Blindly complying can put organisations at risk according to Protiviti Managing Director, Mark Harrison. Here he explains how and the relationship between ethics, regulation and compliance.
The serious consequences of global and local ethical failures – such as the big food brands named and shamed by Oxfam in its Behind the Brands
report and closer to home the Essendon Football Club drug scandal – is moving the spotlight onto ethics and its role in business. While most people when talking about ethics are actually talking about regulation and compliance – which while very important, is not what constitutes ethical behaviour and indeed – it can be argued is the enemy of ethics.
At a meeting hosted by Protiviti and the Institute of Internal Auditors Australia (IIA) of internal audit and risk managers from a number of major Australian publicly listed companies and leading government agencies that was introduced by Dr Simon Longstaff of the St James Ethics Centre, it was discussed that regulation and surveillance can be counterproductive to creating a resilient ethical culture within organisations (and indeed societies). While a certain amount of regulation is very important, if an organisation is too strongly focused on regulation people don’t think, they just blindly comply.
Ethics is more than a simple code of conduct of ‘good’ versus ‘bad’. It’s a case of ‘good’ versus ‘good’ and ‘right’ versus ‘right’ when there are things of equal or near equal value in contention. Ethics in its truest form is the active deliberation about the choices you make, not simply following the rules someone else has set.
For example, at the Essendon Football club, compliance rules existed but a number of new staff and leaders in the high performance team were given considerable latitude and found little early resistance to their sometimes unconventional ideas. They had a mandate for change and to ‘push the legal limit’ without crossing the line, which involved a high degree of trust and without clear reporting up the line or having to document the exact nature of the supplements regime allowed a small number of staff to decide where that line was. So while they believed they were complying within the limits of the law and the club, they did not make the right decisions.
However if you allow people to make their own responsible decisions, with an understanding of the consequences of their decisions, rather than just making them due to regulation you can reduce the systematic risk to the organisation.
The tiger in the room
Dr Longstaff gave an excellent analogy about the elephant and the tiger in the room. While we all are aware of the ‘elephant in the room’ as the big risk that can bring our organisation undone and that is clearly understood and informs our work operationally and strategically although we don’t openly discuss it, the ‘tiger in the room’ is also a strategic risk that has the capacity to bring down the operations of a company but is stealthier and one we may not see as it is not in our conceptual framework. Those in the organisation that engage in wilful blindness to the elephant in the room are not the dangerous people we need to be concerned about, the ones we actually need to worry about are the people who walk through the jungle and do not see the tiger.
For example, this plays out in boardrooms where tigers don’t fall into the framework of senior management so they don’t look for it, don’t ask questions about it and just hope it goes away. Therefore it is much easier for people to do something that leads to major strategic failure as “that’s what the rules said to do”. When people think like this they are not attaching their decisions and actions to the values, principles and ethical core on which decisions should be made.
This brings to the fore the need for governance functions, internal audit and risk management who should have as a mandate a comprehensive vision to see all the animals in the jungle. To not miss things that are significant you have to subvert the ‘unthinking custom’ and practice, the attitude of “we just do it this way” that can restrict people identifying the challenges that lie ahead.
Removing all staff for blindly complying to organisational rules and fostering an environment where people choose to make the right decisions based on the purpose, value and principles for which your organisation exists, is the practice of ethics.
Authored by Protiviti Managing Director, Mark Harrison.