membership program. Already a member? Log in to the membership portal for more content and tools here.
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BY Professor Bob Murray
Professor Bob Murray, is a principal at consultancy Fortinberry Murray, was speaking on a panel, hosted by The Legal Forecast and Clarence Workplaces for Lawyers in Sydney.
Corruption, decency and probity advice
Corruption and probity are hot topics in Australia’s public sector. Even a cursory glance at recent cases brought before corruption watchdogs shows this.
The long running stories and court cases that follow have become a staple of national news bulletins. Any time a state asset is built, sold or disposed of, there are serious questions to be asked.
Probity – which is a corporate noun for ethics or honesty and decency – has established its place in the architecture of technical services that assess, assure and measure high-risk public sector projects. Probity advising and auditing is crucial when how a project is executed is just as important as any intended outcome.
As the line separating public and private sector accountabilities becomes less clear, non-government actors are increasingly looking to probity professionals to help ensure – and show – integrity in their dealings. However, before doing so it is important the probity professionals themselves improve the integrity of their process and gain a more sophisticated understanding of ethical frameworks.
Probity services are provided both by large accounting firms and a growing band of smaller boutique operators. Probity plans (documents that set out how the project will be run to ensure the integrity of the process) are now a mandatory requirement for many public projects.
Probity professionals use a number of lenses to monitor and promote ethical decision making in execution, typically through the following fundamentals:
Value for money: Was the market tested adequately to ensure an organisation was achieving the most competitive result, which made the best use of resources?
Conflicts of interest and impartiality: Were processes in place to manage any actual, perceived or potential conflicts of interests?
Accountability and transparency: Was an auditable trail maintained to provide evidence of the integrity of the process? Was enough information made available to promote confidence – for example, were selection criteria and time lines for decision making adequately communicated?
Confidentiality: When sensitive information from stakeholders is received, such as private or business-in-confidence information, was there a process in place to identify and protect this information?
The growth of probity services over the last 30 years undoubtedly reflects their ability to add value to projects. However, over that same period there has been concern that practitioners have at times diminished, rather than promoted, probity fundamentals. Some of the critical factors include:
- Relying too heavily on compliance monitoring at the expense of ethical considerations
- Allowing their duties to be too narrowly defined by clients
- Lacking the confidence to challenge impropriety
- Allowing themselves to be “shopped” (much like “legal advice shopping,” clients can go from one probity advisor to another until they get the advice they want).
There is also concern that public sector agencies can overuse these services, having the effect of “contracting out” their probity obligations in their regular operations.
To some extent these are symptoms of the unregulated nature of probity services. There are no formal qualifications required for probity advisors and auditors and no professional standard governing them.
Their difference from traditional audits or investigations has led to some misunderstanding of their role and judgements which can lead to unfair criticism of probity professionals, but also to exploitation by both clients and probity practitioners.
To tackle these problems and prepare for a broader role in guiding business dealings, probity practitioners need to acknowledge their own industry’s need for an ethical framework and an increasingly robust standard for professional practice.
This framework would acknowledge their implied obligation to society to be more than a mere compliance check, and, on behalf of the average Joe on the street, to be the one in the room to ask a simple pub test question: after all the boxes have been ticked, does it look and sound like an ethical process?
To do this, the profession needs to imagine its duty in broader terms than self-interest or the interest of clients, but to society in general, in line with other professions tasked with acting in the public interest.
For some time, probity professionals have used policy documents such as the NSW Code of Practice for Procurement to gauge the ethical performance of government projects. However, as their duty and work expands to different sectors and in line with changing community expectations, they will need to be able to identify the ethical frameworks peculiar to those sectors and to the organisations they are commissioned by.
Used effectively, an ethical framework is the foundation of an organisation’s culture.
When requested to provide probity related advice, The Ethics Centre includes the ethical framework amongst its list of fundamentals. This allows our clients to do more than tick boxes. It allows them to assess whether they have lived up to their ethical obligations, the values they proport to uphold and their promise to the community.
In a world in which trust is in deficit, these are important skills to have.
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BY David Burfoot
David has worked in the not-for-profit, public and private sectors domestically and internationally for organisations as diverse as the United Nations Development Program, Deloitte, the NSW Independent Commission Against Corruption and Sydney University. He has been an anti-corruption specialist with a number of government agencies and held senior positions responsible for corporate planning, change and internal communications.
The dangers of being overworked and stressed out
If anyone has a visceral understanding of how high-pressure work environments make mincemeat from young graduates, it is Georgie Dent. Her first job as a young lawyer ended in a nervous breakdown and two weeks in a psychiatric hospital.
Now a well-known journalist and advocate for women, Dent is also supporting her husband (a surgeon-in-training) through the brutal demands of his work, is raising three young daughters and has just published a book (Breaking Badly) about how things fell apart during her 18-months of working in a top law firm, 12 years ago.
“I think that there is the same sort of cultural expectation in law and medicine, that you will suck up absolutely everything and you will work around the clock,” she says.
When Dent looks back at her time as a lawyer, she acknowledges that an unworkable workplace was just one element in her breakdown. She also had to deal with her anxious personality and the ravages of Crohn’s Disease – a life-long gastrointestinal disorder.
“I think, for me, it probably wasn’t avoidable. I actually think, no matter what job I had taken, I was headed for some sort of breakdown. Being in a particularly stressful job with really long hours certainly didn’t help me physically… and then mentally,” she says.
Dent’s first six-month rotation in the law firm was with a Partner who was regarded as a genius and “rainmaker”, but was actually a shouting bully. As she details in her book:
“Almost anyone who has done any work inside a large law firm will have a tale or two about a tyrannical partner. These men and women are feared and revered in equal measure: they are not afraid of throwing phones and think nothing of publicly dressing down members of their team, they expect an immediate response to every email regardless of the time it’s dispatched, and generally have everyone in their vicinity living on a knife’s edge.
“The man I worked for had had nine members of staff leave in the six months before I joined – and it was a team of six. He went hot and cold, and was aggressive, void of self-awareness and really difficult to please.”
A lack of autonomy
Dent stayed the course and then moved onto a team that was welcoming and collegiate, but the stress had exacerbated her Crohn’s, which only added to her anxiety.
Juniors such as Dent, as she was then, had been the stars of their schools and universities, but found their achievements and intellect counted for little at work.
“As the firm’s underlings, we operated at the whims of partners, senior lawyers and clients. The higher a person climbs in a law firm the greater autonomy they secure. We were on the bottom rung, which meant no autonomy at all.
“We were so lowly, in fact, that we were rarely given a glimpse of the ‘big picture’. Instead, we were often asked to complete tasks without any context, which meant we were regularly blindsided when it came to the next step.
“Having a substantive task doled out at 5.30pm with a tight turnaround wasn’t unusual – in fact, it was practically expected. The salt in the wound was when this kind of task was handed to you at the end of a quiet day, after you had been hanging around and asking for work since morning, unsure of how you could possibly meet your billable target without anything to do.”
Dent sees this lack of control as a factor in burn-outs among lawyers and doctors.
Unsafe hours for doctors
Reconstructive plastic surgeon, Neela Janakiramanan, has written about the pressures on young doctors in a column for Women’s Agenda(of which Dent is a contributing editor).
“As an intern, I learned that it is considered acceptable to work eighty hours in a week if you have the following week off, and not be paid overtime for the week worked because the average across the fortnight is only forty,” writes Janakiramana.
Janakiramana’s longest fortnight was 204 hours in twelve consecutive days, “with the majority of it on call, in the midst of a job where the average was 180 hours a fortnight. I was in my third trimester of pregnancy”.
It is worth noting that the suicide rate for doctors is twice that of the general population and a 2016 audit found 53 per cent of public hospital doctors are working unsafe hours. Mental health starts to decline after someone has worked more than 39 hours per week, according to research.
After leaving the law firm to recuperate, Dent found herself in another occupation often regarded as high-pressure – journalism – for BRW magazine. Even though she was again starting at the bottom, Dent found the experience enlightening.
“It was just so different to me, culturally,” she says.
“In editorial meetings, people were allowed to speak. In a law firm… you don’t speak unless you’re spoken to. As a junior, you’re not even allowed to send an email.
“[In law firms] You’re on the leash so much and, culturally, that creates a different dynamic. I found it very refreshing to walk into other workplaces where you can still sit around the table and pitch ideas and contribute to conversations without thinking through every single word that you say.”
Longer (hours) does not equate to ‘better’
When it comes to working hours, many studies show that longer work weeks do not improve productivity. They may even make people less productive.
Dent points to the experience of Perpetual Guardian in New Zealand, which offered its 250 staff a four-day work week, while retaining their full-time wages. A study of the impact of the initiative reported lower stress levels, higher levels of job satisfaction and an improved sense of work-life balance.
Company founder, Andrew Barnes, told The Guardian: “For us, this is about our company getting improved productivity from greater workplace efficiencies… there’s no downside for us”.
Dent supports the idea that law firms “gear themselves” around efficiency, rather than time worked.
“I think then across every industry, every field, I think we need to get a recognition that we work incredibly long hours and we have to look at how that is impacting our lives as well as that work,” she says.
“It’s easy to fall into that trap of thinking that, in this line of work [law], we have to be available all the time and that’s the only way we can deliver value to clients. I just don’t necessarily think that’s true. And I think that it’s worth being a little bit bold.”
This article was originally written for The Ethics Alliance. Find out more about this corporate membership program. Already a member? Log in to the membership portal for more content and tools here.
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BY Fiona Smith
Fiona Smith is a freelance journalist who writes about people, workplaces and social equity. Follow her on Twitter @fionaatwork
How can Financial Advisers rebuild trust?
It would be no exaggeration to say the Australian financial advice industry is going through a difficult time.
Following years of scandals, and shocking evidence brought to light by the Hayne royal commission, urgent steps are now being taken to “professionalise” the banking and finance sector.
Amongst the headlines: embattled financial services giant AMP is setting aside an eye watering $290 million to compensate customers who received poor financial advice, and a further $35 million annually to improve compliance structures.
All of the major banks have announced their plans to “amputate” financial advice and wealth management from their portfolio of vertically integrated activities.
Many advisers have already lost their jobs. And many more have already announced their intention to leave the industry rather than face greater scrutiny and a new compliance burden.
For those operators planning to stay in business, there’s a new sheriff in town. The Financial Adviser Standards and Ethics Authority (FASEA) was established by the Federal Government in 2017 to set the education, training and ethical standards of licensed financial advisers in Australia.
FASEA requirements for mandatory education and Continuous Professional Development (CPD) are unlike anything the industry has ever seen.
The push to professionalise the sector is moving with speed. Starting this year, advisers will be required to undertake formal education, in the form of either a full degree or bridging course, plus nine hours of continuing professional development (CDP) annually. Advisers will be required to pass an exam to earn their license and continue to operate.
What’s the problem?
While the standards mentioned above might sound perfectly reasonable to someone already working within a well established profession such as accountancy or the law, this is unfamiliar territory for many financial advisers.
Many advisers who have been working for years or even decades will be daunted by the demand for serious study and a formal academic qualification. Some advisers have already expressed concern at the financial burden of course fees and lost income. Many others will be daunted by the sheer number of hours required each year to meet FASEA’s standards.
It’s little wonder the industry is going through a crisis of confidence. And while the emphasis has rightly been placed on the rights of the customer, and the many people who have received poor advice, it’s also worth pausing to think about the impact this has on individual advisers – some of whom have been operating honestly and ethically for many years. For such people, and there are many, the avalanche of bad press and community outcry has been difficult to bear.
We know many people become financial advisers because they are passionate about the financial wellbeing of their family, friends and community. They aspire to help people secure economic stability and security whilst avoiding the abundant pitfalls and bad products.
Of Gallup’s Five Essential Elements of Well-being, financial security is at the centre. Practiced ethically and professionally, the work of a financial adviser supports and protects other critical areas of a person’s life.
This leads to some interesting questions about the overarching purpose of a financial adviser.
Why does this role exist? What purpose does it serve individuals, communities and society at large? What is the overarching public good that can be achieved from a profession that supports, protects and grows a person’s financial wealth?
Or to look at it another way, what would the world look like without financial advice? If all of the competent advisers were to leave the industry, where does that leave the community?
Advisers who are on the fence about their future should take time to work out what the role of financial advice means to them. Whilst the reputation of the industry may be at its lowest point, it’s a great time to get back to basics and think about the purpose and impact of this type of work.
What is the solution?
The Ethics Centre has had quite a bit of involvement in this story as it’s unfolded. When the scandal first began to erupt three years ago, we worked with some of the largest advice firms to develop in-house training programs for financial advisers.
We’ve helped inform FASEA’s thinking on ethical standards for the industry. We’re currently working on building a course on ethics and professionalism to be delivered by universities.
We also offer free counselling to individuals via our Ethi-call service – and that includes financial advisers struggling at a career crossroads.
For those advisers currently at this point, we’d advise some clear headed thinking about career purpose and priorities. If you think you’d benefit from talking through your dilemma with an impartial counsellor, you are welcome to call Ethi-call.
The service is a free, appointment-based telephone counselling service offered by The Ethics Centre to help people navigate some of life’s toughest decisions.
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BY The Ethics Centre
The Ethics Centre is a not-for-profit organisation developing innovative programs, services and experiences, designed to bring ethics to the centre of professional and personal life.
Is technology destroying your workplace culture?
If you were to put together a list of all the buzzwords and hot topics in business today, you’d be hard pressed to leave off culture, innovation or disruption.
They might even be the top three. In an environment of constant technological change, we’re continuously promised a new edge. We can have sleeker service, faster communication or better teamwork.
This all makes sense. Technology is the future of work. Whether it’s remote work, agile work flows or AI enhanced research, we’re going to be able to do more with less, and do it better.
For organisations who are doing good work, that’s great. And if those organisations are working for the good of society (as they should), that’s great for us all.
Without looking a gift horse in the mouth though, we should be careful technology enhances our work rather than distracting us from it.
Most of us can probably think of a time when our office suddenly had to work with a totally new, totally pointless bit of software. Out of nowhere, you’ve got a new chatbot, all your info has been moved to ‘the cloud’ or customer emails are now automated.
This is usually the result of what the comedian Eddie Izzard calls “techno-joy”. It’s the unthinking optimism that technology is a cure for all woes.
Unfortunately, it’s not. Techno-joyful managers are more headache than helper. But more than that, they can also put your culture – or worse, your ethics – in a tricky spot.
Here’s the thing about technology. It’s more than hardware or code. Technology carries a set of values with it. This happens in a few ways.
Techno-logic
All technology works through a worldview we call ‘techno-logic’. Basically, technology aims to help us control things by making the world more efficient and effective. As we explained in our recent publication, Ethical by Design:
Techno-logic sees the world as though it is something we can shape, control, measure, store and ultimately use. According to this view, techno-logic is the ‘logic of control’. No matter the question, techno-logic has one overriding concern: how can we measure, alter, control or use this to serve our goals?
Whenever you’re engaging with technology, you’re being invited and encouraged to see the world in a really narrow way. That can be useful – problem solving happens by ignoring what doesn’t matter and focussing on what’s important. But it can also mean we ignore stuff that matters more than just getting the job done as fast or effectively as we can.
A great example of this comes from Up in the Air, a film in which Ryan Bingham (George Clooney) works for a company who specialise in sacking people. When there are mass layoffs to be made, Bingham is there. Until technology comes to call. Research suggests video conferencing would be cheaper and more effective. Why fly people around America when you can sack someone from the comfort of your own office?
As Bingham points out, you do it because sometimes making something efficient destroys it. Imagine going on an efficient date or keeping every conversation as efficient as possible. We’d lose something essential, something rich and human.
With so much technology available to help with recruitment, performance management and customer relations, we need to be mindful that technology is fit for purpose. It’s very easy for us to be sucked into the logic of technology until suddenly, it’s not serving us, we’re serving it. Just look at journalism.
Drinking the affordance Kool-Aid
Journalism has always evolved alongside media. From newspaper to radio, podcasting and online, it’s a (sometimes) great example of an industry adapting to technological change. But at times, it over adapts, and the technological cart starts to pull the journalistic horse.
Today, online articles are ‘optimised’ to drive engagement and audience. This means stories are designed to hit a sweet spot in word count to ensure people don’t tune out, they’re given titles that are likely to generate clicks and traffic, and the kinds of things people are likely to read tend to get more attention.
A lot of that is common sense, but when it turns out that what drives engagement is emotion and conflict, this can put journalists in a bind. Are they impartial reporters of truth, lacking an audience, or do they massage journalistic principles a little so they can get the most readers they can?
I’ll leave it to you to decide which way journalism as an industry has gone. What’s worth noting is that many working in media weren’t aware of some of these changes whilst they were happening. That’s partly because they’re so close to the day-to-day work, but it can also be explained by something called ‘affordance theory’.
Affordance theory suggests that technological design contains little prompts, suggesting to users how they should interact with it. They invite users to behave in certain ways and not others. For example, Facebook makes it easier for you to respond to an article with feelings than thinking. How? All you need to do to ‘like’ a post is click a button but typing out a thought requires work.
Worse, Facebook doesn’t require you to read an article at all before you respond. It encourages quick, emotional, instinctive reactions and discourages slow thinking (through features like automatic updates to feeds and infinite scroll).
These affordances are the water we swim in when we’re using technology. As users, we need to be aware of them, but we also need to be mindful of how they can affect purpose.
Technology isn’t just a tool, it’s loaded with values, invitations and ethical judgements. If organisations don’t know what kind of ethical judgements are in the tools they’re using, they shouldn’t be surprised when they end up building something they don’t like.
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BY Matthew Beard
Matt is a moral philosopher with a background in applied and military ethics. In 2016, Matt won the Australasian Association of Philosophy prize for media engagement. Formerly a fellow at The Ethics Centre, Matt is currently host on ABC’s Short & Curly podcast and the Vincent Fairfax Fellowship Program Director.
What makes a business honest and trustworthy?
“I am a trusted advisor.” That is how the man described himself when he approached me at the end of a conference.
We had gathered to discuss the implications of the Royal Commission into banking and finance and how that industry could emerge with a stronger ethical backbone.
“What is the best way to get that ethical message across?” asked the man in front of me.
Well, part of the problem was right there on his business card. You can’t self-nominate trust. You have to earn it. You can’t appropriate it yourself with a wishful job title or marketing slogan. You have to do the work and leave it to others to decide if you can be trusted. Or not.
A greater focus on trust itself
Trust has been seen as a top business priority and growing in importance over the past few years, especially after the Global Financial Crisis of 2007 where people’s life savings were misused by the people in institutions that had promised to take care of them. The rise of the populist Occupy movement four years later was a warning shot to those in power that resonated globally.
However, much of the conversation since then about the poor reputation of business has failed to come to terms with the enormity of the task ahead. Trust is often spoken about as the currency that allows companies the privilege of taking care of another person’s wealth.
Not so much is said about the process of getting there – or even whether trust is the outcome companies should be focused on.
After all, having people’s trust does not necessarily mean that you are trustworthy.
Dealing in deception
Why should “trust” not be an end in itself? Well, US stockbroker and financial advisor Bernie Madoff was widely trusted by his wealthy investors before they realised they had been collectively fleeced of $US64.8 billion in the largest Ponzi scheme in history.
Closer to home in Australia, conman Hamish McLaren took $7.66 million from 15 separate victims – many of whom were referred to him by friends and family. McLaren was so trusted that one woman handed over her divorce settlement without even asking his last name.
McLaren is the subject of The Australian newspaper’s most recent podcast series “Who the Hell is Hamish?”.
Trust, by itself, is not always what it is cracked up to be.
Restoring confidence and trust
So the question is not “How can we get people to trust us again?”, but should be instead “What can we do to become trustworthy?”. Organisations need to focus on the process of getting there, rather than the result. It will take time, there needs to be consistency in behaviour and there’s an element of forgiveness that needs to be addressed.
Forgiveness means that the forgiver needs to believe that you won’t behave that way again. Declaring your best intentions doesn’t work, it needs to be seen.
Being trustworthy means that people in your organisation behave ethically because it’s the right thing to do, not because it will make people trust them again. A reputation for trustworthiness is, again, not something you can just anoint yourself with.
A solid reputation is bestowed upon you and comes through an accumulation of other people’s personal experiences of you and your work.
Legendary investor Warren Buffett, the chairman of Berkshire Hathaway, has provided the business world with a wealth of pithy and insightful quotes through his annual letters to shareholders.
One is said to be: “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently”.
This article was originally written for The Ethics Alliance. An initiative of The Ethics Centre, The Ethics Alliance is a community of organisations sharing insights and learning together, to find a better way of doing business. Find out more about this corporate membership program. Already a member? Log in to the membership portal for more content and tools here.
BY Cris Parker
Cris Parker is the former Head of The Ethics Alliance and a Director of the Banking and Finance Oath at The Ethics Centre.
Blockchain: Some ethical considerations
The development and application of blockchain technologies gives rise to two major ethical issues to do with:
- Meeting expectations – in terms of security, privacy, efficiency and the integrity of the system, and
- The need to avoid the inadvertent facilitation of unconscionable conduct: crime and oppressive conduct that would otherwise be offset by a mediating institution
Neither issue is unique to blockchain. Neither is likely to be fatal to its application. However, both involve considerable risks if not anticipated and proactively addressed.
At the core of blockchain technology lies the operation of a distributed ledger in which multiple nodes independently record and verify changes on the block. Those changes can signify anything – a change in ownership, an advance in understanding or consensus, an exchange of information. That is, the coding of the blockchain is independent and ‘symbolic’ of a change in a separate and distinct real-world artefact (a physical object, a social fact – such as an agreement, a state of affairs, etc.).
The potential power of blockchain technology lies in a form of distribution associated with a technically valid equivalent of ‘intersubjective agreement’. Just as in language the meaning of a word remains stable because the agreement of multiple users of that word, so blockchain ‘democratises’ agreement that a certain state of affairs exists. Prior to the evolution of blockchain, the process of verification was undertaken by one (or a few) sources of authority – exchanges and the like. They were the equivalent of the old mainframe computers that formerly dominated the computing landscape until challenged by PC enabled by the internet and world wide web.
Blockchain promises greater efficiency (perhaps), security, privacy and integrity by removing the risk (and friction) that arises out of dependence on just one or a few nodes of authority. Indeed, at least some of the appeal of blockchain is its essentially ‘anti-authoritarian’ character.
However, the first ethical risk to be managed by blockchain advocates is that they not over-hype the technology’s potential and then over-promise in terms of what it can deliver. The risk of doing either can be seen at work in an analogous field – that of medical research. Scientists and technologists often feel compelled to announce ‘breakthroughs’ that, on closer inspection, barely merit that description. Money, ego, peer group pressure – these and other factors contribute to the tendency for the ‘new’ to claim more than can be delivered.
“However, the first ethical risk to be managed by blockchain advocates is that they not over-hype the technology’s potential and then over-promise in terms of what it can deliver.”
It’s not just that this can lead to disappointment – very real harm can befall the gullible. One can foresee an indeterminate period of time during which the potential of blockchain is out of step with what is technically possible. It all depends on the scope of blockchain’s ambitions – and the ability of the distributed architecture to maintain the communications and processing power needed to manage and process an explosion in blockchain related information.
Yet, this is the lesser of blockchain’s two major ethical challenges. The greater problem arises in conditions of asymmetry of power (bargaining power, information, kinetic force, etc.) – where blockchain might enable ‘transactions’ that are the product of force, fear and fraud. All three ‘evils’ destroy the efficiency of free markets – and from an ethical point of view, that is the least of the problems.
“The greater problem arises in conditions of asymmetry of power (bargaining power, information, kinetic force, etc.) – where blockchain might enable ‘transactions’ that are the product of force, fear and fraud.”
One advantage of mediating institutions is that they can provide a measure of supervision intended to identify and constrain the misuse of markets. They can limit exploitation or the use of systems for criminal or anti-social activity. The ‘dark web’ shows what can happen when there is no mediation. Libertarians applaud the degree of freedom it accords. However, others are justifiably concerned by the facilitation of conduct that violates the fundamental norms on which any functional society must be based. It is instructive that crypto-currencies (based on blockchain) are the media of exchange in the rankest regions of the dark web.
So, how do the designers and developers of blockchain avoid becoming complicit in evil? Can they do better than existing mediating institutions? May they ‘wash their hands’ even when their tools are used in the worst of human deeds?
This article was first published here. Dr Simon Longstaff presented at The ADC Global Blockchain Summit in Adelaide on Monday 18 March on the issue of trust and the preservation of ethics in the transition to a digital world.
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BY Simon Longstaff
Simon Longstaff began his working life on Groote Eylandt in the Northern Territory of Australia. He is proud of his kinship ties to the Anindilyakwa people. After a period studying law in Sydney and teaching in Tasmania, he pursued postgraduate studies as a Member of Magdalene College, Cambridge. In 1991, Simon commenced his work as the first Executive Director of The Ethics Centre. In 2013, he was made an officer of the Order of Australia (AO) for “distinguished service to the community through the promotion of ethical standards in governance and business, to improving corporate responsibility, and to philosophy.” Simon is an Adjunct Professor of the Australian Graduate School of Management at UNSW, a Fellow of CPA Australia, the Royal Society of NSW and the Australian Risk Policy Institute.
Employee activism is forcing business to adapt quickly
It was not that long ago that publicly disagreeing with your employer’s business strategy or staging a protest without the protection of a union, would have been a sackable offence.
But not today – if you are among the business “elite”.
Last year, 4,000 Google employees signed a letter of protest about an artificial intelligence project with the Department of Defense. Google agreed not to renew the contract. No-one was fired.
Also at Google, employees won concessions after 20,000 of them walked out protesting the company’s handling of sexual harassment cases. Everyone kept their jobs.
Consulting firms Deloitte and McKinsey & Company and Microsoft have come under pressure from employees to end their work with the US Department of Immigration and Customs Enforcement (ICE), because of concerns about the separation of children from their illegal immigrant parents.
Amazon workers demanded the company stop selling its Rekognition facial recognition software to law enforcement.
Examples like these show that collective action at work can still take place, despite the decline of unionism, if the employees are considered valuable enough and the employer cares about its social standing.
The power shift
Charles Wookey, CEO of not-for-profit organisation A Blueprint for Better Business says workers in these kinds of protests have “significant agency”.
“Coders and other technology specialists can demand high pay and have some power, as they hold skills in which the demand far outstrips the supply,” he told CEO Magazine.
Individual protesters and whistle-blowers, however, do not enjoy the same freedom to protest. Without a mass of colleagues behind them, they can face legal sanction or be fired for violating the company’s code of conduct – as was Google engineer James Damore when he wrote a memo criticising the company’s affirmative action policies in 2017.
Head of Society and Innovation at the World Economic Forum, Nicholas Davis, says technology has enabled employees to organise via message boards and email.
“These factors have empowered employee activism, organisation and, indeed, massive walkouts –not just around tech, by the way, but around gender and about rights and values in other areas,” he said at a forum for The Ethics Alliance in March.
Change coming from within
Davis, a former lawyer from Sydney, now based in Geneva, says even companies with stellar reputations in human rights, such as Salesforce, can face protests from within – in this case, also due to its work with ICE.
“There were protesters at [Salesforce annual conference] Dreamforce saying: ‘Guys, you’re providing your technology to customs and border control to separate kids from their parents?,” he said.
Staff engagement and transparency
Salesforce responded by creating Silicon Valley’s first-ever Office of Ethical and Humane Use of Technology as a vehicle to engage employees and stakeholders.
“I think the most important thing is to treat it as an opportunity for employee engagement,” says Davis, adding that listening to employee concerns is a large part of dealing with these clashes.
“Ninety per cent of the problem was not [what they were doing] so much as the lack of response to employee concerns,” he says. Employers should talk about why the company is doing the work in question and respond promptly.
“After 72 hours, people think you are not taking this seriously and they say ‘I can get another job, you know’, start tweeting, contact someone in the ABC, the story is out and then suddenly there is a different crisis conversation.”
Davis says it is difficult to have a conversation about corporate social activism in Australia, where business leaders say they are getting resistance from shareholders.
“There’s a lot more space to talk about, debate, and being politically engaged as a management and leadership team on these issues. And there is a wider variety of ability to invest and partner on these topics than I perceive in Australia,” says Davis, who is also an adjunct professor with Swinburne University’s Institute for Social Innovation.
“It’s not an issue of courage. I think it’s an issue with openness and demand and shifting culture in those markets. This is a hard conversation to have in Australia. It seems more structurally difficult,” he says.
“From where I stand, Australia has far greater fractures in terms of the distance between the public, private and civil society sectors than any other country I work in regularly. The levels of distrust here in this country are far higher than average globally, which makes for huge challenges if we are to have productive conversations across sectors.”
This article was originally written for The Ethics Alliance. Find out more about this corporate membership program. Already a member? Log in to the membership portal for more content and tools here.
BY The Ethics Centre
The Ethics Centre is a not-for-profit organisation developing innovative programs, services and experiences, designed to bring ethics to the centre of professional and personal life.
Banking royal commission: The world of loopholes has ended
Following the release of Commissioner Hayne’s royal commission final report on the banking and financial services sector, our Executive Director shares his take on the findings for the Australian Financial Review.
The Final Report of the Hayne Royal Commission is both unsparing and inspired.
Mr Hayne casts a wide net in his analysis of what went wrong in Australia’s banking and finance industry. However, there is one group on whom he pins ultimate accountability; the boards and senior executives of the entities whom he found to be at fault, “Nothing that is said in this Report should be understood as diminishing that responsibility. Everything that is said in this Report is to be understood in the light of that one undeniable fact …”
That is the unsparing part of the Report.
Kenneth Hayne is inspired in his injunction to all Australian business that it must apply some underlying principles, “These norms of conduct are fundamental precepts. Each is well-established, widely accepted, and easily understood.”
- Obey the law;
- Do not mislead or deceive;
- Act fairly;
- Provide services that are fit for purpose;
- Deliver services with reasonable care and skill; and
- When acting for another, act in the best interests of that other.
A dominant theme in Mr Hayne’s final report is that it is time to eliminate the law’s own exceptions to these principles – a series of ‘loopholes’ – often the product of political convenience – that allow the underlying principles to be violated by those with the wit, means and licence to do so.
There is a subtle quality to Mr Hayne’s arguments on this point. At no time does he suggest that ethical commitments should be elevated above compliance with the law. Indeed, he is clear that he opposes that approach. However, he makes it clear that the Law must conform with ethics – in the form of ‘underlying principle’.
The implications of this for the targets of his harshest criticism – boards and senior executives – are profound. For too long, it has been possible to ease through a loophole and take comfort from the fact that questionable (and profitable) conduct was ‘strictly legal’. That approach has cost us all dearly.
The fact that a loophole was available to be exploited does not mean that it should have been. The capacity to exercise ethical restraint (not to do everything that is possible) was always latent within the ranks of boards and senior management.
To be fair, we should acknowledge that boards and senior management have often exercised that capacity. We will never know (and credit will never be given) for the many cases of good judgement that have prevailed. Unfortunately, in the current environment, a multitude of good decisions counts for little when compared to the relatively few, but emblematic, cases of ethical failure – some of which may also have been unlawful.
Ethical failure occurs when core purposes, values and principles are betrayed. On some occasions this is done in a knowing and deliberate manner. More often, the cause is a failure of culture and governance (both intimately linked) that leads an organisation to ‘sleep walk’ into an ethical ‘death pit’.
Recognising this, Commissioner Hayne recommends that:
All financial services entities should, as often as reasonably possible, take proper steps to:
- Assess the entity’s culture and its governance
- Identify any problems with that culture and governance
- Deal with those problems, and
- Determine whether the changes it has made have been effective
In doing so, Hayne supports and extends the approach already adopted by APRA and ASIC by looking beyond ‘risk culture’ to evaluate the whole.
The Ethics Centre is a pioneer in the development and application of world-class tools for undertaking precisely the kind of evaluation being recommended by Hayne. This approach should not be limited to banking and financial services. It is essential for all organisations – whether in the private or public sectors.
The trouble is that boards and senior managers are often deeply reluctant to look into a well-polished mirror that reveals the truth about their organisation. Instead, they look to those who offer a ‘magic mirror’ that always reflects the comforting myth that you are the ‘fairest of them all’. It takes a certain kind of moral courage to ask for the truth. Perhaps Kenneth Hayne has strengthened the sinews of corporate Australia.
We will see!
Australia was one of the first countries to develop an ethical framework for banking and finance. The Banking + Finance Oath was created in the aftermath of the global financial crisis – at a time when all seemed to be relatively rosy on the domestic front.
The great disappointment was that so few people took up the opportunity to commit to the ‘underlying principles’ on which the BFO is based. Perhaps too many people saw that reality fell too short of the ideal.
If ever there was a time to make something better, it is now. In the wake of the Hayne royal commission, it is time for the ethical majority, working within banking and finance, to step up. Whatever your role or seniority – it’s time to own what is noble in the aims of banking and finance and to give life to its ideals.
Embrace underlying principle, measure and achieve alignment, exercise ethical restraint, regain trust. Do so in the expectation of profit and to earn that most elusive of rewards: a good name.
That is the opportunity that lies latent in the recommendations of the Hayne Report.
Dr Simon Longstaff is executive director of The Ethics Centre
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