Salutatory lessons for us all in the Governance Institute Ethics Index

Last month Governance Institute released Australia's second annual Governance Institute Ethics Index, the findings of which make it very clear that leaders must do more to restore trust in their institutions and organisations. Australians are unhappy with the ethical standards of our largest corporations and their CEOs, particularly in banking and finance, as well as of parliamentarians, unions and large sections of the media. 

Questions of ethics, corporate culture and governance have recently moved to centre stage. Many examples of corporate misconduct and ethical shortcomings — especially, but not exclusively, in the banking, finance and insurance sector — are coming into the spotlight.

One measure of the intensity of that spotlight can be found in the amount of media coverage garnered by Governance Institute Ethics Index in the past month. There have been more than 35 articles in top-tier Australian outlets and it’s been reported on in New Zealand and the United Kingdom.

The findings of the Index highlight the distance between Australians’ expectations for ethical behaviour and their perceptions of what is actually happening. For example, the Index found executive pay particularly worrisome, 77 per cent of Australians believe a CEO salary of $3 million a year (that is, 50 times the average Australian’s yearly income) is unethical, 55 per cent believe an annual CEO pay packet of $660,000 is unethical but most believe a $300,000 salary package is ethical a far cry from the take home pay of many of our corporate leaders.

It also showed that a sizeable majority agree that boards should act in response to poor personal behaviour by CEOs and senior executives. Over half favoured intervention in all ethical situations while a further 35 per cent favoured intervention when the personal behaviour has a direct impact on the business. This could become a mine-field for boards and the C-suite.

In terms of media platforms, the ABC has the highest scores by far, while Twitter and Facebook have the lowest scores. LinkedIn, however, is seen as very ethical.

Sectors in which workers are perceived as less likely to be motivated by wealth, power or fame are seen as more ethical (health, education, charities and not-for-profits and some professional associations), while those in government, banking, finance, insurance, large corporations and the media particularly social media are lowest ranked. In fact, there is a pattern in how Australians view ethical behaviour. They rank the people they have the most personal contact with GPs, pharmacists and the nearest local hospital as the most ethical while those more distant are perceived as less ethical.

Many professions, corporate leaders (and their companies), political leaders and major institutions are seen as falling well short of what is expected of them in terms of ethical behaviour.

While we may feel that some of those conclusions are unjustified, we have to understand the public sentiment behind these perceptions because when it comes to corporate reputation and reputational damage, ‘perception is reality’. Sometimes that may mean changing behaviour or communicating more information to create a more accurate or different perception. It also requires constant work. It cannot be treated as ‘set and forget’ or as a ‘tick the box’ exercise overseen by an army of compliance people.

View the Governance Institute Ethics Index.

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