Pay up: income inequity breeds resentment

Public outrage over multi-million dollar CEO salaries will never go away when employees are underpaid. It offends our sense of fairness and the increasingly threadbare notion of Australia as an egalitarian nation.

This point is not lost on many who read about Woolworths’ admission it underpaid nearly 6,000 staff over ten years by a total $300 million.

The supermarket chain had failed to account for the actual hours that staff were working, with out-of-business-hours work patterns attracting penalty rates, which were not being added to their salaries.

Other companies which have been caught out with similar underpayments include Qantas, ABC, Commonwealth Bank, Bunnings, Super Retail Group and Michael Hill Jewellers.

While some business leaders laid blame on the complexity of modern awards, Fair Work Ombudsman, Sandra Parker said employers were at fault with “ineffective governance combined with complacency and carelessness toward employee entitlements”.

Human resources leader, Alec Bashinsky, was succinct in his response: “This is 101 stuff and not acceptable in any scenario”. For 14 years, Bashinsky was Asia Pacific talent leader for Deloitte, which employed more than 3,000 people in Australia alone.

Revelations such as the underpayments just add more fuel to the conflagration of distrust and anger, which has led to the rise of anti-establishment political movements around the world.

In Australia, it builds on a mountain of evidence of businesses behaving badly, following revelations of the deliberate underpayments and worker exploitation in the franchising sector and the litany of unethical decision-making unearthed in the recent Royal Commission into financial services.

CEO’s get richer, worker pay stagnates

While company reputations have been trashed over the past couple of years, business leaders have continued to prosper. Company boards responded to public resentment over CEO salaries by reducing the pay of incoming CEO’s… while handing out the second-biggest bonuses of the past 18 years.

Thanks to those bonuses, the median realised pay for an ASX100 CEO reached $4.5m in the last financial year, according to a report by the Australian Council of Superannuation Investors.

Leaders whose companies were directly involved in recent scandals have been punished. Big bank CEO’s saw their remuneration fall over the past year. However, total remuneration for top 50 CEO’s increased by 4 per cent on average, compared to general wage growth at 2.2 per cent, according to the Australian Financial Review.

Macquarie Bank’s Shemara Wikramanayake was the highest paid with $18 million, followed by Goodman Group’s Gregory Goodman with $12.8 million.

Labor MP and economist, Andrew Leigh says the growing gap between the leaders and the led poses a threat to the Australian ethic of egalitarianism.

“Australia is a country where we don’t have private areas on the beaches, we like to say ‘mate’ rather than ‘sir’, we sit in the front seat of taxis and we don’t stand up when the prime minister enters the room,” says Leigh, who is also Deputy Chairman of the Parliamentary Economics Committee.

Former chairman of the Australian Competition and Consumer Commission, Allan Fels, has written: “The increase in pay levels for CEO’s has occurred at a time when public trust in business is at a low ebb and wages growth in the broader economy can best be described as anaemic”.

The rising levels of income inequality create serious social harm, according to the Australian Council of Social Service (ACOSS).

Someone in the highest one per cent now earns more in a fortnight than someone in the lowest 5 per cent earns in an entire year.

“Excessive inequality in any society is harmful. When people with low incomes and wealth are left behind, they struggle to reach a socially acceptable living standard and to participate in society. This causes divisions in our society,” according to ACOSS, after the release of its Inequality in Australia report in July.

“Too much inequality is also bad for the economy. When resources and power are concentrated in fewer hands, or people are too impoverished to participate effectively in the paid workforce, or acquire the skills to do so, economic growth is diminished.”

Reining in the excesses

Investors have a mechanism to act if they believe boards have been overly-generous in executive remuneration. In 2018, 12 companies in the ASX200 had shareholders vote down board remuneration reports in a “first strike” action. A further seven were close to experiencing a first strike.

According to the “two-strike rule”, if subsequent remuneration reports are voted down by at least 25 per cent of shareholders, the board positions may be subject to a spill motion. At this point, no company has experienced a board spill as a result of this rule.

The two-strike rule came into effect in 2011 after a Productivity Commission Inquiry into Executive Remuneration found that executive pay went up over 250 per cent from 1993 to 2007.

Labor went into the last Federal election with a policy aimed at encouraging more moderation in executive pay, requiring companies to publish the ratio of the CEO remuneration to the median workers’ pay.

At present, ASX-listed companies have to publish their policies for determining the nature and amount of remuneration paid to key management personnel. However, without a requirement to divulge what the median worker is paid, a ratio cannot be calculated.

The United Kingdom and the United States have both introduced new regulation to require their biggest listed companies to divulge and justify the difference between executive salaries and average annual pay for their employees.

This is going to put more pressure on CEO salaries as the public gets a clear picture. Research in the US shows, for instance, that the average person thinks the pay ratio is 30:1 when the average is actually closer to 300:1.

Those disclosures can have material impacts on a business. The US city of Portland has imposed a 10 per cent tax surcharge on companies with top executives making more than 100 times what their median worker is paid and a 20 per cent surcharge if pay gaps exceed 250 to one.

Leigh says the top 50 CEO’s in Australia are now earning packages at a ratio of around 150 or 200 of median wages in their organisations.

“Those ratios are truly out of whack. If you go back to the 1950s, and 1960s, workers at Australia’s largest firms could earn in a decade what the CEO earned in a year.

“Now, it would take multiple careers for workers in many firms to earn what the CEO earns in a year.”

Setting a fair pay formula

When you have these two issues running concurrently – ever-rising CEO pay and underpayment of workers – it seems appropriate to take a new look at what fair pay looks like.

Some companies have tried to ensure fairness by setting CEO pay as a multiple of the salary of an organisation’s lowest-paid worker.

Mondragon is a Spanish co-op famous for its egalitarian principles. Its CEO is paid nine times more than what its lowest-paid worker earns. In comparison, the CEO of an average FTSE 100 company is paid 129 times what their lowest-paid worker earns.

Mondragon is not well-known in Australia, but is a vast global enterprise, employing more than 75,000 people in 35 countries and with sales of more than Euro12 billion per year – equivalent to Kellogg or Visa.

US ice cream company Ben & Jerry’s took inspiration from Mondragon, setting a five-to-one salary ratio when it started in 1985.

Writing in their book Ben Jerry’s Double Dip: How to Run a Values Led Business and Make Money Too, the founders Ben Cohen and Jerry Greenfield say: “The compressed salary ratio dealt with an issue that’s at the core of people’s concerns about business and their alienation from their jobs: the people at the bottom of the ladder, the people who do all the actual physical work, are paid very poorly compared to the people at the top of the ladder.

“When we started our business, we were the people at the bottom. That’s whom we identified with. So we were happy to put into place a system whereby anytime the people on the top of the organisation wanted to give themselves a raise, they’d have to give the people on the bottom a raise as well.”

Ben & Jerry’s kept that arrangement in place for 16 years but, when Cohen wanted to retire, attracting a replacement CEO meant raising the rate to a seven-to-one ratio.

“ … as the company grew, the salary ratio became problematic. Some people in upper-level management believed that we couldn’t afford to raise everyone’s salaries, and the salary ratio was, therefore, limiting the offers we could make to the top people we could recruit,” wrote the founders in 1998.

“Other people – Ben included – thought money wasn’t the problem, and that we’d always had problems with our recruitment process. Ben points out frequently that eliminating the salary ratio, which we did in 1995, has not eliminated our recruiting problems.”

The New Zealand Shareholders Association has also called (in 2014) for CEO base pay to be capped at no more than 20 times the average wage.

Fairness is important to us

Leigh, who wrote a book Battlers and Billionaires on inequality, says people naturally benchmark themselves against those around them: “That is how we figure out what we are worth”.

The point is that people care less about the dollar figure they are paid than they do about how it compares to others. If they think it is unfair, their attitude at work and motivation suffers.

“People work less hard when they feel they have not been adequately recognised within the firm,” says Leigh.

Pay transparency – making salaries public knowledge – can be a two-edged sword. People further down the “pecking order” feel worse when they see how others are paid more. However, people should be able to find out where they stand and what they need to do to climb the salary ladder.

“If you are running a firm where the pay structure is only sustainable because you are keeping it secret, then you are walking on eggshells. Ultimately, good managers should be able to be transparent with their staff. Secrecy shouldn’t be a way of doing business,” says Leigh.

“If you are playing football with David Beckham, you don’t begrudge the fact that David Beckham is pulling in a higher salary package than you. The problem arises when there are inequities that aren’t related to performance.

“People are comfortable with the fact that a full-time worker will earn more than a part-time worker, that someone who has another 20 years’ experience gets rewarded for that experience. But, if you are being paid more just because you are family friends with the CEO or you share the same race as the CEO or the same gender, then that is not fair.

“So pay transparency can produce fairer workplaces.”

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.


Taking the bias out of recruitment

When recruiters sift through job applications, they take less than 10 seconds to decide whether someone will be lucky enough to get through to the next round. If your CV doesn’t grab their attention immediately, you’re done.

“Millions of people are getting hired and fired every single day,” says Kate Glazebrook, CEO and founder of the Applied recruitment platform.

“And if you look at your average hiring process, it involves usually 40 to 70 candidates applying to a particular job.”

Decisions made at this speed require shortcuts. They rely on gut feelings, which essentially are a collection of biases. Without even being conscious that they are doing it, recruiters and hiring managers discriminate because they are human, and they are in a hurry.

Glazebrook says most hiring decisions are made in the “fast brain”, which is fast, instinctive and emotional. “That’s the automatic part of our brain, the part of the brain uses fewer kilojoules so we can make hot, fast decisions,” she says.

“We’re often not even aware of the decisions we take with our fast brain.” The fast brain/slow brain concept references work by Nobel Prize-winning psychologist and economist Daniel Kahneman, who studied cognitive biases.

The “slow brain” refers to thought processes that are slower, more deliberative and more logical.

“And I think it’s clear that when you’re 69 candidates down, it’s 5pm on a Friday, you’re definitely less likely to be using your slow, deliberative part of your brain, and much more likely to be using your fast brain,” Glazebrook says.

‘We all overlook people who don’t look the part’

The inherent biases in traditional recruitment practices go some way to explaining the slow and limited progress of diversity and inclusion in our organisations.

“There’s, sadly, lots of meta-analyses showing just how systematically we all overlook people who don’t tend to look the part,” she says. “And there’s evidence to suggest that minority groups of all kinds are overlooked, even when they’re equally qualified for the job.”

Bias against people with non-Anglo sounding names was famously demonstrated in an Australian National University study of 4,000 fictitious job applications for entry-level jobs.

“To get as many interviews as an Anglo applicant with an Anglo-sounding name, an Indigenous person must submit 35 per cent more applications, a Chinese person must submit 68 per cent more applications, an Italian person must submit 12 per cent more applications, and a Middle Eastern person 64 per cent more applications,” wrote the authors of the 2013 study.

Lack of diversity is a business risk. According to Applied, diverse teams bring different ideas to the table, so that teams don’t approach problems in the same way. This tends to make diverse teams better at solving complex problems.

Consequently, an increasing number of employers are committing to “anonymised recruiting”. Also known as “blind recruitment”, this process removes all identifying details from a job application until the final interviews.

In the initial candidate “sifting process”, recruiters and hiring managers do not know the name, gender, or age of the applicants. They can also not make any judgements based on the name of the university or high school the applicants attended or their home address.

When the State Government of Victoria trialled anonymised recruiting for two years, it discovered overseas-born job seekers were 8 per cent more likely to be shortlisted, women were 8 per cent more likely to be shortlisted and hired, and applicants from lower socio-economic suburbs were 9.4 per cent more likely to progress through the selection process and receive a job offer.

According to academics researching the trial, “… at the Victorian Department of Treasury and Finance we found that before de-identifying CVs men were 33 per cent more likely to be hired than women. After de-identification, this flipped and women were eight per cent more likely to be hired than men”.

Connecting to brain function

Glazebrook is an Australian-born behavioural economist working in the UK’s Behavioural Science Team, when she co-founded Applied in 2016 with Richard Marr. They aimed to use their understanding of how the brain works to offer a beginning-to-end anonymised hiring.

Applied runs the whole process, from crafting bias-free job specifications and advertising, to candidate testing and selection. Beyond removing identifying details, the company also breaks up assessment tasks among a team of people and randomises the order in which elements are looked at – to minimise the impact of other cognitive biases.

Applied’s clients include the British Civil Service, Penguin Random House and engineering firm the Carey Group. In the past three years, the company has dealt with more than 130,000 candidates.

“We’ve seen a two to four times increase in the rate at which ethnically diverse candidates are applying to jobs and getting jobs through the platform,” she says.

More than half of the candidates who have received job offers are women and there have been “significant uplifts” in diversity in other dimensions, such as disability and economic status.

Glazebrook says US companies spend $US8 billion annually on anti-bias, diversity and inclusion training. However, even with the best intentions of everyone involved, it seems to have limited effectiveness.

“The rate of change is quite slow,” she says.

There is even some evidence that anti-bias training can backfire. Glazebrook says a concept called moral licensing is a concern: “Once you do the training, you tick a box in your brain that says ‘Great. I’m de-biased. Excellent. Moving on’.

“And, actually, you are free to be more biased than you were before because we’re led to believe we have overcome that particular bias,” she says.

Studies show companies openly committed to diversity are as likely to discriminate as those who aren’t.

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.


Accepting sponsorship without selling your soul

The artistic director of the Sydney Festival Wesley Enoch does not shy away from controversy. So it’s no surprise he’s rattling cages with his views on artists accepting money from sponsors with unpalatable policies.

Take the money, he advises. Then use it to create work that expresses your opposition.

“I’m quite compromised a lot in the jobs I’ve done because you’re constantly looking for clean money. You are constantly looking for money that has no stigma attached to it and that comes from the joyous valuing of life,” he says.

“And I don’t think that exists. What you do with it is the most important thing.”

The CEO of the Biennale of Sydney, Barbara Moore, shares his view.

“If an arts organisation takes the position of determining right from wrong in a binary system, we’re not going to have very much art funding left,” she says, pragmatically.

Rather than focusing on the differences, arts organisations should be looking at where their values align and what they can achieve together, she says. Where there is dissent, an event such as the biennale should be a “safe space” to have a difficult discussion about it.

What these two cultural leaders are saying is that artists who feel ethically compromised by accepting money from governments or companies with whom they disagree may be missing a greater opportunity to be heard.

Enoch says his job is to articulate his own values and then let others make their decisions about whether they will sponsor the organisations he leads. However, the sponsorship has to be at “arm’s length”, he says.

“My job is to articulate my values and let others make their decisions. If that means sometimes biting the hand that feeds you, then so be it,” he says.

Enoch says he has a “very complex” relationship with governments, which are major sponsors of the arts, but also promulgate policies he disagrees with – such as mandatory sentencing and offshore detention centres.

“Do I take the money from governments? Yes. Do they stop me from speaking against them? No. And that’s the big thing for me.”

Enoch says he uses the same framework for corporate sponsorships and philanthropy. “They have to support me in doing what I’m doing.”

In 2014, the Biennale of Sydney was hit by a sponsorship crisis when it lost its principal funder, Transfield Holdings – the private company of the Belgiorno-Nettis family. The family, which founded and funded the biennale for 41 years, withdrew from the event after artists threatened a boycott over the role Transfield Services played as a contractor for Australia’s network of immigration detention centres.

At the time, the family-owned Transfield Holdings was a shareholder of facilities manager Transfield Services. It has since sold out its interest in the company.

Luca Belgiorno-Nettis, stepped down as chair of the biennale, even though the contract for the detention centres was awarded two years after he and his brother Guido had stepped down as directors of Transfield Services. They had stopped being directors in 2012, and the contract was awarded in 2014 – the same year as the biennale.

The family company sold out its 11.3 per cent shareholding in Transfield Services after the controversy and Spanish company, Ferrovial, became the new owner of Transfield Services (now called Broadspectrum) in 2016 and announced it was withdrawing from its involvement in detention centres.

Moore, who was head of benefaction (philanthropy) at the time, says it was a difficult time for the family, which she indicates had views on the issue that were more aligned to those of the artists than the protesters may have realised.

But only a couple of weeks away from the biennale’s opening, that aspect of the issue was lost in the “static”.

“We were caught off guard in a media storm,” she says.

The controversy, although painful at the time, did not have an impact on the future of the event. After a government review that confirmed the cultural importance of the biennale, the Neilson Foundation stepped in to take over principal sponsorship and now 45 per cent of the funding comes from three levels of government, with the remainder coming from private philanthropic sources.

“Actually, it has made us stronger because it was a moment for us to pull back and remember what our core values are,” says Moore.

Moore says she regrets that the Transfield controversy ended the partnership and was not used, instead, as an opportunity to engage artists and others around the issue of detention centres.

“We would absolutely take Transfield on as a partner again,” she says.

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.


If it’s not illegal, should you stop it?

Gambling addict, David Harris, made a sincere attempt to put himself out of harm’s way. Owing $27,000 on three credit cards, he turned down an offer to increase his credit limit and informed the bank about his addiction.

Eleven days later, the bank offered him yet another increase.

Harris, a roofer by trade, borrowed $35,000 from his boss to repay his debts and the two of them went into a bank branch to close his account, but were told they had to talk to the bank by phone. When they called, they were told to visit a branch.

He cut up his credit card, but then later applied for another and quickly ran up a gambling debt of around the same amount. During all of this, he had been “peppered” with numerous unsolicited offers to increase his credit limit.

By the time Harris’ case was detailed in the Banking and Financial Services Royal Commission last year, his bank (the Commonwealth Bank) had already acted to restrict credit increases and credit card offers where problem gambling is identified.

Today, the bank has a Financial Assist Sensitive Matters team to provide financial assistance and guidance. Customers can also ask for a “gambling and cash block” to be put on their credit card to try to stop transactions that may be used for gambling.

However, at the time of  Harris’ disclosure of his addiction to the bank in 2016, there were no processes in place pass that information to the parts of the bank assessing the creditworthiness of its customers.

The bank had not just enabled Harris to use borrowed money for gambling. By putting continual temptation into his path, it was also making it virtually impossible for an addict to stop.

Helping problem gamblers help themselves

Since the Royal Commission handed down its final report in February, other banks have also stepped up to help problem gamblers help themselves. The Bank of Queensland, Citibank and the Bendigo Bank have banned the use of credit cards for online betting.

In July, Macquarie Bank became the first of the larger banks to block credit card transactions for nights out at a casino, lottery tickets, sports betting and online gambling. The card will be declined regardless of whether the user has a problem with gambling. Macquarie has also capped cash advances at $1000.

Some banks offer customers the option to block their credit cards (with a 48-hour cooling-off period) and turn off credit card use for online transactions.

While those lobbying for safeguards have applauded these measures, there are inevitable counter-claims that they impinge on people’s freedom of choice.

The CEO of the peak body for financial counsellors in Australia, Financial Counselling Australia, Fiona Guthrie, says that efforts to put in safeguards are always met with the same protests.

“We get that argument all the time: that gambling is not illegal and so people have choices,” she says.

“The unspoken reason is that they would lose market share. They would not make as much money.”

“But, for me, it is like wearing seatbelts – making sure we don’t do things that are harmful. And the idea that you would borrow money and use it for gambling is clearly got to be a harmful practise.”

Choice is ‘moot’ when you are an addict

While some may argue that banks do not have the right to interfere in personal spending choices, Guthrie demurs, saying that banks have always decided what purposes are suitable for the credit they provide.

“Commercial organisations make decisions all the time about who they will engage with, who they will sell to and how they will sell and on what terms.”

Financial Counselling Australia director of policy and campaigns, Lauren Levin, says “Freedom of choice” becomes moot when someone is in the grip of an addiction: “They are not like everyone else”.

CBA executive general manager for retail, Clive van Horen, spoke about the freedom of choice argument in the Royal Commission when asked if his bank could identify whether people who apply for credit limit increases are spending large amounts on entertainment, takeaway food, alcohol, tobacco or gambling.

Van Horen replied: “With limits, yes we can. Ought we to? That’s a question of interpreting the guidelines”.

“The challenge we have as a bank is gambling is legal and, therefore, the choice – choice we’ve grappled with – is at what point do we say it’s not okay for an adult to choose how much to spend on different activities?

“You can quickly see the slippery slope that puts us on if we say ‘you can’t spend on gambling’.  Well, then, what about other addictive spending on shopping or on alcohol or any other causes?  This is what we’ve grappled with.

“Absent any clear legal or regulatory guideline, how do we determine when we intervene and impose limits?”

Lump-sum payments are also at risk

Levin argues that “doing nothing” is not a neutral position: “It comes with a really significant cost”, she says, pointing to the personal fallout from problem gambling.

Aside from the use of credit for gambling, the government and finance sector also need to turn their attention to the preservation of lump-sum payments and the proliferation of “payday lenders”, she says.

People who receive a lump sum of superannuation money or compensation for illness or accident are also vulnerable to blowing the lot on gambling, especially if they are in chronic pain, on heavy medication or suffer a mental illness such as depression.

Levin says people can transfer any amount of their own money into a gambling account without restriction. She remembers one man lost $500,000 compensation money in four months.

“People using their own money are desperate for tools that could help them not be damaged at a time when they are particularly vulnerable.” Levin says she would like to see banks provide a safe place to preserve the lump sum and a product that offers an income stream to those who have a problem with gambling.

Guthrie says she would like the Government to enact the recommendations from the review of Small Amount Credit Contracts (payday loans), including the proposal to cap repayments on these products to 10 per cent of a consumer’s net income per pay cycle.

“This would prevent over-commitment,” says Guthrie.

While the use of payday loans is common for problem gamblers, it is also true that regular payments to gambling sites is a “red flag” in terms of risk and is one of the top reasons for the rejection of a payday loan application.

Online payday lenders often promise money in your bank account within an hour of approval. They offer amounts of up to $2,000 with a contract term of between 16 days and 12 months and, in some cases, charge more than 400 per cent for payday loans and 800 per cent for consumer leases.

According to constitutional lawyer and activist Shireen Morris, 40 per cent of people who get a payday loan are unemployed, one-quarter get more than 50 per cent of their income from Centrelink, and the average number of loans per borrower is 3.64.

“One case study of loans taken out by Centrelink recipients showed a $700 washing machine ended up costing $2176, a $345 dryer ended up costing $3042 and a $498 fridge ended up costing $1690,” she wrote in the Sydney Morning Herald.

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.


Why trust-building strategies should get the benefit of the doubt

You can’t blame people for feeling cynical. These days, it seems smart to distrust the motives of others and assume their every action is powered by self-interest.

You can’t go wrong expecting the worst, right?

There are so many reasons to be continually on your guard in an era of “alternative facts” and fallen idols. In recent times, all pillars of our society have revealed some rot at their core, whether it be in business, politics, media, religion, science or sport.

Scandalised headlines and royal commissions have lost their capacity to shock, yet there is still an argument for expecting moral behaviour from business. And there is a gulf between reasonable caution and cynicism.

Good things – positive progress ­– cannot happen unless we allow ourselves to believe in and support them.

I think most of us would consider ourselves to be altruistic, ready to put aside our self-interest (at least some of the time) for the benefit of others or a greater cause. And we know others who would behave the same way.

Common sense should then tell us that organisations and industries contain people whose days are powered by good intentions – even if the organisations they work within are caught up in unethical practices.

However, when those people get together to create positive change, the best way to kill it off is with an eye roll, shrug and disbelieving attitude.

In January this year, the energy industry’s Energy Charter took effect, with its 18 signatory companies in the electricity and gas industries voluntarily agreeing to disclose how they are measuring up to a set of principles that require businesses to:

  • Put customers at the centre
  • Improve affordability
  • Provide safe, sustainable and reliable energy
  • Improve customer experience
  • Support customers who are in vulnerable circumstances

Having aggravated customers with inconsistent service and high prices, the industry itself accepted its effort to regain the public’s trust would be greeted with an “oh yeah?” by a disillusioned and distrustful public.

Electrical Trades Union of Australia national secretary, Allen Hicks, was reported as saying the charter was nothing but a “fig leaf” allowing the same for-profit practices to continue while real problems went unaddressed.

Energy Users of Australia chief executive, Andrew Richards, greeted the initiative with what he said was a “healthy scepticism”, while the NSW Energy and Water Ombudsman, Janine Young, said “positive cynicism” would be a more appropriate lens than blank disbelief.

Signatories to the charter submitted their first disclosure reports in October and the Energy Charter Independent Accountability Panel will publish an evaluation report on November 29.

The transparency of the process, in publishing the self-assessments of the signatories, should go some way to dispelling scepticism about the motivations and commitment of the participating businesses. I recently attended the Energy Charter Industry Working Group workshop where members articulated the challenges and learnings of the process. Industry regulators were present to hear the feedback, warts and all. It was a unique experience where fierce competitors came together, showed their vulnerability and contributed to creating a more sustainable industry.

When reading through the energy companies’ self-assessments, the wider community should acknowledge the honesty of owning up to mistakes or their failure to meet expectations.

The Banking and Finance Oath (The BFO) – which I have worked with for over 5 years – is another initiative to earn trust and has also had to combat sceptics and cynics. The BFO asks individuals to hold themselves to account.

While the number of signatories is relatively low, given the size of the industry, there are strong indications it is starting to make headway. Around 3,000 people have committed to the following principles:

Trust is the foundation of my profession

  • I will serve all interests in good faith.
  • I will compete with honour.
  • I will pursue my ends with ethical restraint.
  • I will help create a sustainable future.
  • I will help create a more just society.
  • I will speak out against wrongdoing and support others who do the same.
  • I will accept responsibility for my actions.

In these and all other matters; My word is my bond.

In a speech at The BFO conference in August, chairman of APRA, Wayne Byres said initiatives such as the Oath are important building blocks for a stronger, more efficient, and more sustainable financial system. “They should be welcomed and embraced by industry leaders.”

When people ask whether the Energy Charter or The BFO are going to make a difference, they need to look to the longer term, rather than expecting immediate results. There needs to be a level of tolerance for mistakes and a willingness to allow time for correction.

While publicly holding themselves to a high standard, there are no quick fixes to culture change, and many of the problems that beset both sectors cannot be solved without political support and regulatory reform.

Coming back to the point about whether cynicism is a smart approach when it comes to assessing the motives of others, psychology has some pointers.

It is commonly believed that cynicism is a sign of intelligence, yet psychological research shows no such correlation. Instead, studies show that people who perform well in cognitive tasks are less cynical.

“ … holding a cynical worldview might represent an adaptive default strategy to avoid the potential costs of falling prey to others’ cunning,” say social psychologist Olga Stavrova of Tilburg University in the Netherlands and evolutionary psychologist Daniel Ehlebracht from the University of Cologne in Germany. Studies on the relationship between trust, health and finances find that thinking the worst tends to lead to worse results.

The psychologists cite US comedian Stephen Colbert, who told a university graduating class: “Cynicism masquerades as wisdom, but it is the farthest thing from it. Because cynics don’t learn anything. Because cynicism is a self-imposed blindness, a rejection of the world because we are afraid it will hurt us or disappoint us.”

Let’s hope the development of these voluntary initiatives that encourage self-reflection and accountability are met with a healthy scepticism, rather than a reflexive cynicism that seems to serve no-one.

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.


The invisible middle: why middle managers aren't represented

The empty chair on stage was more than symbolic when The Banking and Finance Oath (BFO) was hosting a panel discussion on who holds the responsibility of culture within an organisation. In months of preparation, I had not found one middle manager who was willing or able to contribute to the discussion.

A chairman, director, CEO, HR specialist and a professor settled into their places, ready to give their opinions on the role they played in developing culture. The empty space at this event, three years ago, spoke volumes about the invisibility and voicelessness of those who have been promoted to manage others, but have little actual decision-making power.

Middle managers are often in the crossfire when it comes to apportioning blame for the failure to transform an organisation’s culture or to enact strategy. I have heard them derisively called “permafrost”, as if they are frozen into position and will only move with the application of a blowtorch.

“Culture Blockers” is another well-used epithet.

Middle managers are typically those people who head departments, business units, or who are project managers. It is their responsibility to implement the strategy that is imposed from above them and may have two management levels below them.

Over the past 20 years, the ranks of the middle managers have been slashed as organisations cut out unnecessary costs and aim towards flatter hierarchies. Those occupying the surviving positions may be characterised like this:

  • They are often managing people for the first time and offered little training to deal with professional development, project management, time management and conflict resolution
  • They may have been promoted because of their technical competence, rather than management ability
  • Their management responsibilities may be added on top of what they were already doing before being promoted
  • They have responsibility, but little formal authority
  • They may have limited budget
  • They are charged with enacting policy and embedding values, but may not be given the context or the “why”
  • They have little autonomy or flexibility and may lack a sense of purpose.

All these characteristics make middle management a highly stressful position. Two large US studies found that people who work at this level are more likely to suffer depression (18 per cent of supervisors and managers) and had the lowest levels of job satisfaction.

“I don’t know any middle manager that feels like they’re doing a good job”, a middle manager recently told me.

However, the reason we need to pay attention to our middle managers is more than just concern for their welfare. Strategies and cultural change will fail if they are not supported and motivated. They are the custodians of culture and some would argue the creators, as people observe their behaviour as guidance for their own.

“We know what good looks like, but we’re not set up for success”, confided another middle manager.

Stanford University professor, Behnam Tabrizi, studied large-scale change and innovation efforts in 56 randomly selected companies and found that the 32 per cent that succeeded in their efforts could thank the involvement of their middle managers.

“In those cases, mid-level managers weren’t merely managing incremental change; they were leading it by working levers of power up, across and down in their organisations,” he wrote in the Harvard Business Review in 2016.

As more evidence that middle managers are intrinsic to a business’ success, Google founders Larry Page and Sergey Brin decided they could do without managers in the early days of the company in 2002. However, their experiment with a manager-less organisation only lasted a few months.

“They relented when too many people went directly to Page with questions about expense reports, interpersonal conflicts, and other nitty-gritty issues. And as the company grew, the founders soon realized that managers contributed in many other, important ways—for instance, by communicating strategy, helping employees prioritise projects, facilitating collaboration, supporting career development, and ensuring that processes and systems aligned with company goals,” wrote David Garvin, the C. Roland Christensen Professor at Harvard Business School.

With all of this in mind, you may think business leaders would now be seeking the views of their middle managers, to engage them in the cultural change required to regain public trust after the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and other recent scandals. But sadly, no.

Just this month at The BFO conference, I was again presenting a panel discussion on the plight of middle managers. Prior to the day, two of the middle management participants – despite one being nominated by a senior leader – were pulled and additionally, the discussion was ruled Chatham House with journalists being asked to leave the room. Although I saw a glimpse of positivity, my research leading up to the discussion would suggest very little has changed and this issue is not limited to financial services.

While senior leaders are working tirelessly to overcome challenges in this transitional time, part of the answer is right in front of them (well, below them) – their hard-working middle managers. But first, they have to make the effort to engage them with appreciation, seek their views with empathy, and involve them in the formulation of strategy.

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.


What are millennials looking for at work?

Kat Dunn had a big life, but it wasn’t fulfilling. She was the youngest executive to serve on the senior leadership team of fund manager Perpetual Limited, but she went home each night feeling empty.

The former mergers and acquisitions lawyer tossed in the job two years ago and found her way into the non-profit sector, as CEO of the charity and social business promoter Grameen Australia.

Grameen Australia aims to take Social Business mainstream in Australia by scaling and starting up social businesses and advising socially-minded institutions on how to do the same.

Dunn says Millennials are more interested in “purpose” than money and security. She was speaking at the Crossroads: The 2019 Banking and Finance Oath Conference in Sydney in August.

Dunn said Perpetual tried to talk her out of leaving the fund manager. “I think they thought that I was going through some sort of early-onset midlife crisis.

“Because, after all, what sane person would give up a prestigious job, good money at the age of 33 when my priority should have been financial security, even more status, and chasing those last two rungs to get to be CEO of a listed company?”

‘I was living the dream’

Dunn said she was conditioned to believe she should want to climb the corporate ladder and make a lot of money.

“At 32 years old, I was appointed to be the youngest senior executive on the senior leadership team. The year before, I had just done $3 billion worth of deals in 18 months. I was, as some would say, living the dream,” said Dunn.

“So, you can imagine how disillusioned I felt when I went home every night feeling like I was a fraud. I was wondering how I could possibly reconcile my career with my identity of myself as an ethical person”.

Dunn had been put in charge of building the company’s continuous improvement program, but the move proved a disappointment. “I was so green because I thought [the role] meant I had the privilege of actually making things better for my colleagues.

“Later, I realised that it was just code for riskless cost-cutting … and impossible-to-achieve growth targets.”

Dunn said she had childhood aspirations to help create a sustainable future. “But, instead, I found myself perpetuating the very system of greed that I had vowed to change.”

“My whole career, I was told I had to make a choice between making a living or making a difference. I couldn’t do both and I found that deeply unsettling. I had cognitive dissonance.”

A desire to do work that matters

Dunn made the point that her motivations are shared by many – and not just be Millennials (she just scrapes over the line into Generation X).

By 2025, 75 per cent of the workforce will be Millennials (born between 1980 and 2000) and only 13 per cent of millennials say that their career goal involves climbing the corporate ladder, 60 per cent have aspirations to leave their companies in the next three years.

Moreover, 66 per cent of Millennials say their career goals involve starting their own business, according to a study by Bentley University.

“A steady paycheque and self-interest are not the primary drivers for many Millennials any more. The desire to do work that matters is,” said Dunn.

“Growing up poor, I thought that money would make me happy. I thought it would give me

security and social standing. I thought that if I ticked all of the boxes, that I would be free.

“At the height of my corporate career, though, I was anything but. I felt that making profits for profit’s sake was just deeply unfulfilling. For me, it was just the opposite of fulfilling – it caused me fear, distress and this stinging sense of isolation.

“What was strange is that no one else seemed to be outwardly admitting to feeling the same.”

The vision was impaired

Dunn recalled talking to a peer about strategy at the time and saying to him ‘I think our vision is wrong’.

She told him: “Our vision is to be Australia’s largest and most trusted independent wealth manager.  I think it’s wrong. It’s not actually a vision. It’s a metric on some imaginary league table and it’s all about us.

“It doesn’t say anything about creating anything of value for anyone else.”

Her colleague retorted: “Kat, we have bigger fish to fry than our vision”.

She knew, at that point, she would not realise her potential in that environment.

Aaron Hurst, the author of the book, The Purpose Economy, predicts that purpose is going to be the primary organising principle for the fourth [entrepreneurial] economy.

He defines “purpose” as the experience of three things: personal growth, connection and impact.

“When he wrote the book, five years ago, Hurst said that by 2020, CEOs expected

demands for purpose in the consumer marketplace would increase by 300 per cent,” said Dunn.

“Now, what that means is that consumers deprioritise cost, convenience and function and make decisions based on their need to increase meaning in their lives.”

Dunn says that, as Millennials take on more leadership roles, this trend will become more evident in the job market.

“When you talk about how hard it is to find top talent to work in the industry, it is worthwhile knowing that for the top talent – the future leaders of the industry, of our country, our planet – work isn’t just about money.

“It is a vehicle to self-actualisation. They don’t just want to work nine-to-five for a secure income, they actually want to run through brick walls if it means they get to do work that they believe in, within a culture of integrity, for a purpose that leaves the world in a better place than they found it,

And they want to work in a place that develops not only their skills, but sharpens their character.”

Dunn said that when she left her corporate job, she would not have believed that the financial services industry could build a better society and a sustainable future.

However, she changed her mind when she learned about Grameen Bank, microfinance and social 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.


Following a year of scandals, what's the future for boards?

As guardians of moral behaviour, company boards continue to be challenged. After a year of wall-to-wall scandals, especially within the Banking and Finance sector, many are asking whether there are better ways to oversee what is going on in a business.

A series of damning inquiries, including the recent Royal Commission into Financial Services, has spurred much discussion about holding boards to account – but far less about the structure of boards and whose interests they serve.

Ethicist Lesley Cannold expressed her frustration at this state of affairs in a speech to the finance industry, saying the Royal Commission was a lost opportunity to look at “root and branch” reform.

“We need to think of changes that will propel different kinds of leaders into place and rate their performance according to different criteria – criteria that relate to the wellbeing of a range of stakeholders, not just shareholders,” she said at the Crossroads: The 2019 Banking and Finance Oath Conference in Sydney in August.

This issue is close to the heart of Andrew Linden, PhD researcher on German corporate governance and a sessional Lecturer in RMIT’s School of Management. Linden favours the German system of having an upper supervisory board, with 50 per cent of directors elected by employees, and a lower management board to handle the day-to-day operations.

This system was imposed on the Germans after World War II to ensure companies were more socially responsible but, despite its advantages, has not spread to the English-speaking world, says Linden.

“For 40 years, corporate Australia has been allowed to get away with the idea that all they had to do was to serve shareholders and to maximise the value returned to shareholders.

“Now, that’s never been a feature of the Corporate Law. And directors have had very specific duties, publicly imposed duties, that they ought to have been fulfilling – but they haven’t.”

It is the responsibility of directors of public companies to govern in the corporation’s best interests and also ensure that corporations do not impose costs on the wider community, he says.

“All these piecemeal responses to the Banking Royal Commission are just Band-Aids on bullet wounds. They are not actually going to fix the problem. All through these corporate governance debates, there has not been too much of a focus on board design.”

The German solution – a two-tier model

This board structure, proposed by Linden, would have non-executive directors on an upper (supervisory) board, which would be legally tasked with monitoring and control, approving strategy and appointing auditors.

A lower management board would have executive directors responsible for implementing the approved strategy and day-to-day management.

This structure would separate non-executive from executive directors and create clear, legally separate roles for both groups, he says.

“Research into European banks suggests having employee and union representation on supervisory boards, combined with introduction of employee elected works councils to deal with management over day-to-day issues, reduces systemic risk and holds executives accountable,” according to Linden, who wrote about the subject with Warren Staples (senior lecturer in Management, RMIT University) in The Conversation last year.

Denmark, Norway and Sweden also have employee directors on corporate boards and the model is being proposed in the US by Democratic presidential hopefuls, including Senators Elizabeth Warren and Bernie Sanders.

As Linden said, “All the solutions that people in the English-speaking world typically think about are ownership-based solutions. So, you either go for co-operative ownership as an alternative to shareholder ownership, or, alternatively, it’s public ownership. All of these debates over decades have been about ‘who are the best owners’, not necessarily about the design of their governing bodies.”

Linden says research shows the riskiest banks are those that are English-speaking, for-profit, shareholder-dominated, overseen by an independent-director-dominated board.

“And they have been the ones that have imposed the most cost on communities,” he says.

 Outsourcing the board

Allowing consultant-like companies to oversee governance is a solution proposed by two law academics in the US, who say they are “trying to encourage people to innovate in governance in ways that are fundamentally different than just little tweaks at the edges”.

Law professors Stephen Bainbridge (UCLA) and  Todd Henderson (University of Chicago) say organisations are familiar with the idea of outsourcing responsibilities to lawyers, accountants, financial service providers.

“We envision a corporation, say Microsoft or ExxonMobil, hiring another company, say Boards-R-Us, to provide it with director services, instead of hiring 10 or so separate ‘companies’ to do so,” Henderson explained in an article.

 “Just as other service firms, like Kirkland and Ellis, McKinsey and Company, or KPMG, are staffed by professionals with large support networks, so too would BSPs [board service providers] bring the various aspects of director services under a single roof. We expect the gains to efficiency from such a move to be quite large.

“We argue that hiring a BSP to provide board services instead of a loose group of sole proprietorships [non-executive directors] will increase board accountability, both from markets and judicial supervision.”

Outsourcing to specialists is a familiar concept, said Bainbridge in a video interview with The Conference Board.

“Would you rather deal with you know twelve part-timers who get hired in off the street, or would you rather deal with a professional with a team of professionals?”

Your director is a robot

A Hong Kong venture capital firm, Deep Knowledge Ventures, appointed the first-ever robot director to its board in 2014, giving it the power to veto investment decisions deemed as too risky by its artificial intelligence.

Australia’s Chief Scientist, Dr Alan Finkel, told company directors that he had initially thought the robo-director, named Vital, was a mere publicity stunt.

However, five years on “… the company is still in business. Vital is still on the Board. And waiting in the wings is her successor: Vital 2.0,” Finkel said at a governance summit held by the Australian Institute of Company Directors in March.

“The experiment was so successful that the CEO predicts we’ll see fully autonomous companies – able to operate without any human involvement – in the coming decade.

Stop and think about it: fully autonomous companies able to operate without any human involvement. There’d be no-one to come along to AICD summits!”

Dr Finkel reassured his audience that their jobs were safe … for now.

“… those director-bots would still lack something vital – something truly vital – and that’s what we call artificial general intelligence: the digital equivalent of the package deal of human abilities, human insights and human experiences,” he said.

“The experts tell us that the world of artificial general intelligence is unlikely to be with us until 2050, perhaps longer. Thus, shareholders, customers and governments who want that package deal will have to look to you for quite some time,” he told the audience.

“They will rely on the value that you, and only you, can bring, as a highly capable human being, to your role.”

Linden agrees that robo-directors have limitations and that, before people get too excited about the prospect of technology providing the solution to governance, they need to get back to basics.

“All these issues to do with governance failures get down to questions of ethics and morality and lawfulness – on making judgments about what is appropriate conduct,” he says, adding that it was “hopelessly naïve” to expect machines to be able to make moral judgements.

“These systems depend on who designs them, what kind of data goes into them. That old analogy ‘garbage in, garbage out’ is just as applicable to artificial intelligence as it is to human systems.”

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.


How BlueRock uses culture to attract top talent

Glossy highrises form a wall of corporate Australia along the Yarra River. The size of those companies and the magnetism of their brand names easily attract talented people and the attractions of big businesses are obvious.

These giants offer world-leading working conditions and benefits, career advancement, important work for powerful clients and the chance to work overseas.

Even still, people leave these big businesses for smaller ones all the time. And the reasons they quit can provide useful ammunition for those pointy-elbowed entrepreneurs who would love to get them on board.

A few blocks back from the river in Melbourne is the office of professional services firm, BlueRock, which started as an accounting business 11 years ago by five “escapees” from corporate Australia.

Today, the firm has around 170 employees and has diversified into areas such as law, private wealth, finance and insurance. Last year, they made it to fourth place on the Great Place To Work list for companies with between 100 and 999 employees.

It was also a finalist in the employer of choice category of the Lawyers Weekly 2019 Law Awards.

COO of the BlueRock, Dean Godfrey, says the biggest challenge in competing with the big firms is to attract graduates or to recruit people who are in the first half of their careers.

“There is still some prestige in going to some of the other more structured, high profile organisations,” he says. “When people are starting out, they don’t always know what they want.”

However, he says people who have had experience working for the big firms find they enjoy life more at BlueRock. “It is about having fun while you do it, working with like-minded people and understanding that the grass isn’t greener on the other side.”

Reasonable hours

Godfrey says people who make the move to BlueRock from big “churn-and-burn” firms often talk about wanting more purpose in their lives and getting away from the long hours culture.

“It is more about getting the job done than having prescriptive rules around having to be there,” he says.

Godfrey says BlueRock tries to ensure its clients – who are mostly business owners – share its vision for a healthy workplace.

The legal division distinguished itself by having less reliance on hourly-billing, which is the traditional way that lawyers’ time is charged out, but also a contributor to high stress levels in the practice of law.

Variety

One of the benefits of being in a smaller company is that employees are often given a broader range of experiences. “People in those larger firms almost cut their teeth on monotony, doing something really, really, really well,” says Godfrey.

Social purpose

BlueRock aspires to become a social enterprise and achieved B-Corp certification in 2017. This means it is legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment.

The challenge of B-Corp is that companies have to continue to improve to maintain their accreditation.

Godfrey says people who want to leave large firms often say they want to find more meaning in their work.

“You see people who have been in those businesses looking for something different. They may like the accounting stream or law stream or finance stream, but they want to be part of something that looks after its community,” he says.

BlueRock is working on becoming carbon-neutral and is phasing out its printers, is composting waste and considering more environmental lighting solutions. The firm is also reassessing its supply chain and the B-Corp status of its suppliers.

“We want to make sure they are putting their money where their mouth is,” he says.

BlueRock has partnered with B1G1 (Business For Good), a global giving initiative whereby every transaction made in a business “earns” a donation.

Employee ownership

Any employee of BlueRock is eligible to invest in the company and about one-third of staff have participated.

Unlike larger firms, where is it only the partners or those at senior levels who can become owners, the BlueRock founders determined that the people who work in the business should also be able to have a stake in the wealth and direction of the firm.

“It really does give you a feeling like you are a part of what we’re building,” says Godfrey.

As a firm that is focused on its entrepreneur clients, employees at BlueRock are also encouraged to have their own businesses.

Fun

The funky office space, which includes a giant chessboard and a unicorn sculpture, signals the company does not want to be seen as your usual professional services firm. The website promises fun activities and healthy food options and a range of flexible work options.

Managing director of BlueRock, Peter Lalor, has said people are left to decide how they do their work:

“Our philosophy is quite different: if we just let people get on with the job of working stuff out in a really smart, efficient way, they’ll get the right answer,” he said in a podcast.

“And I think that there’s a little bit of combativeness in people when they’re told they have to do something … They rebel against it. So, by having little to no structure in terms of how we do what we do, and no rules per se, people feel very empowered to get on with the job.”

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.


The truth isn't in the numbers

If you want to work out what the people are thinking, one thing is for sure, you can’t just go out and ask them.

The failures of political polling over recent elections have taught us that opinion surveys can no longer be trusted. If you were betting on the winner, you would have been better off putting your money on the predicted losers.

This was a $5.2 million lesson for betting company Sportsbet when it pre-emptively paid out Bill Shorten backers – two days early ­– based on the fact that seven out of every ten wagers supported a Labor win in May. Labor lost, the gamblers got it wrong.

And it is not just the polling and betting companies that have lost credibility as truth-telling tools. Science is having its own crisis over the quality of peer-reviewed research.

Just one sleuth, John Carlisle (an anaesthetist in the UK with time on his hands) has discovered problems in clinical research, leading to the retraction and correction of hundreds of papers because of misconduct and mistakes.

The world of commerce is no better at ensuring that decisions are backed by valid, scientific research. Too often, companies employ consultants who design feedback surveys to tell clients what they want to hear, or employers hire people based on personality questionnaires of dubious provenance.

Things are further complicated by poor survey questions, untruthful answers, failures of memory and survey fatigue (36 per cent of employees report receiving surveys regularly, three or more times per year).

Why bother?

All of this may give rise to the notion that asking people for their opinion is an utter waste of time. However, that is not the conclusion drawn by Adrian Barnett, president of the Statistical Society of Australia and professor at the Queensland University of Technology.

Barnett, who studies the value of health and medical research, says people should view all surveys with a healthy skepticism, but there is no substitute for a survey with a good representative sample.

“I do think there is a problem, yes, but it is potentially overblown, or overstated” he says.

“We know that, in theory, we can find out what the whole population is feeling by taking just a small sample and extrapolating up. We know it works and it’s a brilliant, cheap way of finding out all sorts of things about the country and about your customers,” he says.

However, it is getting harder to get that representative sample. As people have replaced their landlines with mobile phones, researchers can no longer rely on the telephone book to source an adequate spread of interviewees. And, even if they make contact via a mobile phone, people are now reluctant to answer calls from unknown numbers in case they are scammers, charities … or market researchers.

“(Also) on controversial topics, it can be extremely challenging to get people to talk to you,” Barnett says.

You need the right people

Reluctance to participate is one of the problems identified in political polling. In a post-election blog, private pollster Raphaella Crosby described the issue: “You can have a great, balanced, geographically distributed panel such as ours or YouGov’s – but it was very difficult to get conservatives to respond in the last three weeks.

“I presume phone pollsters had the same issue – the Coalition voters just hang up the phone, in the same way they ignored our emails. All surveys and polls are opt-in; you simply can’t make people who think their party is going to lose do a survey to say they’re voting for a loser.”

The Pew Research Centre reports that response rates to telephone surveys in the US are down to 6 per cent.

The polling industry is conducting an inquiry into election polling methods, which include a combination of calling landlines, mobile phones, robo-dialling and internet surveys. Each of these channels can introduce biases and, then, there can be errors of analysis and a tendency to “groupthink”.

However, Barnett says the same problems do not necessarily hamper market research.

Market research does not usually require the large pool of participants (up to 1,600 is common in pre-election polls) which are needed to narrow the margin of error. Business can question a small number of customers and get a clear indication of preferences, he says.

Identifying a representative sample of customers is also much easier than a random selection of voters who must represent an entire population.

Putting employees to the test

When it comes to business, the use of engagement surveys presents an interesting case. Billions of dollars are spent by business every year to try to increase employee engagement – yet little benefit can be seen in the engagement survey statistics.

According to polling company Gallup, a mere 14 per cent of Australians are engaged in their work, “showing up every day with enthusiasm and the motivation to be highly productive”. This is down from 24 per cent, six years earlier.

Jon Williams has 30 years of experience to back up a jaundiced view of the way employee surveys are used. Co-founder of management consultancy Fifth Frame, Williams was previously PWC’s global leader of its people and organisation practice, managing principal at Gallup in Australia, and managing director of Hewett Associates (Aon Hewett).

“Clearly, engaged places are better places to be and, if we are going to work on that stuff, we are going to create better workplaces. But can it actually be linked to success? Does it really drive more successful companies? I think you would struggle to really prove that.”

Williams says people fail to understand that correlation is not causation. A company may put a lot of effort into its high engagement and also be very successful, but that success may, in fact, stem from other factors such as its place in the market, timing, dynamic leadership or the economy.

“It is a false attribution because we love the idea of certainty and predictability,” he says.

This same desire to codify success also drives the use of personality testing in recruitment – which appears to have done little to rid the workplaces of bullies, psychopaths and frauds.

“Business just wants something that looks like a shiny tool with a brand name on it that they can assume, or pretend, is efficient,” he says.

“People like [the tests] because they give the appearance of rigour. Very few of those tools have any predictive reliability at all.”

Williams says the only two personality measures that have any correlation with job success are intelligence and conscientiousness.

Meanwhile, many organisations still ask their employees to undertake an assessment with Myers-Briggs Type Indicator – a personality test that divides people into 16 different personality types and based on the work of a mother-daughter team, who had no training in psychology or testing, but a devotion to the theories of Swiss psychiatrist Carl Jung.

“Myers Briggs has the same predictive validity as horoscopes. Horoscopes are great for starting a conversation about who you are as a person. Pretending it is scientific, or noble, is obviously stupid,” says Williams.

What can we do better?

Williams is not advocating that organisations stop asking employees what they think. He says, instead, that they should reassess how they regard that information.

“Don’t religiously follow one tool and think that is the source of all knowledge. Use different tools at different times. Then, don’t keep measuring the same thing for the next five years, because you’ve done it [already]. Go to a different tool, use multiple inputs. Just use all of them intelligently as interesting pieces of data.”

Barnett has his own suggestions to increase the reliability of surveys. Postal surveys may seem rather “old school” these days, but can allow researchers to engage a bit more, allowing them to establish their bona fides with people who are (justifiably) suspicious of attempts to “pick their brains”.

Acknowledging that the interviewees’ time is valuable can help elicit honest, thoughtful responses. Something as simple as including a voucher for free coffee or a chocolate can show value.

Adding a personal touch, using a real stamp on the return envelope, will also encourage participation. ‘”It shows you spent time reaching out to them,’” Barnett says.

Citizens’ juries can also help make big decisions, using a panel of people to represent customers or a population.

Infrastructure Victoria used this technique in February when it set up a 38-member community panel to consider changing the way Victorians pay for the transport network.

“We know there are problems with [citizens’ juries], but the reason we have them is that you are being judged by your peers. If you can get a representative bunch of your customers, then I think that is an interesting idea,” he says.

“You really might not like what they say, or you may be surprised by what they say – but those surprising results can sometimes be the best in a way, because it may be something you have been missing for a long time.”

Questions you should ask

The American writer Mark Twain was well aware that numbers can be contrived to back any argument.

“Figures often beguile me, particularly when I have the arranging of them myself; in which case the remark attributed to Disraeli would often apply with justice and force: ‘There are three kinds of lies: lies, damned lies, and statistics’,” he wrote.

The observation could be made of many of the survey results found online. Many have been produced as a marketing exercise by companies and reproduced by others who want numbers to add some weight to their arguments.

However, rather than accepting, on face value, survey claims that 30 per cent of the population thinks this or that, some basic checks can help determine whether the research is valid.

A good place to start is the Australian Press Council’s guide for editors, dealing with previously unpublished opinion poll results:

  1. The name of the organisation that carried out the poll
  2. The identity of any sponsor or funder
  3. The exact wording of the questions asked
  4. A definition of the population from which the sample was drawn
  5. The sample size and method of sampling
  6. The dates when the interviews were carried out
  7. How the interviews were carried out (in person, by telephone, by mail, online, or robocall)
  8. The margin of error

Other questions may be to ask where the participants were found and are they typical of the whole population of interest?

If only a small proportion of people responded, then you may deduce that the survey is biased towards the people who have strong feelings about the subject.

If the subjects were paid, this might affect their answers.

In the UK, there is a public information campaign Ask For Evidence, to encourage people to request for themselves the evidence behind news stories, marketing claims and policies.

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.