Unconscious steps: Lessons for all from financial industry scandals

CHARTERED ACCOUNTANTS Australia and New Zealand’s latest research suggests that it is unlikely that many of those involved in major financial scandals deliberately – or consciously – behaved badly.
“A more plausible explanation is that an industry-wide culture of tacit endorsement enabled wrongdoers to somehow justify their behaviour, irrespective of the ethical implications,” says A Question of Ethics: Navigating Ethical Failure in the Banking and Financial Services Industry.

And so it goes for all of us.

A Question of Ethics, though looking at the finance industry, is a bit of a case study – relevant to all businesses – on the importance of an ethical culture.
There’s a great scene in the The Wolf of Wall Street where the anti-hero Jordan Belfort tells a waiter “I’m good with water for now…”

His host replies: “It’s his first day on Wall Street, give him time.” Workplace culture matters a whole lot when it comes to ethics – the path towards ethical downfall is often taken with small, often unconscious, steps.

And it is not a theoretical danger. A live poll we did at the Auckland launch of A Question of Ethics showed half of the respondents had witnessed unethical behaviour in their organisation. Our report says that while rules and regulations play an important role in preventing scandals, they will not succeed in isolation – not without the support of an ethical culture.
A six-country survey of over 700 industry practitioners we did as part of the report suggests that many of those working in the finance industry perceive rules and regulations to be the main influence on their behaviour. Respondents – and I think this finding applies more widely – were less aware of the powerful influence cultural factors within their industry had on deterring or encouraging unethical behaviour.

One example given is compensation structures, such as bonuses. As part of the survey, respondents were asked about their attitudes towards practices such as mis-selling, the need to protect personal data, tax avoidance and clipping the ticket. (See the infographic) Individuals in business cannot and should not delegate ethical choices to rules and regulations. As the report says, the challenge is to ensure ethical standards have an appropriate place in workplace decision-making and activities.
It also dismisses the ‘bad apples’ defence. “Blaming the industry’s ethical failures on a few ‘bad apples’ conveniently deflects attention from the cultural issues affecting the industry as a whole.
“Would it not be more useful to address the culture or the system that grow ‘bad apples’ and allows them to thrive?”
A Question of Ethics says the challenge lies in ensuring ethical standards are given their appropriate place in decision-making and action.

Specific recommendations made by the report include:

• Providing a clear set of principles to guide decision-making.
• Greater diversity and inclusion in the workplace to counter ‘groupthink’.
• Including ethical considerations when calculating remuneration and incentives.
• Establishing ethical key performance indicators (EKPIs).
• Banning euphemisms.
• Creating an ethical decision-making framework to help employees identify and navigate ethical dilemmas.

These are actions all business leaders should look at. Chartered Accountants Australia and New Zealand – bringing together over 115,000 business and financial experts.

www.charteredaccountantsanz.com | +64 4 460 0600
By Kirsten Patterson, New Zealand Country Head, Chartered Accountants Australia and New Zealand.