THE REWARDS OF DOING THE RIGHT THING

We tell ourselves that the profit motive and ethical behaviour can’t co-exist. But evidence suggests that one can reinforce the other. Journalist Chris Sheedy reports.


A dedicated team within an organisation goes above and beyond for months in order to close a major deal. If successful, the venture will dramatically improve services for customers and profits for stakeholders. Their work pays off and the deal is done.

In the aftermath, to recognise and reward excellent effort, the CEO gives each of the main players a gift – a watch worth almost $5000. Actually, the CEO has the authority to shower each employee with tens of thousands of dollars in bonuses, but chooses the watches instead – they’re more personal and meaningful, and less costly.

It’s a situation that can and does occur in organisations across Australia, and indeed the world. In places like America, where making money is almost a religion, companies earn many times the multiples Australian companies do – and executives receive many times the rewards.

Elon Musk, who stood at the top of the pay league for 2020, saw his net worth increase by 545 per cent during the pandemic year to US$187 billion, according to Bloomberg Billionaires Index. No chance he is wearing one of the $5000 watches that caused our Prime Minister to publicly call the Australia Post CEO out for unethical behaviour.

Public interest in Christine Holgate and the Australia Post saga soon reached fever pitch. It resonated on so many levels – the problem we have with business success, the plight of the female executive and, of course, the now famous clash with Scott Morrison. But it may surprise many to learn that Australian businesses, as you will see below, are laggards in terms of profitability and largesse compared to their foreign counterparts. Perhaps the true problem is how Australia views business success and its rewards.

“In places like America ... companies earn many times the multiples Australian companies do – and executives receive many times the rewards.”

MICHELLE BLOOM Director of Consulting and Leadership The Ethics Centre

What we know from investigations into ethical failures is that systemic factors such as culture, incentives and shadow values have a much larger influence than individual actors. We recently worked with an organisation who valourised ‘speed to resolution’ of customer complaints as the operationalisation of the value of ‘customer centric’. On the surface that would seem to be a good outcome.

Overplayed, this value led to the unintended consequences of poor problem-solving, applying simplistic solutions to complex, systemic issues, thereby increasing the risk for the organisation. The ‘need for speed’ become the behavioural manifestation and operationalisation of the ‘customer-centric’ value, rewarded via the incentive system, but delivering poor outcomes for its most vulnerable customers.

Gaining insight into these shadow cultural influences and building leaders’ systemic intelligence, to make good decisions in complexity, is key to ensuring these risks are managed and neutralised. Who needs to be accountable for this? Boards are the ultimate governors. The C-suite are the stewards who have responsibility for enabling a purpose- and values-led culture to thrive.

Contextualising ethical decisions

What makes a business ethical? Actually, that depends on how the business makes its decisions. “If someone is merely making a decision about what the market is demanding, and what the market or the workforce would respond best to, that wouldn’t be an example of ethical decision-making,” says Dr Ned Dobos, Senior Lecturer at UNSW Canberra. Dr Dobos specialises in business and military ethics.

“A necessary condition of ethical decision-making,” he says, “is being motivated by the concern to do the right thing, to do something that is morally appropriate, acceptable, right, just, fair or decent.” As the situation and point of view changes, so does the ethical point of view, he says.

Is it right to smash the window of a stranger’s car to take an item from the back seat? No, it is not, Dr Dobos explains. But what if you’re in the snow and a child is on the ground, injured, freezing and in danger of slipping into hypothermia. There’s a blanket on the back seat of a nearby, locked car. What then?

The question of ethics in business is complex. If a decision is based on fairness, justice and decency, who should be the focus? Is it the customers? Is it the staff? Is it the shareholders or owners? And is there any point in a culture of blame that rewards success – unless somebody finds out about your success?

Up until now, there was no way of seeing a good, ethical decision as part of the value chain in a business. Can the worth of an ethical position appear on a balance sheet? Is there a monetary value in doing the right thing?

“Can the worth of an ethical position appear on a balance sheet? Is there a monetary value in doing the right thing?”

Michelle Bloom, The Ethics Centre’s Director of Consulting and Leadership, says there is. “Blaming and shaming limits our thinking and hinders our ability to apply systemic and contextual rigour to understand the complex conditions at the heart of many of our corporate failures. We need to collapse the polarised thinking that being profitable requires compromising on ethics as the evidence just doesn’t support that view,” she says.

Building ‘ethical capital’ in business can not only prevent and mitigate the loss of value caused by ethical failure but can also provide the foundation for building sustainable, long-term and higher returns for shareholders, other stakeholders and society as a whole.

“The erosion of ethical capital can have a significant, negative impact on organisational value by damaging reputation, harming employee morale and increasing regulatory costs – not to mention the wider damage to society’s overall trust in business,” she says. It is estimated that the Hayne Royal Commission’s changes will cost banks $10 billion in compensation and additional risk and compliance spending.

"And new modelling by Deloitte Access Economics has found that the economy would also benefit from smoother functioning of markets and lower costs of regulation and compliance, contributing to an increase in Australia’s GDP of approximately $45 billion per year,” says Bloom.

“Investing in ethical capital not only provides a bulwark against the cost of ethical failure,” she says, “it also provides a foundation for innovation, increases employee productivity and improves the ability of an organisation to respond to an increasingly complex and challenging economic and social environment. The Ethical Advantage found that increasing a firm’s performance on the Governance Index by one standard deviation raises return on assets by approximately 7 per cent.”

Why can’t Australian businesses perform profitably and ethically?

Over the last decade, the Australian public has been treated to an ever-tastier smorgasbord of corporate bad behaviour. At the same time, our expectations of corporate behaviour have evolved. The average tenure of a CEO has fallen dramatically. A study of 300 chief executive departures from listed companies over the past 10 years by global management consulting firm Kearney for The Australian Financial Review showed about three-quarters of CEOs transition in a five-year period. The study found the number of involuntary exits increased by 27 per cent and the share of involuntary exits of all exits is now 34 per cent.

In 2018, Australian Competition & Consumer Commission (ACCC) Chair Rod Simms delivered a speech that named names. He called out Ford for the dishonest way it dealt with a common transmission fault, Telstra for a billing service that exposed thousands of its own customers to unauthorised charges, Flight Centre for price-fixing attempts and Woolworths for environmental misrepresentations of its products.

“And, unfortunately, this is just the tip of the iceberg,” said Simms. “Earlier this year, the Federal Court found that the food manufacturer Heinz had made misleading claims that its Little Kids Shredz products were beneficial for young children, when they contained approximately two-thirds sugar.

“Who could forget the infamous marketing of Reckitt Benckiser who made misleading representations on the packaging of each of its four Nurofen specific pain products? They represented that each was specifically formulated to treat a particular type of pain when in fact each product contained the same active ingredient … the key difference was that the specific pain products were near double the price of the standard Nurofen product.”

On and on the list went. Optus Internet, Bet365, Apple, Coles and many more were dragged over the coals. The audience lapped it up, just as we do today. So what exactly is going on? Are corporate leaders being blamed unfairly for profit-making behaviours, or are they increasingly crossing ethical lines?

And if they were to cross ethical lines in the name of everyday business, how do they even know where that line is drawn?

Changing expectations

It’s not so much a case of corporates behaving badly more often, says Frances Dwyer, Managing Director of The Impact Agency. We’re simply hearing more about bad corporate behaviour because of information availability and we’re no longer so willing to put up with it.

“What we’re seeing is an emerging refusal to accept, defer, overlook or cover up behaviour that is subpar,” says Dwyer.

“In part, it’s because there’s no longer a distinct line between professional and personal. As a result, we no longer say, ‘Oh, that’s okay, that’s just the way the boys’ club works.’ That’s not an acceptable thing anymore. We’re no longer standing for it."

To meet our heightened expectations, Dwyer says, there are five key areas an organisation and its leaders must deliver to.

They are: • delivering value to customers • demonstrating investment in their employees • dealing fairly and ethically with their suppliers • supporting the communities in which they work and the environments in which they operate • delivering long-term value for shareholders, not just quarterly earnings.

So when Rio Tinto dynamites a Pilbara cave system that holds enormous cultural and historical significance, the entire organisation suffers. When AMP promotes a fund manager who was involved in a sexual harassment scandal, their reputation experiences irreversible damage. And when Crown is declared unfit to hold a casino licence, the Packer family name is forever tarnished.

“This all means companies are answerable to the interpretations and expectation of a much broader public, including people who may have no connection with the organisation,” says Dwyer. That can be very tricky for leaders to navigate. How do you open up enough to communicate the fact that you’ve got a values-driven culture without also opening yourself up for attack from an unexpected angle?

Get rid of the fortress mentality

Phil Ruthven, founder of IBISWorld and founder and CEO of business management consultancy Ruthven Institute, says that to perform better ethically, Australian businesses must “plan from the outside” rather than constantly looking at their organisations from within.

“Historically, people ran a company from inside out,” explains Ruthven. “They treated their business like a fortress. They didn’t want anybody knowing what they were doing on the inside. Everything was secret. Businesses are now heavily impacted by the environments and communities in which they operate, and they really do have to care about those communities, and the environment, and their workforces and their reputations.”

“Historically, people ran a company from inside out. They treated their business like a fortress. They didn’t want anybody knowing what they were doing on the inside.”

The Modern Slavery Act is a good example, he says. It means companies have to be highly aware of what’s going on in and around their business, and around the operations of their suppliers, at every stage of their chain. Organisations should also outsource non-core parts of the business, says Ruthven.

“A lot of people think outsourcing is about saving money, but that’s not the idea. It’s to enable you to concentrate on what really creates wealth in the first place – your intellectual property and the good culture of the company. Ethics are improving in the corporate world, but it’s not always voluntary. Leading players are getting their ethical issues sorted out proactively. Others, though, are being dragged into the arena kicking and screaming.”

Some organisations, Dr Dobos says, implement integrity systems across all of their processes to ensure decisions always take into account organisational and cultural values. These systems guarantee consideration of issues such as whether the outcome could be demeaning, disrespectful, against a certain party’s interests, manipulative, deceptive, exploitative or in violation of somebody’s rights – all terms that came up again and again at the Banking Royal Commission.

“One formulation of Immanuel Kant’s categorical imperative says to always treat people as ends in themselves, never merely as means,” says Dr Dobos. “What that means is, don’t reduce people to mere objects, instruments, or means to your ends. Treat them respectfully. Treat them as agents with ambitions in their own right. That’s always a very good place to start.”

WHAT’S IN AN ETHICS TOOLKIT?

University of NSW Business School Associate Professor Tracy Wilcox explains the process of ethical decision-making in business.

Increasing expectations around corporate behaviour mean organisations and their leaders are increasingly coming under attack from stakeholders, market players, media and members of the public.

Are they being made scapegoats for profitable behaviour? According to our experts, they are not. They’re simply no longer being allowed to get away with what they once did.

So how does an organisation cope in this brave new world in which values and profits are equally important?

“Before you can even consider being ethical or making an ethical decision, you need to recognise that there’s an ethical issue,” says Associate Professor Tracy Wilcox, Academic Director for Postgraduate Studies at UNSW Business School.

“It’s what we call the moral imagination. It’s the ability to see a business decision, and consciously pausing and realising there are some issues here that we need to work through before we make that decision.”

Associate Professor Wilcox, whose research and teaching centres around socially responsible management practice and organisational ethics, says in some businesses decision-making happens at such pace that they often don’t stop to think of the consequences.

“Are there any unintended consequences of this decision we’re making? Are there any stakeholders that might be harmed? Are there any duties we have towards the community? The first thing is to recognise that many decisions contain ethical elements,” she says.

The next step is to figure out how to approach the ethical issue because, as mentioned earlier, ethics are rarely black and white. There isn’t always an obvious ethical choice.

Finally, she says, leaders must take the action to implement that decision. Many factors must be considered, such as organisational issues, matters concerning stakeholders, problems in the business environment and more. They’re all things that could enable or constrain a particular course of action.

“You need those three things to be in alignment for a business to make an ethical decision,” says Associate Professor Wilcox. “That first part – moral imagination – is important, because sometimes people just forget that there may be an ethical implication. The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry gave us plenty of rich examples of business decisions being made without any consideration of ethical issues.”

THE AUSTRALIA POST SAGA: GUILTY OR NOT?

UNSW ethics expert Dr Ned Dobos talks us through the Christine Holgate issue.

“Often, when people express what seems to be an ethical objection, it’s not actually an ethical objection. It’s an expression of some other negative sentiment.

In this case, it might be that people think it’s an outrageous state of affairs when we’ve got a system that allows senior bureaucrats and public servants to have access and discretion over these kinds of resources. So, it’s the state of affairs that grinds the gears a little. That’s one possibility.

Was what Christine Holgate did unethical? Without being inside her head and knowing her motives and decision-making process, it’s impossible for anybody to say.

Some might say her responsibility is to make decisions that will maximise the benefit to the stakeholders of Australia Post, and that giving away expensive watches is not in the best interest of the organisation she has been appointed to serve.

Some people believe in the idea of incentivising staff. Part of that is rewarding them when appropriate, so it’s fine. It’s an action that will create a good return on investment.

Another group might see it as Holgate giving expensive gifts to her friends, or her cronies.

Ethically, every decision should be motivated by what will maximise the interests of Australia Post and its stakeholders. But, as I said, without having access to her thoughts, it’s impossible to judge either way.”

“A necessary condition of ethical decision-making is being motivated by the concern to do the right thing, to do something that is morally appropriate, acceptable, right, just, fair or decent.”

– Dr Ned Dobos, Senior Lecturer at UNSW Canberra

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