Ethical Culture- What does good look like?

Having a scandal-free year is on top of most organisational leaders’ agendas.  Such are the times we live in that this can seem like a lofty ambition as the internet shrinks the world and consumers organise to hit out at brands falling short of their expectations of business conduct.

Putting profit goals ahead of the conduct risks they spawn has resulted in trust in organisational leaders being at an all-time low.  A report published by a University of Manchester professor in 2013 described the loss of public confidence in British banks between the early 1980s and 2009 as the biggest change ever recorded by the British Social Attitudes surveys, which had been conducted since 1983.  Social media has become the public noticeboard to “name and shame” and keep the pressure on organisations refusing to recognise changing societal tolerances.

Just last week For example. Google’S New York-based employees staged a sit-in to protest against a  perceived “culture of retaliation” against employees who demand higher standards of behaviour.  This protest then spread to other global offices and social media via the hashtag #NotOkGoogle. The latest protest follows on from a previous demonstration just six months ago when thousands of workers at Google offices around the world walked out to protest at how the company handled sexual misconduct claims.

Google, however, is far from being alone in its failure to respond appropriately to conduct risks and the ethical dimensions that accompanies them.  E&Y’S 2018 research shows that many employees don’t trust that their organisation will act on whistleblowing complaints or keep them confidential. The recent Royal Commission into Australia’s banks and insurance companies, involving most of Australia’s top brands in this sector, highlights the real shortcomings of their state-of-the-art compliance programmes and the loudest message about the ineffectiveness of a compliance approach.

Risk culture can no longer be delegated to the compliance or HR departments. It is, and always has been, CEO accountability since only they have the positional power to shape it.  What leaders do and reward sends the loudest message about how people should act and determines the extent of prevailing conduct risk. Hoping the advances in AI and big data can compensate for the past failures of the ‘three lines of defence’ model is not the answer either. Technology will not save ethical reputations. Leaders stepping up to purposely design their organisational cultures and preside over monitoring activities to ensure desired behaviour standards are maintained, will.

Why does unethical behaviour emerge in compliance run organisations?  There are several systemic sources, all of which emanate from the human dimensions of workplace culture.  Relationships and interrelationships, in all their complexity and messiness, are the roots of all conduct risk, and they cannot be managed by policy, no matter how sophisticated the surveillance is accompanying it.  Only when leaders themselves set and maintain behaviour standards will employees get the opportunities to develop the skills necessary to differentiate between unethical behaviour, risk management and criminal conduct.


What Does an Ethical Organisational Culture Look Like?

The good news is that most conduct risk is avoidable when leaders get serious about managing organisational culture or maintaining the one they may have been lucky enough to inherit. So, what makes for ethical workplace culture?

It is actions, not words that set the tone from the top and demonstrate for all employees how they should pursue business goals. Ethical cultures emerge when leaders lead by example. For the board, this means selecting executives who can champion the company’s ethical standards and values. When the actions of the board and top executives align with the company’s values, employees can relax, the rules are clear, and it’s safe to expose misbehaviours.

Since organisational culture is about human behaviour, an understanding of how personal beliefs, motivations, incentives, leadership styles, the design of policies and systems, and how they all interact to trigger conduct risk is the new  “must have.” It requires a lot of reframing of old ideas of why people do the things they do as well as new “mental models” of leadership and human motivations. The behavioural sciences are a powerful tool that can be used by leaders to engender responsible decision-making and significantly improve organisational behaviour. Aided by behaviour science insights, leaders sponsor strategic organisational interventions designed to forewarn and forearm employees about the ethical business issues they will face and how they can prepare themselves to offset contextual pressures.  The can also deliberately manage the “the mood in the middle” because it is middle managers who have the most impact on how employees behave.

Ethical organisational cultures embed formal and informal incentives promoting and reinforcing desired conduct.  Employees are rewarded not just for achieving operational goals but also for how these are gained, be it in the form of one to one praise or formal company recognition system acknowledgements. These are public symbols of leaders’ commitment to promoting ethical behaviour and importantly serve as validations for employees.

Ethical businesses jealously protect and promote their organisational culture because they know it is their competitive edge. They recruit in their likeness and ensure newbies sign up to their standards as part of their employment contract. The famous Zappo culture  offers a prime example.  After four weeks of training and a week on the job, all new hires are offered payment for their time and a $2,000 bonus if they decide the company is not right for them – such is Zappo’s commitment to maintaining their cultural advantage.

Even where leaders formally manage culture misconduct can still emerge, although there is a much greater chance that it will be reported. When left unreported, unethical behaviour undermines cultural strengths enabling risk to flourish. Employees opt out of reporting risks, especially when their managers are involved because they believe nothing will be done about it. This significant internal barrier to risk management needs to be addressed by investing in building “speak up” cultures and showing zero tolerance for any sort of retaliation.  Removing the fear of speaking up enables the organisation to learn about where the system is failing and enables realignment between employee motivation, skill set and risk management.

Good governance requires a focus on leaders’ traits and behaviours and how they influence others through guidance, communications, rewards and disciplines.  Boards need to reframe the role of leaders to recognise ethical leadership as a process of social influence, where leaders steer organisational members towards a standard of behaviour and hold the line when standards are breached.

It’s time we distinguished between ethical leadership and leadership as usual.  Ethical leaders make it as easy as possible for employees to adhere to ethical standards.


Workplace Culture: Enabling Organisational Management through Speak-Up Initiatives

Despite codes of ethics and codes of conduct being increasingly part of most businesses’ cultural management strategy, they remain ineffective because hotlines simply don’t work. We now have 20 years of field research to show that employees don’t use them because they are either afraid that raising issues will impact negatively on them or they believe that nothing will change so why bother.

Organisations are therefore vulnerable to internal risk or illegal behaviour as it is employees – not the internal or external auditors – who are the first people to see risks. It pays big time to invest in promoting speak up cultures. To achieve this requires formal recognition of the power of the social life of your organisation. It is here, in this shared internal community life, that employees learn acceptable and non-acceptable ways of relating to each other. These ways can undermine formal codes and policies. Other key steps include:

1. Insisting the top team participate in any speak up initiative as their behaviour is the loudest message around the safety of raising concerns

2. Appeal to personal identity: Most people have a strong self-concept and self-identity that they are ethical. Employees rarely self-identify as part of the problem. Appealing to employees’ sense of personal identity is, therefore, a powerful lever for behaviour change

3. Build life Skills – values conflicts are inevitable, so forewarning employees to be alert to other stakeholder perspectives and the contextual pressures surrounding them will help offset defaulting to an “automatic pilot” decision making cultural norm

4. Train managers and employees in “speak up” skills to enable a shared organisational language around risk as a prerequisite to a speak up culture

5. Take a systems approach. Ideally, training is organised in cross sectional groups to enable employees to hear each others concerns and to amplify the usually silenced organisational social life where employees assumptions and needs are shaped. A whole of organisation approach also enables employees to see that everyone is being asked to change their behaviour. Speak up skills draw on the lessons from conflict management, mindfulness, behaviour science, Giving Voice To Values and assertiveness training.

6. Peer to peer accountability: It is critical that managers and leaders hold each other accountable to model the appropriate behaviour. Insist managers at every level develop action plans for what this will look like in their areas.

7. Embed in the organisation: What gets measured and rewarded, gets done. Align the existing reward and recognition systems to support the speak up cultural change program.

Ideally, speak up initiatives will be a cornerstone to your organisation living its stated values. Communicating in these positive terms and inviting employees to identify additional ways to raise issues that will work for them will build trust and restore confidence in the integrity of your Code of Conduct or Code of Ethics.

Purpose of Business: Royal Commission’s Take On Banks

Have business leaders lost touch with their true purpose?

There are many important reforms that can or may result from the Royal Commission into the financial sector in Australia. Regrettably one of them will not be a system-wide view of the way in which our banks are structured. Many commentators have lamented the absence of a recommendation for the re-design of the sector or the business models that obtain in our 5 largest financial institutions. This is a real shame as the opportunity exists for us to examine not only their culture but also the inwardly focused structures that perpetuate these outmoded cultures. We could go further and challenge the leaders of these institutions, particularly the Boards, to reflect on their true purpose, that of delivering value to all of  society.

While much of the ensuing debate around the accountabilities of the banks revolved around a narrow accountability based on shareholder vs customer, other leading companies around the world are talking about a much bigger story. These leaders see the purpose of business being one that benefits all of society. This is achieved when business leaders focus on forging  more innovative and beneficial products and services that contribute to building a resilient economy as well as societal social progress. Unilever is perhaps the poster child for how an organisation can thrive by adopting a sustainable business success formula that purposely manages to be net positive on society.   Its portfolio of Sustainable Living brands has grown 50 percent faster than the rest of the Unilever business — and delivered more than 60 percent of Unilever’s overall growth in 2016.

In place of an inspiring vision of the purpose of business and how it can transform societies for the better, it might seem from our financial services sector  that a win/lose orientation  has evolved, whereby gains can only be made at the expense of customers or society as a whole. Without a clear purpose that sees business’s role as one of stewardship of all stakeholders – shareholders, customers, wider society, the environment and supply chain contributors –  governance becomes a compliance task rather than as a principles-driven approach championed by all because it ensures collective prosperity.

Given that our existing governance models have failed, do we need to ask bigger questions around their suitability? For this, it may be useful to  look at other jurisdictions for inspiration. Employee representation  on boards, for example, is relatively common in Europe and around one thousand MNEs with operations in Europe have a European Works Council, including over 150 US companies. Board level employee representatives are present in over 90% of listed companies in Germany and in Austria. In Sweden and Norway its 70% while in France its 50%. The  input from these diverse  stakeholders  helps management tor mitigate any values drift between the values of company insiders and the values of wider societal values.

Diversity around the Boardroom table may forewarn members of the new challenges to corporate reputations in a networked world where it is the intangibles of reputation, employee talent and customer preference that are as much the assets of the company as its cashflow.

Whether we like it or not, corporates are the major institutions in the world and are using their power – both economic and political – to shape how societies are evolving. In other jurisdictions, the ever-expanding size and role of corporates has focused greater attention on their non- financial impacts. From supply chain human rights exposures to  climate change action, these risks increasingly reflect changing societal values that demand corporate reform.

Other regulators have recognised that the business of business extends well beyond the financial bottom line.  In 2017, France adopted a new law known as the ‘law on the duty of care’, requiring French parent companies and their subsidiaries to institute preventive and remedial measures on both themselves and companies within their supply chain. Germany adopted a National Action Plan for Business and Human Rights, in which there is a proposal for state-owned companies and private companies with more than 5,000 employees to conduct due diligence to prevent abuses of human rights. In the UK, since October 2015, the Modern Slavery Act has required boards of companies carrying out operations in the UK and that have a turnover of at least £36 million to approve and publish an  annual slavery and human trafficking statement.

Rebuilding public trust in the financial sector will require a bigger and more engaging story from business leaders about how their enterprises are enhancing Australian society  beyond return to shareholders. Is this the sort of public conversation we need to have in Australia if we are to see a fundamental reform in how business in general, as well as the financial sector, will operate in the future?

A timely and interesting article about the ethics of artificial intelligence (AI)

This paper has been written to consider how advances in artificial intelligence (AI) will affect the different roles in which people operate as members of society, members of a business and as individuals. It presents an overview of the ethical issues that need to be considered and, perhaps, enshrined in regulation as we embed AI and machine learning applications into our workplaces and our personal lives. It also seeks to explore how regulators have so far responded to AI’s advances and to identify some of the ethical questions the accounting profession, business in general and individuals need to ask as we engage with these new technologies.

To date, the media focus on AI and machine learning has been characterised by two extremes. The first focuses on the tremendous benefits AI can deliver to humankind, freeing us from workplace drudgery and enabling us to actualise our higher order skills. At the other extreme are warnings of robots coming to take over our jobs and a world of “big brother” surveillance emerging where our every mood and move will be monitored and analysed, the ensuing information used to manipulate us in ways, not of our choosing.

The approach of this paper is to present a more holistic snapshot of this very fast-paced technological movement, to anticipate how these developments will affect our personal, social and workplace environments and foreshadow the ethical implications that need to be considered. To assist us in drafting this paper, we have interviewed key industry figures across Australia and New Zealand to gain their insights. Special acknowledgments go to Sarah Adam-Gedge CA, Professor Nicholas Agar, Lachlan McCalman, Antonio Papalia CA, Channa Wijesinghe FCA, and Peter Williams FCA.

We suggest that, with the recent advances made in machine learning, we have arrived at an ethical crossroads where we need to determine the role AI will play in shaping our shared futures. Our immediate ethical challenge is to consider how best we can use AI to advance human well-being and how best we can prepare people for an AI world. We have a window of opportunity, to step back and purposely design an AI world that ushers in a more inclusive global society and economic system that exists today. If we fail to build the ethical dimension into each stage of our AI journey, an alternative route that perpetuates the current polarization of wealth and resources within and between societies seems inevitable. The academic world has put in place an ethics regime around research with humans which may be the appropriate starting point in considering the type of ethical framework necessary to guide ongoing AI developments. It is in everyone’s interest to ensure AI will take us to places where we want to go and that the journey will change us in ways that enable us to evolve and flourish as human beings.

Organisational Culture: APRA Fever Hits Australia

Reacting to the intense scrutiny of the financial and insurance sectors by the Royal Commission and Apra’s recommendations, Corporate Australia has gone into a bit of a tailspin about what they should be doing that they are not already. How quickly can they put in place some sort of defensive shield against the regulator’s blowtorch that has suddenly turned on them?

The reality is there is no quick fix, no band-aid that can be applied. A kneejerk reaction would be a real missed opportunity for organisations to get their house in order for the long term. The bigger question is not how they got into this mess in the first place – a mess of their own making – but how do they retrofit a culture that has integrity and meets the needs and aspiration of all stakeholders, their customers, their employees, their shareholders and society at large.

The business case for doing so has been well proven, that leaders who manage for all their stakeholders outperform those with shareholder only priorities. Most organisations already have in place the values and conduct risk protocols that Apra is recommending; what they lack is the conviction to put them into daily practice. Business needs to move beyond paper compliance and actively breathe life into those protocols as the foundation of how they do business. Current constructs of leadership need to evolve into an ethical leadership model rather than “leadership as usual”. Contemplating conduct risk offers a transitional model that would potentially avoid many of the crises that have befallen the financial services industry.

The new paradigm of “a risk culture approach” describes the values, beliefs, knowledge, attitudes, and understanding of risk shared by boards and organisational members. It concerns both financial and non-financial risks. The exposure of conduct risks in the financial sectors led to many of the customer sufferings that has so shocked the public.

The Royal Commission into Banking and Finance, has presented institutional leaders with a golden opportunity to breathe life into their existing value statements and codes of conduct. Rather than seeing them as legal requirements, we need to take a new approach to build organisational integrity and workplace culture, one that begins from a mental model that “thinks human first” and sees employees as consumers too.

Thinking human first would encourage business to develop a very different roadmap to success as well as risk management. Move beyond the current crop of “heat maps” that seek to explain systems, not people, and instead explore the human dynamics shaping the – individual and group “mindsets”, resentments, misunderstandings, contextual pressures, interpersonal rivalry, perverse incentives and role modelling, destructive communications, departmental politics and a host of other social and psychological influences that together shape human behaviour in the workplace. It’s complex, it can be done, and, it requires new “mental models” such as those emerging in new start-ups.

This significantly younger generation of business leaders begin from a different place and a very different cultural story unfolds Here, leaders purposely design culture to ensure employees flourish. Establishing the bigger purpose from the outset means everyone becomes a risk manager because they want to contribute to that bigger story of making a difference and delivering positive impacts.

Boards, too, need to change their mental model of the skills needed around the table. Who can help them to better understand the human dynamics driving the direction of their organisations? What new sciences do they need to understand to better lead the organisations they are charged with shaping? The Royal Commission has vividly demonstrated that giving priority to shareholder interests can lead to conduct risk, customer angst, social media outrage, and brand disintegration; it’s time to at least contemplate a new governance model.

So, let’s hit the pause button. Let’s take this opportunity to step up and think about how organisational members are going to be together before moving on to what will be the output of their collective efforts. Beyond that, let’s think about how the world has changed and why Boards also need to change. We need new talent to build the social infrastructure that enables an enterprise to flourish; big picture thinkers who deal in the dynamics of continuous change and its relationship to organisational vitality. As Einstein once famously said, “We can’t solve problems by using the same kind of thinking we used when we created them.”

Do we need another hashtag viral campaign to make AI safe for females?

Just when we thought the #MeToo and #TimesUp viral campaigns were dealing deathblows to institutionalised sexism; another spectre has emerged to threaten female social and economic progress.

The advances being made in Artificial Intelligence (AI) applications and machine learning are not gender neutral. According to research by Dr. Brahnam, Assistant Professor in Computer Information Systems at Missouri State University, users direct more sexual and profane comments towards female-presenting chatbots than their male counterparts and this harassment of female chatbots may well contribute to the entrenchment of our existing societal trend of females sexual harassment.

Brahnam’s research highlights the potential of AI to perpetuate gender bias, role stereotyping, prejudices and abusive behaviour towards women – in virtual and flesh and blood arenas.

A recent survey undertaken by the British Science Association found that the average UK person has little knowledge of the current impact of AI advances and are apprehensive of its potential negative impacts. Tackling low general awareness of how AI is already being embedded into our daily routines may well be the next biggest challenge for the female equality movement.

We have all experienced how the most popular and widely adopted AI virtual assistants such as Siri, Alexa, and Google Home, have all been designed and programmed with socially prescribed female personas. Dr Brahnam suggests that the design and coding of these virtual assistants perpetuate the stereotype that women are subservient to males. With the ever-growing widespread use of chatbots across industries, academic research shows that users direct more sexual and profane comments towards female-presenting chatbots as well as attributing negative stereotypes. They are also more often the objects of implicit and explicit sexual attention and swear words.

Leah Fessler in Quartz reviewed how different female sounding bots responded to various forms of harassment. Her findings suggest that the design and coding responses indicate coders were anticipating sexual harassment but had decided not to tackle the anticipated virtual sexual harassment by coding more socially responsible responses. Instead the existing bot response, Leah suggests, helps entrench sexist bias through their passivity. Does not doing something to address a known social bias help perpetuate that bias? Is this one of the ethical issues of AI that needs to be seriously addressed and very quickly as the march of AI is currently outstripping regulators ability to put boundaries around it?

A precedent has already been established in the world of virtual games where for example, World of Warcraft (WoW) users get an immediate suspension if players use offensive language or bully others and still others, deliberately coded to promote positive social interactions and positive female role models. It has been suggested that the WoW game, for example, is coded within a virtue ethics framework.

Leah suggests that the R& D companies and manufacturers who are designing, and marketing digital female stereotypes perhaps have a much higher accountability because of their potential global social impact. Instead of ignoring the problem. She suggests designers could adopt a positive and proactive role in addressing harassment by coding potential responses that challenge the bias. Responses such as “harassment is unacceptable” or “ are you aware that denigrating females is a human rights issue” or “please observe appropriate standards when interacting with females in the virtual and physical worlds. Or like the gaming world, they could “sinbin” users for anything from 3 – 72 hours and/or even totally suspend users until better behaviour is demonstrated.

There is ample research to show how females are under-represented in the technology industry and how they hold disproportionately fewer tech-related jobs throughout the developed world Are we already seeing the ethical implications of this in the design of the current crop of chatbots with their unemancipated female personas?

The tech giants of Silicon Valley have been accused of operating with an ethos of “Build first” and ask for forgiveness later. Females may have to pay a much higher price for this approach. Perhaps we need a new #ethicalAI campaign to emerge to persuade regulators that inclusion here also is a social imperative. How can we ensure that techos do not decide the pace of social change for half of humankind?