When c, how should we respond? In researching the issue, I discovered that although organizations applaud good corporate governance like transparency and accountability, outcomes are becoming more perverse than honest. Although this article is not intended as an exposé, it does uncover some trends worth eyeing carefully. Be sure to check-out our new Business Ethics Program at Business Ethics (worldcc.com).
In my recently published article1 I highlighted cases of fraud in procurement with the Commonwealth Bank of Australia including these examples:
- A senior executive sentenced to three-and-a-half years in jail for bribery for awarding $10.5 million in IT contracts;
- National Australia Bank (NAB) rocked by an alleged multimillion-dollar fraud involving a trusted NAB lieutenant and a key contractor; and
- Australian Securities and Investments Commission (ASIC) sued by the Australian Mutual Provident Society (AMP) for insurance churning by planners who churned clients into similar, new insurance policies so they could claim inflated commissions.
I asked whether these had been isolated cases or whether a more endemic condition had been serving up far too many instances of poor ethical behaviors. The latter had indeed become a trend, resulting in Australian leadership establishing The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.2
The Royal Commission asked the question “Why did it happen?”3 and found that “too often, the answer seems to be greed – the pursuit of short-term profit at the expense of basic standards of honesty…from the executive suite to the front-line staff were measured and rewarded by reference to profit and sales.”4
This pressure to achieve sales Key Performance Indicators (KPIs) created a culture of greed and dishonesty. The Royal Commission then asked the follow-up question, “what can we do about it?”
Although existing laws and regulators existed, they had not tried to stop endemic misconduct. And although they may have espoused good corporate governance principles such as transparency and accountability, they had failed to practice those good behaviors.5 As we move into more performance-based contracts, how do we avoid the unintended and “perverse” outcomes our WorldCC colleague, Dr Andrew Jacopino identifies on his blog?6
If we assume that these tensions exist in different ways across different industries7 we are forced to ask and answer the question: has this past year of Covid-19 pandemic helped or hindered the risk of poor behaviors? After all, the pandemic has escalated remote working, but has it also dragged in inherent risks of fraud8 and it has increased the temptation for late payments?9
We need to therefore ask, in response:
- Are our procurement processes driving ethical behaviors and outcomes to support our business license to operate?
- Are our contracts building trust between the buyer and seller, as well as with the general public who ultimately deem our Social License to Operate (SLO)?
- Are our KPIs ensuring that we are creating a world where all trading relationships deliver social and economic benefits?
- Are we prepared to take a leadership role considering the tremendous pressure of Covid-19 on the triple bottom-line, including how we ethically shore up disrupted supply chains and how we ethically distribute vaccines throughout the world?
I recently asked readers the following question and what follows should shed light on it...
Has COVID-19 helped or hindered the risk of poor behaviors?
In other words, has Covid-19 helped or hindered the risk of poor behaviors in our business community? I believe this area of contract and business ethics may not be as black or white, right, or wrong, as we may think. It can be rather grey and conflicted, especially when we are trading off between social and economic outcomes as we’ve been doing in this year of Covid-19.
Given that, how do we prioritize…
- public health over economic viability;
- local over global supply chains;
- public versus private quarantine hotel security; or
- shorter over longer payment terms?
Moreover, how do we know whether we are making those decisions purely on economic rationalist terms or on ethical terms? Does it make a difference, or does it work out the same in the long run?
Today, The Wealth of Nations (written by Adam Smith10 in the 18th century) is generally considered to be the foundation of economics. You could be forgiven for assuming that Smith believed free markets are the best path to economic wellbeing and he has supported economic rationalism and the argument for ‘greed is good’ at any cost.
However, Smith was a Professor of Moral Philosophy and not an economist. Although he believed that the government had an important role to play in ensuring a “well governed society,” he particularly criticized actions that harmed the weak and the poor.
He believed people were fundamentally motivated by self-interest, saying, “As more people are encouraged to work, save, provide for their home and care for their family, the more there is a benefit for others. This benefit is achieved through increased economic activity as well as a decreasing tax burden as State support is lessoned”11.
Overall, Smith would say a focus on free market economics does lead to good ethical behavior as well as enriched economic outcomes. However, as the lessons from the 2008 Global Financial Crisis and the 2018 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry12 have shown us, greed continues to drive unethical behaviors.
Is it good enough to put strong corporate governance practices in place? In 2003, the collapse of Health International Holdings Ltd. (HIH) Insurance13 led to another Royal Commission. It found that HIH had a corporate governance model in place, but they had failed to review the model to assess its suitability for changing circumstances in the insurance industry.
So, yes! Organizations need to constantly assess their risks and adjust policies and procedures, as well as measurements like KPIs and results reporting. But so do we because there is a personal element to business ethics. With freedom comes responsibility and we are responsible to ensure that our personal ethical convictions are adjusting to changing circumstances.
For example, ask yourself:
- Does it make a difference to your ethical choices if the systems are disrupted, or you work from home?
- Does it make a difference if others are distracted by crises and more urgent issues, and that you have more freedom to choose who to contract with, how to govern them, and what to pay them (and when)?
- Should you also consider the Melbourne hotel Covid-19 quarantine fiasco?14 Are we still responsible for doing what Justice Owen said in his final report into the HIH Insurance collapse: “did anyone just step back and ask themselves: is this right?”15
How do you decide what is right or wrong in in the world of commerce and contracting? In the now classic survey of business ethics by Raymond Baumhart16, “50% defied ethical as ‘what my feelings tell me is right; 25%...in accord with my religious beliefs’; and 18%...as to what ‘conforms to the Golden Rule’ [do unto others what you would have them do unto you].”
So, we often rely on feelings and beliefs, then we make choices. We do not need to be responsible merely because of the saying “Be careful what we say we believe; we are responsible to live accordingly.”17
Perhaps also, we are ethical because we fear the consequences of getting it wrong or ‘whistle blower backlash’ -- or simply because it’s someone else’s responsibility?
Psychologist, Dr Amy Silver states,18 “Fear helps us to spot potential loss and drives us towards behaviors that avoid the risk it knows, sees and feels. Fear keeps us safe…[however] If we only ever listened to fear, we would avoid anything risky…When fear dominates, it shouts at us to avoid change, to play small, fit and keep quiet, not to shine or rock the boat…Remarkable performance relies on learning how to manage fear.”
So, let’s manage our fear!
When we face economic and social disruption (like Covid19), and work practice disruption (like agile or automation), we need to achieve remarkable performance. We need to manage fear, uncertainty, and doubt to act on both economic rationalist terms and on ethical terms to make good choices.
Amy Silver goes on to say, “One of the benefits of the craziness of 2020, is that we have spent more time sitting with ourselves and the challenges of our world in a less distracting way. The realization has struck that we are less in control of our lives and more vulnerable than we imagined…Analyzing our connections and our convenience, without the distraction of usual routines, means that we have been less able to avoid ourselves and our difficult emotions.”19
So perhaps paying attention to these feelings and emotions is not such a bad place to start? We do have the opportunity in 2021 to take the time to reflect on our decisions and their social and economic impact. To ask the simple question: is this right? To get in touch and question ourselves we may say “it just feels wrong.” There is wisdom in the advice, “don’t just do something, just sit there.” Our encouragement is to take the time to consider the ethical implications of our decisions in 2021.
Discover more at www.worldcc.com as we unpack and promote ethics and social value in 2021!
Find out more about the new WorldCC Business Ethics course here.
- Business Ethics – A Contradiction in terms? Part 1
- See Wikipedia description of The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
- Article in News titled Kenneth Hayne’s royal commission report alone can’t change banking’s greedy philosophy
- The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry – Interim Report
- See my blog https://www.linkedin.com/pulse/cultures-good-governance-bruce-everett/
- Performance Based Contracting (PBC) blog – Andrew Jacopino
- More than just in business? In the foreign aid sector, various charities (including Oxfam, Save the Children, Medecins Sans Frontieres, UNHCR) are under investigation for allegations of sexual misconduct.
- See PWC - Disturbances in normal business processes, controls, and working conditions give malicious actors opportunities to commit fraud, while the chaos and uncertainty of the crisis enable many to rationalise bad behavior that might otherwise have been checked by ethical codes. https://www.pwc.com/gx/en/issues/crisis-solutions/covid-19/increased-fraud-economic-crime.html
- See the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, in Ethics in Procurement – A Report by the Ethics Alliance
- Adam Smith An Inquiry into the Nature and Causes of the Wealth of Nations 1776
- Richard Morgan Lessons from the Global Financial Crisis: The Relevance of Adam Smith on Morality and Free Markets (Connorcourt, 2009) p37
- 2018 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
- HIH Insurance (formerly Health International Insurance) definition
- Victoria hotel quarantine failures ‘responsible’ for Covid second wave and 768 deaths, inquiry told, The Guardian U.S. edition, Mon 28 September 2020
- Justice Owen: HIH insurance Hon Neville Owen “Did anyone ask themselves, ‘Is this right?’”
- Quoted in Manual G. Velasquez Business Ethics: Concepts and Cases (Prentice-Hall, New Jersey, 1998) p.7
- John White Uncommonsense: Reclaiming Humanity (Coventry, Bayswater Melbourne 2019) p70
- Dr Amy Silver in Julia Steel’s Book Unite (McPherson’s, Fitzroy Melbourne 2020) p22-26
RELATED ARTICLES BY BRUCE EVERETT
This article content is based largely upon two previous articles written by Bruce Everett who published both on LinkedIn.
Content reflects views and opinions of the author and do not necessarily reflect the views and opinions of World Commerce & Contracting.