Boards face growing list of ethical challenges

Aged care and gambling reinforce the complexity of ethical decision-making in governance.

Few industries face more complex ethical challenges than aged care. Listed aged-care companies must balance the needs, dignity and safety of elderly residents with the sharemarket’s need for rising profits.

The current Royal Commission into Aged Care Quality and Safety has exposed questionable ethics in parts of the sector. Families of residents have given evidence of poor resourcing at some facilities, overmedication, chemical restraints, coercion and resident assaults.

Like the Financial Services Royal Commission, the Aged Care Royal Commission has lifted the focus on the board’s role in organisation culture and its skill in ethical decision-making to balance stakeholder needs.

George Savvides FAICD has seen the challenges and opportunities of aged-care governance first-hand. The respected director, a former CEO of Medibank Private, is a non-executive director of Ryman Healthcare, a leading New Zealand-based provider of retirement villages and aged-care services that is listed on NZX. Savvides also chairs the recently listed ASX company Next Science, is Deputy Chair of public broadcaster SBS and a non-executive director of Insurance Australia Group.

“The fundamental role of aged-care companies is to care for elderly citizens in the last quarter of their life and make the experience positive for them and their families,” says Savvides. “If you do that consistently well you get satisfied residents, positive recommendations from families and more people wanting to join the company’s retirement villages. Higher profits, growth and organisation sustainability follow from great care.”

The key, says Savvides, is boards ensuring their organisation has a purpose-driven culture. “You have to get the order right: why is the organisation doing what it’s doing and how is it doing it? In Ryman’s case, the ‘why’ is caring for the wellbeing of our residents and the ‘how’ is through a strong care culture of values and ethical behaviour. Companies that have ethical problems typically do the opposite: they put business outputs, such as earnings, before investing in purpose, values, people and inputs.”

Boards must constantly reinforce the why and the how in their organisation and be satisfied a purpose-driven culture is maintained. In Ryman’s case, that involves holding board meetings at retirement villages, directors talking to residents and their families, and surveys of how stakeholders view the company’s performance.

Savvides says this focus on organisation values needs to be incorporated in performance assessment. “If you tell a retirement village manager that his or her priority is to meet a quarterly profit figure, they will inevitably cut corners by reducing staffing ratios, food costs or maintenance, or increasing occupancy rates. The best way to get to a bottom-line target is through great resident care, not by dumbing down costs and service. That relies on having a long-term approach and the board continually showing leadership that puts values and core culture first.”

Savvides is fan of staff engagement surveys as a way for boards to get a deeper reading of organisational culture and ethical behaviour of management. “A well-designed survey can show you if leaders throughout the organisation consistently walk the talk and have high ethical standards. I look at the data horizontally across the executive team and vertically through the divisions,” he says. “If you see red flags on staff engagement in the same areas, the concern is that poor ethical behaviour has infected part of the organisation and could spread. I always ask for the raw data behind the survey and read the behaviour questions rather than rely on the summary.”

Performance transparency is equally important. The New Zealand aged-care system is highly scrutinised: a government assessor team does an in-depth review of facilities that includes talking to residents and their families. “There is nowhere to hide in New Zealand if you have poor ethics in aged care,” Savvides says. “If a facility does not deliver, it losses its accreditation and that’s a good thing.

“Having third parties independently assess the quality of service can be very beneficial. Boards must be prepared to engage widely with stakeholders to get different views of their organisation’s service delivery.”

Over a long career, Savvides has seen instances of “malleable ethics” causing problems. For example, a new management hire, or director for that matter, wanting to fit in with their peers. “Sometimes their ethics move too much because they do not want to rock the boat or are more focused on personal acceptance and rewards,” he says. “They see something happening that concerns them but don’t say anything. Organisations need to encourage new hires, who have different perspectives, to speak up.”

Ethical challenges in not-for-profit sector

Many not-for-profit boards face difficult ethical governance challenges. Savvides recalls World Vision Australia, when he served on the board from 1998 to 2017, (including as Chair from 2012 to 2017) receiving approaches from large gambling organisations to include the international aid agency in their charitable giving programs.

The potential revenue would have been beneficial. At the time gambling companies were investing more in community marketing initiatives to improve their public image and were eager to work with World Vision and other charities.

“The World Vision board had to choose between moral imperatives,” says Savvides. “Is the acceptance of large donations from gambling companies seeking to improve their public image, consistent with the NGO’s values of helping families in impoverished nations help to lift primarily women and children out of poverty and save lives. When, back at home, the fall into poverty of some Australian families due to gambling addiction was already raising its head as a public debate in Australia?”

After assessing the sponsorship approaches against its values and principles, World Vision declined the charitable donations from the gambling corporation. “In the bigger picture it did not make sense to be aligned with organisations that did not support World Vision’s values of caring for distressed families in social and economic humanitarian crises, so we knocked the funding back,” says Savvides. “Revenue on its own is not enough; boards must decide if it is the right type of partnership and association, and whether the revenue growth is consistent and aligned with the organisation’s values, mission and principles.”

Accepting revenue from sports gambling organisations, or from gaming machines, is becoming a bigger issue for not-for-profit sporting enterprises. More boards are questioning the ethics of relying on revenue from gambling activities that hurt some in the community, when the organisation’s values are around health, communities and families.

In the 2019 AICD NFP Governance and Performance Study, directors outlined growing concerns about the social impact of rapid growth in gambling, while aware that not engaging with gambling companies could reduce their organisation’s income. This was a key finding in the 2019 survey’s specialist focus on not-for-profit sporting organisations.

Poker machines are a significant income source for many sporting clubs (outside Western Australia and Tasmania). AFL clubs received an estimated $100 million from pokies in 2018 and other professional sporting clubs rely on them for income.

The Melbourne Football Club showed leadership on this issue when it sold the Leighoak Club, and its 92 poker machines in July 2018, cutting most of its gambling ties and announcing a plan to end financial dependence on gaming revenue.

Chairman Glen Bartlett said that gaming was not a core business of the Melbourne Football Club and that the timing was right to exit the gaming industry. The income loss was significant; the club said it would need to claw back about 10 per cent in lost revenue from poker machines.

Melbourne Football Club Vice President, Kate Roffey GAICD, says the club’s exit from gaming was part of its broader culture transformation. “When I joined the board in 2013 there was a realisation the club needed change and a critical part of this was a cultural shift. The club spent a lot of time thinking about its values and that helped inform the decision to exit gaming. We felt the move away from gaming was important to the club’s rejuvenation.”

Roffey says the decision to drop poker machine revenue was complex. “It is not easy for sporting clubs to make ends meet. Clubs needs diversity of income and gaming is a significant, growing revenue source for many large and small sporting organisations.”

Roffey says the board and executive team focused on how the Melbourne Football Club would fill the revenue hole from gaming. “There was unanimous agreement on the board that gaming did not align with the Melbourne Football Club’s values. The next step was assessing the executive team’s strategy to recoup the loss of gaming income. It was a very significant long-term decision for the Melbourne Football Club and one we are proud of.”

Other AFL clubs are also moving away from gaming revenue. Collingwood, Geelong and the Western Bulldogs have, or are, selling their poker machines, surrendering millions in annual income, and North Melbourne has been pokies free for a decade.

Roffey has seen the complexities of gambling in other sports, through a distinguished career in sports administration and governance. At Tennis Australia she managed the Melbourne Park redevelopment, which secured $980 million in government funding. Now Director of Deals, Investment and Major Projects at Wyndham City Council in Melbourne’s west, Roffey is leading the development of an innovative new stadium that will transform sport in the fast-growing city.

She says gaming and sports betting are complicated issues for boards. “It is easy to say that boards should push their organisation to move away from online sports betting or poker machines because neither are aligned with values and ethics in sports,” Roffey says. “But there is a strong commercial consideration: much of the growth in sports marketing these days is from betting companies. Rejecting this revenue would threaten the viability of some sporting organisations.”

Roffey adds: “Boards have to weigh up both the pros and cons of offering gaming services to their organisation’s members. While there are well-noted downsides to gaming, there is some evidence that shows some people, in particular older people, enjoy a small flutter on the pokies and see that outing as an important part of their social activity. Yet we know that other people in the community become addicted to pokies. Boards have to think about the costs and benefits of exiting poker machines for all their members, not only those who might be harmed by it.”

The ethics of online sports betting is also testing boards, says Roffey. “We know there is a risk that younger men, who are prime participants of sport, can become addicted to gambling through sports betting Apps. But if a sporting code steps away from online betting, someone else will fill the void and the code might lose control of its information and its integrity. The reality is, gambling has become a part of sport, so sporting codes for the time being have to work with the gambling industry and ensure there are strong controls in place.”

Roffey expects gaming and online betting to become bigger issues for sporting boards in the next decade. “Boards need to consider the future and ensure their organisation is adapting to changing community expectations around ethics,” she says. “The Melbourne Football Club board saw a future where it would be harder for large sporting clubs to justify being involved in gaming. We wanted to show leadership on this issue for the club and its culture.”