Business Ethics - A Contradiction in Terms? Part 1

Back in January 2019, I wrote an article entitled Contract ethics – Culture and KPIs drive misconduct in the banking and financial sector, highlighting recent cases of fraud in procurement with the Commonwealth Bank of Australia (with a senior executive sentenced to three-and-a-half years in jail for bribery …in awarding $10.5 million in IT contracts); National Australia Bank rocked by fraud  (with an alleged multimillion-dollar fraud involving a trusted NAB lieutenant and a key contractor); and ASIC sues AMP for insurance churning by planners who churned clients into similar, new insurance policies so they could claim inflated commissions. I asked whether these were isolated instances of individuals exploiting their positions of power or whether there was a more endemic condition in our business cultures, suggesting that multiple instances of poor ethical behaviours indicate the latter (which ultimately led to the establishment of The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry).

The Royal Commission asked the question “Why did it happen?[1]” 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.” The 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”. They recognised that laws and regulators exist but that they had not worked to stop endemic misconduct. They recognised that organizations espoused good corporate governance principles such as transparency and accountability, but that they had not worked to embed good behaviors.[2] As we move into more performance-based contracts, how do we avoid unintended and “perverse” outcomes (as our WorldCC colleague, Dr Andrew Jacopino[3] names them)?

If we assume that these tensions exist in different ways across different industries[4] and acknowledge that we are now two years down the track, has a year of Covid-19 helped or hindered the risk of poor behaviours (for example, by escalating remote working and the concomitant risks of fraud[5] as well as increasing the temptation for late payments[6])? Are our procurement processes driving ethical behaviours 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? With the tremendous pressure of Covid-19 on the triple bottom-line, including how we ethically shore up disrupted supply chains and how do we ethically distribute vaccines throughout the world, are we prepared to take a leadership role in reinforcing ethical behaviours in our business community? Do we have the information and courage to withstand the pressure for short-term gain at the risk of long-term pain?

This will be a key focus of World Commerce and Contracting in 2021. Like many professional member associations, we will be implementing an ethics program to define what ethics means in our context. This typically entails providing Codes of Conduct consistent with our community’s values and is one of the definitions of the work ‘ethics’. That is, the principles of conduct governing and individual or group. We will highlight the negative effects of poor ethical behaviour (including the risks of buying cheap, such as building cladding which directly impacted the effect of the Grenfell Tower and Neo Building fires) and the risks of poor governance (including the hotel quarantine problems during Melbourne’s Covid-19 lockdown). We will also highlight the positive impacts of good ethical behaviour, including through our Innovation & Excellence Awards (for example, in the Latrobe Valley Development Authority growing local jobs in depressed Gippsland or SA Health working collaboratively with Detmold Group to create a local source of surgical masks for South Australia). So, is it ethics or just good business? Is all good business just? Discover more at www.worldcc.com as we unpack and promote ethics and social value in 2021!

Note that the views expressed in this article are my own and do not necessarily reflect those of World Commerce & Contracting.

[1] The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry – Interim Report

[2] See my blog https://www.dhirubhai.net/pulse/cultures-good-governance-bruce-everett/

[3] https://performancebasedcontracting.com/author/andrewjacopino/

[4] 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.

[5] 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

[6] See the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, in Ethics in Procurement – A Report by the Ethics Alliance