Host
Philippa Lamb
Guests
- Laura Hough, Director, Trust and Ethics, ICAEW
- Christopher Cowton, Emeritus Professor, University of Huddersfield; Associate, Institute of Business Ethics
Transcript
Philippa Lamb: Hello, and welcome to the Insights In Focus podcast. I’m Philippa Lamb, and this time we’re exploring professional ethics and seeking to answer that age-old question: why do good people sometimes do bad things?
Accountants are increasingly acting as an ethical compass for their employers and their clients. It feels like a natural fit for a profession that has a bird’s eye view and a deep understanding of business, as well as a professional duty, of course, to act in the public interest. But it’s also a weighty responsibility where situations aren’t always black and white. So how can accountants best inhabit this role and make sure they’re acting ethically themselves as well as helping their colleagues to do the same? I’m joined by two experts on professional ethics and tackling corporate misbehaviour: Laura Hough is ICAEW’s Director of Trust and Ethics, and Christopher Cowton is an Associate at the Institute of Business Ethics, and Emeritus Professor at the University of Huddersfield. Welcome, both, thanks for coming in.
Chris Cowton: Thank you.
Laura Hough: Thank you very much.
PL: This is a big and sprawling subject, so today we’re going to limit ourselves quite tightly to what we might call the diagnosis and treatment of poor ethical practice. I’d like to start by discussing that slippery slope where good intentions can eventually lead to bad or even criminal behaviours. How do people find themselves on it, and what drives them to slide further down it? Chris, you’re a distinguished scholar in this area, you’ve researched business ethics as an academic for many years, you’ve worked with the Institute of Business Ethics as Associate Director in shaping research and training. So, thinking about where that slide begins, there’s a useful phrase we can look at, isn’t there, and that’s “ethical fading”? What is that?
CC: Yeah, I think as you might guess, it means that the ethical aspects of a situation or decision just seem to disappear. It’s that we don’t notice them. It’s a bit like if we had a picture, and it got slightly out of focus, and certain things loom large and somehow the ethics things disappear into the mist. And so often we don’t notice that we’re doing something wrong.
PL: What are the common drivers of that? We all start with good intentions, we all think we’re good people, don’t we?
CC: Well, we might come back to that, but yes, we do think we’re good people, that’s certainly the case. I think there’s three types of factors that come into play here. Two of them are contextual: so, if we’re working in a particular organisation, there are certain structural or formal properties of the organisation which steer what we do. For example, there are procedures: do they leave space for recognising there might be something ethical going on, or an ethical issue in play? We have performance management systems: do they reward ethical behaviour? Do they look down on unethical behaviour? There’s lots of little formal things that organisations have in place, but also do they have, on the formal side, things that could help ethical behaviour? Is there a code of ethics that people are trained on? Has the organisation expressed some ethical values that, other things being equal, we should be trying to follow?
So that’s kind of the formal stuff, but there’s also deeper stuff, there’s culture, you know, whatever’s said, what really drives things round here. And culture, of course, can be a great source of strength in a good organisation, but in a rather more problematic organisation can be very hard to shift. If you took a professional firm, there’s probably some unwritten things about how do I get noticed to become viewed as future partner material round here? That would be an absolute classic.
PL: Yes, that brings me actually to pressures and junctions, actions that tend to be… common, in most instances where ethics start to go by the board.
CC: Yes. I mean, what are the unwritten rules round here? What really matters when the rubber hits the road? Is it doing the right thing or is it making your target?
PL: It does strike me that with digital workplace systems, it’s quite hard for people to do these things alone, isn’t it?
CC: Yes, and I think that’s an important aspect of actually being ethical is working with other people, and perhaps, for example, helping them to see when they’re maybe not noticing the ethical aspect, where maybe it’s faded from their view. And likewise, being open to people challenging you, or just raising a hand and saying, hang on a minute, Chris, are you being ethical here? Is there an ethical issue which we haven’t fully considered here? So I think other people are really important. And certainly in the digital age, if we’re working at home a lot more, it certainly does raise some concerns.
But there’s another set of factors which I think we have to focus on, which is personal. It’s not just the fault of the context, if I can put it that way. It’s not just the formal systems and the informal rules and culture, it’s also our nature as human beings. And if you just think about your own career, you know some people are more ethical than others. Now, why is that? Well, maybe it’s something to do with their psychological make-up, the way in which they’ve developed during their career. We do vary, but we’re all as human beings subjected to certain psychological biases, which is often just the flip side of great strengths. Often we operate according to rules of thumb or heuristics, and those enable us to make decisions very fast in the moment. But of course, what that also means is, if there is that little ethical issue just looming potentially into view, we don’t notice it, because we’re so quick to use our usual rule of thumb. And there’s many other such cognitive biases.
PL: I suppose this all does rest on a common understanding of what good ethics are, doesn’t it, Laura?
LH: It absolutely does. And I think we can often presume that those around us share the same values and ethics as we do ourselves, and actually that isn’t always the case. They may have been from a different cultural background, they may have been used to different norms in their workplace than we are in our workplaces. So sometimes it’s good to just assess the ground rules of engagement in ethics.
PL: Yes, I wanted to ask you about that. Because you’re a forensic accountant, you’re a specialist in counter fraud and anti-corruption. And I see your experience stretches from counter fraud with Save the Children in West and Central Africa, right through the British Council and donor assurance at BDO. I mean, these are very diverse environments, aren’t they? I’m wondering whether you can tell us about the range of ethical issues you’ve encountered, examples of what you’ve seen?
LH: Yes, I think what strikes me sometimes is the similarity between the different circumstances, because at the end of the day, we are all human beings and we have incentives that drive us. The incentives and pressures on an individual in the workplace can drive them in a certain direction, depending on if they’re focused on a profit target possibly, in a commercial setting, or they’re trying to get the money out of the door in a donor-funded setting. And that’s really their focus, rather than necessarily following quite all the rules and doing things in 100% ethical way – sort of, the ends justify the means sometimes.
PL: I mean, your experience there, how do people commonly get on the path? I mean, were the pressures largely common to all, as you’ve said, or do they vary by… when I say territory, I mean, both geographic and cultural?
LH: A very interesting question. I think in some overseas countries there’s very much a culture of following what you’re told by your superiors. Under no circumstances would you question what you were asked to do, you would just do as you were told. And I think in that sort of scenario, we might take our UK Speak Up policies, whistleblowing policies, into another cultural context and expect it to work as it does here. But actually, it’s far more complex than that. People just don’t like to challenge authority, so end up doing a little something wrong, and then another thing wrong, and then all of a sudden they’re very deeply into the collusive scheme that may be going on.
PL: So is that what ethical fading tends to look like, in your experience? Is that the sort of thing you’ve seen?
LH: I’ve seen that, and also, in a UK context, people borrowing money from the firm, or borrowing money from the client asset fund, because they’re trying to save their own business. So they’re not doing it out of malice or deliberate theft, they’re just trying to keep their own business afloat. That’s the logic…
PL: It’s almost altruistic, you can tell yourself.
LH: I think, when we talk about fraud, we talk about the “fraud triangle”, and it has a pressure angle or motivation, which is the driver; we have the opportunity, which is how you actually perpetrate that fraud, so in an organisational context we talk about systems and controls, guarding against the opportunities, and then you have the rationalisation piece, which is very common to what Chris has been speaking about earlier. And that’s really how people convince themselves they’re not really doing anything wrong. You know, I got overlooked for a promotion, I’ve worked lots of overtime and they don’t pay me – all of these little triggers that get bigger and bigger, and the amount you’re taking gets bigger.
PL: You must have looked hard at that, Chris?
CC: Yes. I mean, we fool ourselves very easily, don’t we, and there’s all sorts of ways we do that. Sometimes we just don’t notice things, but sometimes we’re aware of things; it’s not that it’s disappeared from view, kind of we push it out of sight. We rename things. For example, and this’ll be something Laura’s familiar with, I’m sure: “It’s not a bribe, it’s a facilitation payment.”
LH: Absolutely!
CC: So we change the language, or we’re owed something, to come back to what Laura was saying, we’re owed something by the firm and this is how we’re going to take it, or we’re only doing this to solve this problem, and it’s a good thing to do.
PL: Or to save someone else’s job.
CC: Yes, yes. And of course, what happens then is, in a disciplinary or indeed in a legal process, is sometimes one finds oneself saying to someone, yes, I could see the problem, but that wasn’t really the appropriate solution, was it? So sometimes we grab a solution and justify it to ourselves, we rationalise it, and maybe we don’t test it out on anyone else other than ourselves. And that’s one of the things… it’s okay, so, would you be willing to write that down as to why you’ve done that? Or would you be willing to share it with someone whose views you respect? Maybe your partner?
PL: Yeah, in the cold light of day?
CC: Yes, maybe your mother, you know. Could you honestly look them in the eye and say, I did this because of this. Would it pass the sniff test then?
PL: That brings me back to a point you raised earlier about checks and balances, other people spotting this slide into unethical behaviour. But there’s the converse of that presumably as well, there’s enablers, aren’t there, people who see stuff and look away because it’s easier or more convenient?
CC: Yes. And why do they do that? I mean, it may be because they’re not like the people we’re thinking about today, they’re actually not terribly professional and they’re actually not particularly good people. But I think one of the things that happens a lot in all sorts of businesses is… I usually call it the “P word” if you look at research – pressure. It doesn’t necessarily excuse what we do, but we can understand why people do certain things. And sometimes that can be a pulling kind of pressure, which might look a bit like greed to some, which is this target’s to be met so I can get a promotion or a bonus, or whatever…
PL: … or just keep my job.
CC: That’s what I was going to say, this is the other side of it, where it’s really understood, yeah, cool, that’s a tough position to be in, you’ve been put under intolerable pressure to keep your job, to meet that deadline, you’ve not been given the resource to do the job. And sometimes you might do that in an inappropriate way. Or there might be some other aspect of the situation… supposing you’re on an audit and it’s a really tight deadline, and you just noticed something and you think, Oh, should I look under that stone, under that rock, see what’s lurking there? No, I won’t.
PL: Perhaps you’re a more junior person?
CC: Well, if you’re a junior person, of course, what you might well do is, you take it to your immediate line manager, and you say, Ooh, I’m a bit worried about this, and they might say, okay, you’ve got permission to look at it. And on the other hand, quite often people just turn around and say, no, just ignore it, it’s probably nothing. Or: don’t worry, they’re good people, I’m sure there’s nothing.
LH: We’ve worked with them for a long time, we know them, it’ll all be fine. That familiarity threat is often there.
CC: It’s a familiarity threat, you’re quite right, Laura. So there’s lots of little… the way it plays out is that quite often, even if you are concerned, someone else will tell you not to worry about it. And often when big things go wrong lots of people knew or had concerns. It doesn’t come as news to them when the substance hits the fan.
PL: Okay, so do instances of this ramp up at times of economic pressure? Presumably they do?
LH: They absolutely do, yes. In my experience, it’s a really great time for forensic accountants when everyone else is in a crisis, I’m afraid to say, because we have lots of work to do. Because people are under a lot of financial strain and they… maybe that line of what they thought was right and wrong creeps over towards the wrong side a bit more than it did otherwise, because their margins are slimmer, they’re under a lot more pressure at work to achieve targets. I think also, we talk about the tide going out, so once there’s less money sloshing around the system, we find all of the frauds that have been there for a long time, because they were hidden and they suddenly sort of come to the surface.
PL: Do you have any examples of that?
LH: Oh, putting me on the spot now. I can’t think of one right now.
PL: Okay. If you can, come back to it, because that’s very interesting. So tough times, more happens, but it also becomes more transparent, more evident.
LH: Exactly right, yes. And I think, sometimes accountants in a business context, if they’re the only accountant in that environment, they can be under a lot of pressure to be the ones that answer all the ethical questions and be the ones that take those ethical decisions. And that isn’t always really fair. When there’s lots of directors of a business, it shouldn’t really be all the pressure falling on the accountant.
CC: Would you say, Laura, that Maxwell was a tide going out?
LH: Yes, that’s a very good example actually.
PL: Robert Maxwell?
CC: Yes, yeah. So things were going on for a long time, but actually those things couldn’t continue to cover up, and suddenly the whole lot gets uncovered or, to change the metaphor, unravels.
PL: Yeah, I’m assuming when you see one… when you see the tip of something, there’s often… a lot more.
LH: There’s a lot more hidden. Yes, absolutely right.
PL: It’s straitened times now. I appreciate in your current role you don’t see this stuff playing out on the ground. But what do you hear?
LH: Well, I hear that people are taking advantage of expensive frauds on a personal level, taking things out of the business that they perhaps shouldn’t be doing. I think we’re also seeing a lot more insolvencies coming through. Not that that’s necessarily linked to frauds, but lots more companies going under as well.
PL: And presumably people feeling the pressure if they’re heading in that direction?
LH: That’s it, exactly. It does incentivise one potentially to make some judgments that you wouldn’t in happier times, I think.
PL: Well, before we move on to a bit more potential prevention or cure, flags to watch out for, what would you say, Chris?
CC: I suppose a classic one for big companies is actually the celebrity chief executive. I mean, the number of times that the celebrity chief executive has turned out to be doing nefarious acts, and in a sense, they can do no wrong.
PL: The charismatic leadership.
CC: The charismatic leader. Robert Maxwell, in a sense, was a case of that, but I always thought since you can’t make any sense of the accounts of the companies, why would you ever invest? And Tyco was another classic of the all-conquering chief executive. And so that’s often a sign. I think, just dominant personalities generally, they might not be celebrities in the press, because they’re in a much smaller concern, but dominant personalities are often a sign that there might be something not good going on. And that might be associated with bullying, as we might call it today, but quite often that’s a bad sign when they keep so much power to themselves.
PL: They’re hard to question.
CC: Yes, they are lauded by their board, for example, rather than supported, but also watched by their board. So I think looking at a board is also quite a good flag: do you have people on there who look like they’ve got the kinds of skills and, those who are led, the independence that you would expect them to have? But there’s lots of other signs which are familiar to accountants, with Terry Smith’s famous work on creative accounting, as a user of accounts there are certain red flags in accounts themselves, which themselves can be indicators of not good accounting practice, which themselves might reflect underlying poor business practices.
PL: I mean, presumably, Laura, you’d expect accountants to be familiar with those. But I’m wondering about the less visible perpetrators of bad ethical behaviour. Obviously, the charismatic leadership thing, I completely accept that that’s far from uncommon, but further around, the people who are not in view, the people who are very much not in view, the ones who are more retiring, they never come to mind. There’s quite a lot of fraud in those areas, isn’t there?
LH: There is quite a lot of fraud, yes. You could see lots of red flags if you look closely at people’s behaviours often.
PL: But they’re head down.
LH: They may not stand out. And I often think the attitude towards following the policies and procedures is quite a good indicator of an organisation’s wider sort of culture, in terms of whether they just view it as, oh well, I’ve got these rules I have to follow, so I’m going to follow them, but they don’t really understand what’s behind that. In a sort of organisational sense, that can be an indicator that things aren’t going quite as they ought to be.
CC: There’s some interesting work going on currently in governance, and the expectation’s certainly upon public interest entities for the board to understand the culture of their organisation, and that often comes down to the ethical culture. Increasingly, boards are requiring… it’s only a first look, but information indicators, a dashboard of what might be going on in the organisation as a whole, but also particular parts. So of course, you can include questions about ethical behaviour in your regular staff survey, which in many firms now is quite a sophisticated, well-established piece of work. That’s not the only sort of question. In fact, ethics and compliance people tend to fight for a patch of that real estate, if I can put it that way: can we get two questions on, three questions on? That’s one way in which boards can be informed about the ethical atmosphere or temperature across the firm. Another classic is employee turnover. Turnover is the inability of certain sections to ever hold on to any staff. Now that might depend on the industry and the kind of jobs they have, but why is it that no one ever seems to stay in this department or in this office? And is that an indicator of the culture over the longer term? It often is. It’s a classic one that ethics compliance people would look at. And then they would match it up to other kinds of messages they are getting, such as Laura was saying, about your attitudes to rules and procedures. Do you have to drag them to ethics training? Or do they just do as they’re supposed to do?
PL: This brings us very neatly to solutions actually. Shall we break that down a bit? With Laura, starting at the beginning, in terms of professional requirements, what role should a chartered accountant be playing?
LH: Well, of course, we have our Code of Ethics, which all chartered accountants should read. And the fundamental principles are really what we should be acting by in our professional lives as chartered accountants. And in the Code, there’s also some other guidance to do with non-compliance with laws and regulations, which really outlines very clearly the accountant’s responsibilities in relation to any non-compliance or law breaking that they see in their work, whether that’s with the client or in their own firm. So that’s really a helpful piece of guidance as well for accountants. And also, depending on the seniority of the individual, they have a real strong role to play in growing the… sorry, growing the culture of the organisation in which they’re working.
PL: This can feel like a muddy area, can’t it? There can be tensions between an accountant acting in the interest of their employer or the client, as well as the public?
LH: Absolutely right.
PL: We’ve seen a lot of things.
LH: Absolutely right. And that’s what always breaks into the headlines, doesn’t it? Even though the accountants are not responsible for the business that goes under, somehow we always get associated with that at the end of the day. I think we’re back to that pressure point again that we’ve discussed quite a lot today: you’re in a difficult situation to act in the public interest sometimes when the organisation you work for is pulling in a different direction. One good example is pharmaceuticals. If you have a drug that’s very much in demand but very difficult to produce, and it’s something that your proprietary owners of, how much should you charge for that? Is it reasonable to do a price hike of 500%? Is that in the public interest? Not really. But the profit motive for your shareholders and your board are pushing you in another direction. So, I think you’re often in that sort of push and pull situation as an accountant.
PL: I want to dig more into culture in a minute. But Chris, before we do that… specifically, how far can senior accountants in particular create ethical checks and balances across an organisation in terms of policies?
CC: Yes, and I think that’s important, because there’s a concept which social psychologists have called OCP – organisational professional conflict – which basically is that you’re in an organisation and your professional values… you’re having difficulty implementing them because of the local values and pressures. And in some sense, you should almost expect that as a professional. A professional is subject to demands and requirements and expectations that don’t apply to an ordinary manager who’s not a member of a profession. So you’d expect a bit of tension. I sometimes talk about maybe occasionally accountants should be like the grit that creates the ethical pearl in the shell of the organisation. In the moment, that can be really, really hard to deal with. On the other hand, you can sometimes say, sorry, I’m not allowed to do that because of the ethics code. But even better is, what if you can just lay the ground a little bit in advance. For example, if we look at Part Two of the Code, which talks about… in a very short way… basically encouraging ethics programmes. If your firm doesn’t have a code of ethics, before there’s a crisis why not say, hey guys, lots of people have a code of ethics now – FTSE 100, it’s now a good 90% of them, according to research I’ve been involved with – perhaps we should have a code of ethics. And anyway, even if we’re a smaller organisation we might be supplying to a FTSE 100 or FTSE 350 company, which is going to do ethical due diligence on us, so they going to want to see a code. So you can do… as a professional, you’re armed, you’ve got some equipment that you can use, you’ve got some professional values you can bring, and you can help to prepare your firm. You’re not being a pain but you’re just coming up with things that you can think of which maybe other people haven’t thought about.
So that idea of preparing… you can’t be necessarily an ethics warrior, no one’s expecting you to sacrifice your career. But on the other hand, given the professional background you have, you may be a useful person to have in a firm just to point this out. And of course, there are probably other professionals in a firm, there may be other professionally qualified accountants, maybe HR professionals who are qualified. You might make common cause with them saying, d’you know, it’d be really useful to have some things in place that helped develop the organisation’s ethical culture.
PL: Yes, I want to get into that really, because every organisation has a great list of values and expected behaviours on its website, doesn’t it, some have the code of ethics, some don’t. But what actually really needs to happen to make culture real rather than effectively corporate virtue signalling. Thoughts from both of you? Laura?
LH: I think the real test is how the codes are implemented. First of all, is there any training on those codes? Do people know they exist? Or is it something that you just sign as you join, and you put in a drawer and you never look at it?
PL: Like a mission statement?
LH: Yes, yeah. I think it’s very important that senior leaders really live the values that are in that code of ethics.
PL: What does that mean? How do you do that?
LH: So, they don’t take advantage of loopholes in expenses policies, for example, they don’t fly first class when everyone else flies standard class, so they really follow the codes of the organisation, whatever they are. If they’re all allowed to fly first class, that’s obviously fine. But I think that’s what they…
PL: They model the behaviour?
LH: They model the behaviour and they go as far as they can to showcase the good side of the behaviour, I think. And they make sure that there’s hotlines and whistleblowing policies in place for people to really speak up if they have anything that’s concerning them. But ideally, you’d want to have a culture where people felt they could challenge at any point. So not having to go through the root of a whistleblowing allegation, but that they could just discuss with their manager, or their line manager of their manager, if they had something that was worrying them. So that sort of open culture.
PL: Are there organisations where that actually happens? I know it’s an aspiration, but the idea of a junior person going round their line manager to question behaviour – have you seen that happen?
CC: I think it happens in some organisations, but there’s got to be trust. So if you look at speaking up, as we often like to call it, rather than whistleblowing, which brings a whole load of baggage, then we do know that there are two things that really worry people about that, and one of them is retaliation. The other is that they just don’t think anything will be done. There are organisations that have managed to encourage that, but you’ve got to trust the line manager that you’re going to. So I think that’s one thing. But we do see organisations where they do manage to develop a Speak Up culture, maybe through the Speak Up line, and then you’ve got to be able to convince people that it’s trustworthy, that they won’t suffer as a result of doing it, and that something will be done.
Now those two aspects can be dealt with in different ways. One, of course, is that you can get a third-party provider to run the Speak Up line, so it’s not to the office next door to the chief executive, who might say, as one of our leading bank’s chief executives said, “Who raised that concern?”, which is about the worst thing you could possibly do for your whole Speak Up culture in an organisation. Instead, it goes to a third party… you can send it on a form, email, web based, or you can phone up, and you can maybe do that anonymously as well.
PL: The difficulty there is there will be many occasions where, regardless of how you report it, it’s going to be transparently obvious who – or certainly at least which team or possibly which individual – did raise it, because of the nature of the thing you’re raising.
LH: I think it’s then incumbent on the person that receives that allegation inside the organisation to take steps to find it out in another way, if you like… a review that they’ve done so it completely camouflages the individual.
PL: Yes, that’s an interesting thought. Because obviously, retaliation – we talked about retaliation – that can take many forms, can’t it? It doesn’t need to be overtly hostile, but it can be. You don’t get that promotion next time.
LH: Absolutely.
CC: And sometimes it’s perceived. That’s a classic: I didn’t get the promotion. Well, there might actually have been very good reasons.
LH: Maybe you didn’t deserve the promotion.
CC: Didn’t deserve… maybe that, or maybe there was a better candidate. So it’s difficult. But yeah, what we’re looking for is making things better rather than making things perfect, and these things all take time to really mature.
I’ve seen some firms, where given the nature of the firm and the size of the firm, the number of Speak Up cases is much less than you’d expect. Well, is that because it’s all done informally, they’ve got such a wonderful culture? They have to ask themselves that question, then they say, actually, we don’t think it is, we’re not confident it is, it’s because people don’t know about the Speak Up system, or they don’t trust the Speak Up system, or they misunderstand it. So some people think it’s all about allegations, as if you went to a regulator or the press, but often it’s about raising a concern: I’m just not sure about this. But you’re right, maybe they can be identified, and they might… or fear they might be identified… in which case, they won’t do it.
On the other hand, some organisations have, as well as Speak Up policies, anti-retaliation promises. And there are ways of running that as well. There’s ways of checking in with people who have made reports, so six months later, just checking out: how are things going? You don’t say: have you been retaliated against? But another one that I came across recently, a large aerospace company had a very interesting system, they linked up with HR to look at exit interview data, and basically said, if you ever get anything that hinted that someone might have left because they spoke up and then felt they weren’t being treated properly, please tell us. So again, it’s not perfection, but there are ways and means of trying to deal with these risks to the Speak Up system.
PL: Yes, because putting Speak Up systems in place, it’s fine, isn’t it? But if you don’t monitor, I mean really interrogate, what’s going on with that system, it almost feels like job done, doesn’t it? And as you say, if not many people are using it, then fine, but where does that responsibility lie? Who… is this HR? Is this senior management? How does that happen? Because my guess is a lot of organisations don’t do that. They put these things in place, and then they don’t dig into the data that’s actually there, which is where perhaps their richest information really lies.
CC: Yes. So I think I’d probably keep it away from HR.
PL: Why?
CC: Because people don’t always trust HR, because of their experiences. They maybe have had some other things going on. I think it’s important to link to HR, and in a large organisation I’d normally try and set it in an ethics and compliance function or maybe under company secretary. A lot of things that come in to a Speak Up line initially when you triage them are HR issues anyway, it’s actually a grievance, so you then send it over to HR or they can send you stuff across. I think sometimes… I’m not saying there’s anything wrong with HR and HR professionals, but just in terms of people’s minds, they want something separate from the HR system and the HR function, which after all works closely with the line management anyway.
PL: HR’s in an awkward position, isn’t it, torn both ways. What do you think about that, Laura? Where does this sit?
LH: I think ultimately needs to sit with the board, to make sure that that’s in place and it’s used appropriately.
PL: The board’s busy, isn’t it…
LH: The board is busy, and I think in organisations I’ve worked in before, we’ve had a separate team that dealt with allegations that came through. But these were allegations largely related to economic crime. Sometimes other things mixed in, those grievances and people complaining, sometimes people complaining because they were no longer in the collusion group that was benefiting from the fraud, so they’d blow the whistle on other people that were still inside that scheme.
We had a lot of success in having people on the ground in locations, so that individuals with concerns could come and speak to them directly. We had much more success with that sort of individual connection.
PL: So they could just walk up to people?
LH: Or have a Teams call now. That’s one of the great things actually about having digital tools now is you can be completely anonymous. Because if you go to some offices, everybody knows you’re there.
PL: They see you going…
LH: …and then they walk into your room, they know that you’ve gone in to maybe talk about something you’re worried about.
PL: It’s as simple as that. A barrier to reporting.
LH: Things like that, people don’t really think through always, and they can be a barrier to reporting. Someone told me about an organisation once where they had a complaints box for anonymous complaints, but it was right underneath the CCTV camera. So nobody’s going to put anything of any seriousness into that box when they can be filmed as they do it.
I’ve slightly deviated from your question. I think it’s important to have a dedicated team, as Chris is alluding to there, that is separate from HR, and also that these kind of investigations that follow up, they’re not done in the line management structure. There needs to be some sort of independence in place with those decisions and investigations.
PL: Should there be a senior board member with direct personal responsibility for this all going well?
CC: I think it makes sense. It’s interesting to look at board committees and where responsibilities for ethics lie. It might be the risk committee, it’s often the audit committee, there may be a separate ethics committee, it may be mixed up with ESG and sustainability.
PL: This is the difficulty – it’s falling between a whole bunch of stools.
CC: Well, not if you lay your stall out. I think it means there are options. As long as you know where it is in your firm… I tend to be against just a simple “this is how firms should do it” – whatever they’re saying, it suits different firms, different industries. The important thing is that you do it. So if you’ve got a committee where the terms of reference are exclusively around ethics and compliance, or contain that, then I think that the chair of that committee is the obvious board member with responsibility. Barring that, it’s the chair. Sometimes, in a smaller company, you can just have one of the directors who has responsibility, and it’s not just a formal responsibility in terms of taking a view, but it’s… for example, the head of ethics and compliance, or if that’s part of someone’s role, they can go to them.
Just thinking about Laura’s example of spotting the complainant, it reminded me of one firm that I came across where the head of ethics compliance would have a meeting with the chair of the audit committee on a regular basis, and the chair of the audit committee very wisely said – this was in the context of the audit committee meeting – we will spend 15 minutes chatting whether we’ve got anything to say or not.
LH: Very sensible.
PL: Yes, very good.
CC: Because if it’s suddenly 15 minutes when it’s normally two, you know something’s up. So I thought that was very wise and very smart. I think the board is important, and identifying a member. I think it’s also handy to have, if you’ve got a senior executive team, who’s responsible for ethics in some sense there? Is it the chief executive? Is it the director of HR? It could be any number of people, but who is it?
Just coming back, thinking about the senior people, something you asked earlier, Philippa, was about what they can do, you know, walking the talk – clearly, Laura’s said this before – but I also sometimes think it depends when the talk is done. It’s great to hear a chief executive talking about ethics, or talking about non-retaliation for speaking up – we always encourage that to go at the beginning of a code of ethics. But I also say it’s far more important when the chief executive talks about ethics when they’re not talking about ethics primarily. So they’re talking about the strategy or they’re talking about…
PL: Or targets.
CC: Or targets… and ethics just gets woven in, which shows it’s part of the way we do things round here. On its own… talk about ethics when you’re not talking about ethics.
LH: I couldn’t agree more. I think that’s exactly right. And I think that’s really what I mean when I say they have to embody the culture, it’s everything they do needs to reflect those values, not just when they’re on duty.
PL: Then it’s not tick box, is it, it’s meshed into everything.
CC: An interesting one is when you have, say, an ethics day, so you are talking about ethics, and some large companies have gone the way of… basically, you can ask the chief executive questions. And of course everyone thought they were being fed, or he was being supported, and things like that. So basically, they designed it so it was almost like, look, there are no wires here, connecting me to the world, this is live. And eventually I thought, yeah, this guy is actually answering these questions in real time, and it’s not just being fed questions, which then someone can write a little reply, which then the chief executive spouts. And that created a lot of trust and credibility in the ethics talk.
PL: Is there a general sense that ethics is not talked about enough in any organisation generally. It’s made into a separate issue, a thing that gets bolted on or done on special days or in special meetings. But as Chris says, the key lesson, that’s the most important lesson here, is that it should be in everything?
LH: I think that is one of the challenges. It’s a bolt-on sometimes: oh, I’m going to do my ethics training now, when you think about ethics for half an hour while you do the ethics training, and then you think you’ve done it for the year. We really need to make sure it’s integrated into everything that we’re doing, almost so that we don’t even think, oh now I’m thinking about ethics, because it’s just so natural that it’s integrated.
Quite often in a firm context, there’s a very key role for the ethics hotline, or the ethics partner that’s playing to assess decisions. But really, you should know your answer before you consult them; really, if you’ve gone through your steps of assessing the risks to your independence, your risks to your objectivity. You should really have done that thinking before you need to ask questions. Situations can be complicated, obviously, so you might want further guidance and advice to talk something over, but you should really have thought that through yourself to see which direction you should go in.
PL: That does bring us very neatly back to this idea of, you know, we all think we’re good people, we largely believe that mostly people want to do the right thing. But does it always happen?
CC: Well, it won’t always happen, will it? But one of the problems is, I think, that most of us are decent people, but if we look at research, and actually also work I’ve done with corporate teams, if you ask people where they would stand or sit in a line of people rated from the least ethical to the most ethical, where would you put yourself, Philippa? No, you don’t need to answer that question!
PL: I’m happy to answer that.
CC: Well, I’ll tell you what most people say. In some research, most people put themselves at about the 90th percentile, towards the good end.
LH: Do they?
PL: I’d put myself in the middle. Actually, now I want to know, Laura, where would you put yourself?
LH: Probably about 60%.
CC: Ooh, you’re being very modest.
PL: And you?
CC: Oh crikey…
PL: You raised this, Chris. Now we need to know.
CC: I always used to say that people who studied astronomy didn’t need to be stars, so people who are professors of ethics don’t need to be ethical, but I’m not sure that one really follows. But we might get away with…
PL: Sorry, complete your point, I got a bit carried away there.
CC: But actually, most people when I’m working with groups, say in front of each other, 80%, 85%, then you ask them about their colleagues, and their colleagues are still better than average but not quite as good as them, which is interesting. So consistently, we seem to rate ourselves… well, someone’s got to be more ethical and perhaps we’re just lucky to be among a group of very ethical people.
PL: So it’s good drivers, isn’t it? We all think we’re good drivers.
CC: It’s absolutely that. There’s all sorts of reasons why the numbers don’t add up on this. The obvious answer is different cultures, different views of ethics. But actually, if we’re all in the same business, and we’re all in the same profession, it doesn’t really account for, wow, we’re all so, so ethical. And I think partly it is that we fool ourselves. So if I observe behaviour by Laura that I think is unethical, I interpret the behaviour. Now, I don’t understand what she was intending to do, but I might judge her. If I did the similar behaviour, I know what my intentions were, and I’d excuse it: oh, that’s not the real me, I was just in a rush. So our sense of self remains ethical, even though every day we’re probably doing very unpleasant things.
PL: And so it begins.
CC: Yeah, but I always say with ethics, it’s not about just being a nice… having nice feelings towards the world, it’s a competence, particularly in a professional sense. And coming back to ethical fading, perhaps you think you’re ethical because you never noticed the ethical issues that you missed and ignored. You just don’t know where you’ve been trampling. And as you said, Philippa, the classic is bad driving. So bad drivers don’t just think they’re better than we might think they are, they actually think they’re among the best drivers, research suggests. This is the Dunning-Kruger phenomenon. And part of the reason they think they’re the best drivers around is because of their incompetence. They don’t know what good driving means.
So we have to test ourselves. If we think we’re very ethical, are we actually thinking that that’s what our colleagues would say? Have you tested that out?
PL: I presume that is where accountants come in, that’s where organisations come in. They need to show everyone what good looks like here.
LH: I think they definitely have a role to play, certainly, especially at senior levels, to really model that behaviour. That’s very interesting research there, Chris.
PL: It is.
LH: Very, very interesting.
PL: Tad depressing, but yeah, fascinating. It’s a fascinating area. I know ICAEW’s very firmly focused on it, and it’s coming into CPD now, isn’t it, Laura? From November 1, everyone is going to have to do some ethics training.
LH: That’s right. Yes, it will be an hour of mandatory ethics training on an annual basis from 1 November.
PL: And can you just talk us through… I know there’s a lot of resources and activities available for members that tie in to the ICAEW Code of Ethics. What’s out there?
LH: Yes. So there are lots of help sheets available on our website, a number of videos that go through case studies. We’ll be launching a lot of new resources for Global Ethics Day this year, so on 18 October there’ll be a lot more available for members. You can also access our Technical Advisory Service if you’re a member of ICAEW. So if you’ve got a query that you want to discuss with somebody completely in confidence, you can phone up and ask for advice.
PL: So if you have an ethical conundrum you can ring up?
LH: Yes, other issues as well, but ethical conundrums, certainly, yes, do fall into their remit.
PL: That’s good to know. And I think this is ongoing work – there will be more.
LH: There will definitely be more, yes. The CPD that’s being launched this November is probably the first step and there’ll be more materials added as we go through the years to come really.
PL: Laura, Chris, thanks very much. It’s been so interesting. I have learned loads and I’m sure our audience will too. Thanks for spending the time to be with us.
Looking ahead, the next Insights podcast will be with everyone in early October, that’s sharing news from across accountancy and ICAEW. After that, the Insights In Focus series will return with a special episode on the upcoming Economies series. ICAEW has been travelling across the UK to hear stories of business innovation and discussing how policymakers can best support economic growth. We’ll catch up with some of the participants and, of course, ICAEW Economics Director Suren Thiru. Join us for those. Thanks for being with us for this one. And if you haven’t already subscribed to this series on your app, please do. That way you’ll never miss an episode.