It typically involves the conscious application of an explicit framework of values and principles. There are differences between business and the professions, the most significant being that if you are in business you are formally entitled to pursue self-interest whereas in the professions you consciously choose to subordinate your own interests to those duties owed to others.
Values and principles, defining purposes, need to be understood in both business and the professions, but the professions have a very specific set of obligations which mark them out. The defining good which accountants as a profession are required to secure is that of truth, and they must do so by acting in the spirit of public service.
How can firms incorporate ethical considerations into their strategic thinking?
The only way is to set up quite explicitly an ethical framework. Although there are a million different ways these can be expressed, what they all share in common is that their foundations are built out of both values and principles, with values being an expression of what you think is good and principles being an expression of how you wish to regulate the means by which you secure those things that are good.
So a value might be something like ‘honour’, a principle might be something like ‘Do unto others as you’d have them do unto you’. And you need both of those components to be incorporated in the actual framework or foundation that you have.
What you then need to do is to make sure that the system, policies and structures which you have in place are consistent with those things. That you delegate to people the authority to make decisions using that framework and not simply tie them up with a set of regulations which means they never exercise a responsible choice but simply comply. You need to use the language around your values and principles to explain the choices you make so that people don’t see you, even inadvertently, saying one thing and doing something else. Now in all of that, leadership is very important partly because it creates a permissive environment – people will often be nervous about taking these things up and having to exercise judgement as they need to do. Some more prosaic things that leaders can do can be quite transformative. You might have the head of an organisation call in their direct reports and say to them, ‘We’ve agreed this ethical framework, I’m now going to ask you a simple question, each of you tell me one or two things which you need to see me doing to be convinced that I am personally committed to giving practical effect to this framework, and I will do that. That will take all the guesswork out of it; I’m not going to pretend I know what you need to see, you will have told me and that’s what I’ll commit to do. What I ask, though, is that you then have the same conversation with each of your direct reports and that they have the same conversation with their direct reports and so on.’ It’s a kind of cascade that goes back down through the organisation, which has a very transformative effect because it helps to build confidence in that organisation that the values and principles as expressed are being practically applied in terms that people can understand.
Has the standard of corporate governance in Australia improved following the company collapses around 2000?
Yes and no. I think you’ve got a diligent and thoughtful group of company directors, so the people are as good as ever they have been, but I think the actual practice of corporate governance is not better. I’m not saying it’s worse, it’s just not better, because what’s happened is that boards of directors now spend an inordinate amount of time on compliance and they have been frightened by the spectre of liability into a position where they now do more of a compliance nature than of a strategic nature and I think that the quality of the corporate governance that flows from that approach has been diminished, or if not, just static. It’s not improved.
Do we need greater regulation or changes to legislation to persuade the corporate and business world to act ethically?
No, we need better regulation and better legislation and better systems of surveillance. The idea that you can make the world a risk-free place or even a more ethical place by regulation and surveillance alone is a folly. Apart from the practical difficulties of it, if you created a world in which no one could chose to do anything wrong, then inadvertently you would’ve created a world where no one can chose to do anything right either, you don’t choose you simply comply.
In those circumstances we know not as a matter of theory but as simple practice and historical record, that human beings who do not practise the skills of making responsible decisions progressively lose those skills simply because they’re never being exercised. So what we need is smart and appropriate regulation; it needs to be trimmed back to the extent that it gets in the way of the exercise of judgement, but equally, what we need is a culture within Australian business which is prepared then to accept responsibility for the decisions that are made
The former treasurer of the Commonwealth, Peter Costello, once told me that the typical conversation he had with business leaders on this matter was that they said, all in the same breath, ‘Treasurer, there is too much regulation – and we need to know exactly where the line is drawn’, and he’d say, ‘Well I’m not quite sure how I give you both of those things, they’re mutually contradictory’. The point that Costello was making of course is a good one, that unless the business leaders of Australia are prepared to stand up and be responsible for things even in cases where it is not absolutely precise, then all they can possibly hope for is government to meet the need for a clean line by putting in new rules and new forms of surveillance.
