Directors, is ethics on your board agenda?

Friday, 29 June 2018


    Five ways to start the conversation for your board of directors in the wake of the banking Royal Commission from Peter Collins GAICD, Director of the Centre for Ethical Leadership.

    An ethics committee on every board

    “We live in the midst of a multitude of ethical challenges facing businesses and boards. Some companies are grappling with very difficult ethical issues, yet if they fail to dedicate serious time, they will miss the ethical dimension of same. For example, AI is here and organisations need to dedicate time to think their way through issues such as liability, the systems effects of job losses and the deeply complex issues around privacy. Businesses set up incentives schemes and talk of being committed to the best interest of their customers, yet incentivise their employees to sell. It’s an ethical trap set by the company, as it is almost impossible for a rational employee not to sell. So, it is worth getting your board to take a retrospective look. Count the hours in the past year that the ethics of the organisation was talked about as ethics — not as risk or as legal liability — at board level. Is it enough to work out the right thing to do? In addition, there are good grounds to have an ethics subcommittee, just as BHP has — in my understanding, the only company in the ASX 200 to have one. Just as in medical research, a committee of this kind allows deeper interrogation of the ethical dimensions of issues, and given how difficult some of these issues are, allows them to be dealt with thoroughly and in depth.”

    If you held an in-depth board inquiry into your own culture using a Royal Commission approach, what would your board find?

    A part-time board model works against an ethical culture

    “At the risk of being provocative, the part-time model of a half or full day for board meetings often deals well enough with finances but, as is evident in recent Royal Commissions, is clearly inadequate on issues of culture. Many cultural issues are buried well away from anyone’s sight, and tools such as engagement surveys are inherently limited. Boards are the custodians of the culture and ethics of the organisations they govern. But boards generally commit insufficient time to probe deeply into culture. Really understanding culture takes a particular set of investigative skills, currently demonstrated by the barristers and others conducting the Royal Commission. Such skilled forensic probing could be a model for the way boards should operate. After all, boards can gain access to information in the company by right. If you held an in-depth board inquiry into your own culture using a Royal Commission approach, what would your board find? What would you be afraid it might find?”

    Moral courage is not enough. You need the right systems

    “Skilled ethical leadership from boards requires moral courage and the obligation to ensure that the right systems and processes around integrity are in place in a company. Some companies have systems to capture revenues, but not complaints, so they are missing invaluable data about how customers are impacted. Difficult issues such as sexual harassment and bullying need targeted processes so that the information is available on a constant basis to boards.

    In a recent case involving an ASX company, when allegations of sexual harassment were made against the CEO, the head of HR said, ‘Oh no, he’s at it again’. Clearly, management knew, but one wonders if anything was written down anywhere that a board could find. Years of records tell you something, especially if such allegations occurred in previous workplaces. Processes also matter — deeply. If the Catholic Church had put in place mandatory reporting to police, how many thousands of children would have been spared the trauma of sexual abuse? Stress-test your own systems and processes.”

    Ensure diversity is an ethical issue, not just about results

    “Boards that reflect gender discrimination lack the ethical composition to deal fully with the kinds of ethical challenges that play out in businesses in Australia. The debate about diversity has been based on a shallow premise that what matters in diversity is greater productivity and better results. Discrimination of any kind, whether it be gender or race, creates the moral blindness that fails to recognise the gradual decline into unethical behaviour. Do a simple count of the number and percentage of females on your board and ask yourself what this signals to the organisation in terms of inclusion, diversity and unjust discrimination. Ask what message this gives to staff and the wider community about the culture you and your board are setting from the top. Diversity is about rectifying discrimination, not simply getting more profits.”

    Think like Aristotle

    “Almost 2400 years ago, Aristotle said that ethics started with clarity of worthwhile purpose and that one should test one’s actions against that purpose. Boards should be vigilant guardians of the way management stays true to the purpose of the company. Prior to that, make sure the company has one that counts.

    In my view, boards can surely do worse than channel Aristotle and make sure we act to stop the overwhelming pattern of ethical failure as evidenced by the Royal Commission. For Aristotle, integrity was a habit. It’s time for all of us to practise even more.”

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