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Interview — Ethics and the financial sector

  • In this month’s interview we ask three experts for their views on what’s behind some of Governance Institute’s Ethics Index 2019

Accountants are considered the most ethical financial professionals while the banking, finance and insurance sector are considered the least. Moves to clean up their act appears to be improving the banking, finance and insurance sector’s image, according to figures released in the latest for Governance Institute’s Ethics Index 2019.

The sector’s net score rose from -27 last year to -18 this year, but it still had the lowest ethical rating (31 per cent) and the highest unethical rating (49 per cent) out of all sectors of the economy, indicating very low trust and perceived behavioural standards.

Catherine Maxwell, general manager policy and advocacy for Governance Institute of Australia, believes the publicity around some of the remediation programs being conducted by financial services groups, especially the big four banks, may have helped improve their ratings.

Matthew Ronald, director of people and advisory services for Ernst & Young, agrees, noting that some financial institutions are tackling the issues and are being quite open about the challenges they face.

‘We’ve seen a number of CEOs and chairs in large institutions that have stood aside because of the issues coming out of the Hayne royal commission. And then we’ve seen those who are coming into those roles being more open and really fronting into the challenges they have.

‘We’ve also seen moves to enforce and improve accountability among employees and executives. And that’s really playing through the sector.’

We should be thinking about culture in terms of leadership, governance, remuneration and then capability and capacity of the workforce

Bad apples vs culture

Ronald believes the Hayne royal commission has changed the way financial services organisations look at some of the issues.

‘They are now saying that it’s potentially not a few bad apples. It’s potentially a cultural issue,’ he says.

‘We think about culture around what people are doing when the lights are off or what is happening when we can’t see what’s going on. We should be thinking about culture in terms of leadership, governance, remuneration and then capability and capacity of the workforce.

‘We should be looking at all these issues and asking what that tells us about what’s happening within that culture. And then at how we should front up to issues and bad apples in the organisations.’

Ronald adds: ‘We see organisations looking at some quite sophisticated cultural measurement tools to understand their culture and how that stacks up to where they want it to be.

‘We see a lot of cultural reporting going up to boards… And then it’s imperative that the leadership, whether that’s management or the board, do something about those issues when they arise or when they don’t like the information that’s coming through. They are saying, let’s actively try and shape the culture into one that we want to have.’

Hayne rubs off on accountants

Within the finance sector, accountants scored the highest in ethical behaviour (50 per cent ethical score) in the Governance Institute Ethics Index 2019, but their net score has dipped slightly over the past couple of years. It fell from 31 to 30 over the past year.

‘Part of it must be that there’s this level of distrust of business in general. And we’ve been seeing this for the last couple of years,’ says Maxwell.

Kym Reilly, a principal at PKF, says the unethical practices that have come to light through the Hayne royal commission have really put the spotlight on accountants and professionals working in this sector.

‘I don’t think anything has changed in the way we do things,’ she says.

‘Ethics is still forefront of everything we do. It’s embedded in our methodology. It forms part of our values and it’s something that we revisit on a continual basis, but perhaps there is a need now to communicate that more to our clients and take them on that journey with us so that they’re aware of what we’re doing in that space and just more aware of ethical principles in general.’

Ronald notes that accountants play a really trusted role in financial services, particularly from an audit perspective, and are relied on heavily by the investor community to look at the financial statements and assure the financial statements that organisations produce.

‘I think there’s a recognition there of that ethical and trusted nature,’ he says. ‘I think largely, the clients that we work with really understand that. It’s probably that broader general community is looking at the financial services sector as a whole and raising some questions around the way that that industry operates.’

Maxwell says reviews of the Ethics Index shows that people will rate their own doctor, pharmacist, accountant or lawyer far more highly from an ethical perspective than they do the profession as an abstract out there.

‘They will rate the people they interact with on a sort of day-to-day basis for their own affairs quite highly. But when you ask them a question about the industry in general, then they will rate it lower.’

The role of membership associations

Maxwell believes member associations play a huge role in improving ethics. ‘It’s about education, it’s about publicising issues, it’s about raising awareness, it’s about engaging with your members. And it’s about also about advocating on their behalf in relation to regulatory agencies.’

Reilly agrees, but adds: ‘The ultimate responsibility really sits with the individual. You could still be a member of these associations and make poor decisions and act terribly.’

Ronald adds: ‘Member organisations play a role in setting standards around who can become a member of the organisation, around ongoing training and the types of issues or things that they want their members to remain current on. There’s that kind of setting the standard around what do we see as almost being the ethical minimum of the industry.’

Ethical difficulties of AI

Governance Institute’s Ethics Index 2019 found that Australians have a high ethical difficulty with artificial intelligence (AI) with 43 per cent finding it ethically difficult.

‘Certainly 43 per cent of Australians polled in the index found AI ethically difficult,’ says Maxwell.

‘There were some issues that they had more difficulty with than others. Social profiling really was felt not to be ethical. AI used in traffic systems is not really much of a problem. But when you get down to social profiling and use of individual data, that’s where Australians have real issues with ethics.’

Ronald adds: ‘There’s almost a proximity piece in this in that the types of AI systems that we’re familiar with, we’re quite comfortable with. We think it’s quite ethical. Those that are more emerging, we still have a question mark about. Australia is quite an early adopter around technology.’

Reilly notes that AI looked quite daunting five or ten years ago when we were starting to talk about it. ‘It was the fear of the unknown. Are we all going to lose our jobs? What we’ve realised now is that it really does compliment the work we do. It’s changed the structure of our teams. It’s changed the way we do things, but for the better. And us as advisers, the professional scepticism comes into play. That’s where we can really add value.’

A behaviour science approach to organisational culture

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