Vincent Fairfax Speaker Series - Ethics in the Boardroom
Nearly 100 people gathered at Lander & Rogers in Sydney on Tuesday 20 March 2018 to hear AICD Chairman, Elizabeth Proust, present the Vincent Fairfax Speaker Series address on Ethics in the Boardroom.
Trust in Australian institutions at an all-time low
Ms Proust opened with comments about the Edelman Trust survey, stating that Australian’s trust in media, business, government and NGOs is at an all-time low. In fact, according to Edelman, Australia is just four points above the least trusted country, Russia.
“At 45 percent, Australians trust in business is significantly below the global average,” said Ms Proust.
What can be done to build trust?
According to Ms Proust, organisations need their leaders to do more than setting behavioural standards and role-modelling. They need board members and senior leaders to create and maintain systems, processes and cultures that sustain ethical behaviour in complex organisations.
“What is clear from the Edelman Trust Barometer is the community has judged the systems, processes and culture of Australian businesses to be lacking in ethical conduct,” said Ms Proust.
Culture is Key
Ms Proust believes culture is central to building an ethical culture.
“Ethical decisions are at the heart of culture. How we do things around here is just a reflection on what we have decided is the right or wrong thing to do,” said Ms Proust.
She stated often corporate failings are often not the result of leaders or employees setting out to do the wrong thing but a product of what is or isn’t acceptable in the company’s culture.
To build the community’s trust in their organisation, the board must help create a culture of doing the right thing. This role is complex because culture is ultimately about people and their behaviours and board must embrace this complexity. A good culture can be a competitive advantage conversely, bad cultures lead to failures that erode trust.
Lack of Accountability and Transparency
Ms Proust called on boards to look at who is being held to account for ethical failures.
“Perceived lack of accountability and transparency is a driver of the trust deficit between Australians and their institutions. CEOs must be held to account. This must be consistent to create a pathway to rebuilding trust,” said Ms Proust.
Ms Proust called for senior leaders and boards to encourage transparency and protect whistle blowers who call out wrong-doings. She said the current Australian framework assumes a whistle blower will be an expert in the Corporations Act, which is unrealistic. It also does not cover former employees and does not adequately protect employees who bring concerns to light,
“If the board’s first reaction is to close bad news down, they won’t hear much more of it,” said Ms Proust.
Beyond culture and whistleblower protection, Ms Proust said boards must be made up of people who reflect society to support good business decisions now and in the future.
“A board made up of people who look, think and talk the same…is fundamentally ill-equipped to make inclusive and ethical decisions. Without boards that value the governance benefits of diversity and management teams that reflect the wide-spread talent within society (and not just one part of it), how can we possibly make the ethical decisions that lead to new innovation?” said Ms Proust.
A Shift in Governance to Win Back Trust
Ms Proust encouraged directors to challenge their own ethical decision-making. Too often, ethical decisions are considered in term of risk and reputation. But Directors need to question “why are we making this decision and who will it benefit?” Ethical decision making is broader than ‘how will this look on the front page of the newspaper?’.
“To win back the community’s trust, companies, boards and leaders must show they care about more than reputation and profit,” said Ms Proust.
Ethical leadership in the board room requires a change in governance mindset. Ms Proust quoted Sam Mostyn, who presented at the AICD’s recent governance summit.
“Directorship is not a lifestyle choice. Directors need to act as stewards of their organisations to build community trust. We need to get ahead of community expectations, not play catch up,” said Ms Mostyn.
Unless governance processes are improved, Australia will remain in a low-trust environment. Aggrieved community members will continue to question business’s social license to operate. This will compel politicians to act and add to costs and legal compliance.
“Winning back trust can’t be done with one or two-year strategies and a glossy CSR guide. It requires directors and leaders to think actively about ethical decision making and our role in facilitating ethical decision making throughout the organisation, not just at the top,” said Ms Proust.
Attendee, Michele Bullock, Assistant Governor, Financial System from the Reserve Bank of Australia asked Ms Proust about how boards could practically examine their own ethical decision making. Ms Proust acknowledged that it is difficult for many companies but one simple step could be to ask at the end of each meeting:
- “What could we have done better?”
- “What do we need to address in the future?”
Having recently returned from the World Economic Forum in Davos in Switzerland, Ms Proust said companies in Europe are appointing internal and external ethics committees to advise boards, but it was not common practice in Australia. Director for the Centre for Ethical Leadership, Peter Collins, added he knew of only one company on the ASX200 that has an external ethics committee.
Vincent Fairfax Fellowship member (2017/18), Susan Metcalf of Social Ventures Australia said she would reflect on social license to operate and diversity.
“For me, the lecture provoked a reflection on how to deal with community sentiment. It also reinforces that diversity does help boards see issues more clearly,” said Ms Metcalf.