By Greg Navarro | Special to the Businessmirror
Part One
A new book came out recently that purports to tell the history of an academic institution known for producing so many of our current global business leaders. In tracing that history, the author has courted controversy for suggesting that this giant of a university—or at least its signal graduate school—has broken with its noble tradition of teaching future leaders to think about the good they can do for society and is instead prepping them for a career focused on how to make the most money.
Maybe laying the blame for corporate greed squarely at the door of one institution is too much. But focusing on values and attitudes in dissecting why some organizations have failed and have lost the trust of their stakeholders is justified.
If you look at the string of corporate scandals from the past few years, many can be traced to corporate cultures that assign value to all the wrong things, thereby enabling, maybe even encouraging, damaging misconduct.
Deloitte’s Center for Regulatory Strategy recently took a closer look at the financial services sector to see what drives misconduct in that already highly regulated industry. Exploring the findings of conduct-related enforcement actions, regulatory and industry reviews, government inquiries and firm remediation programs, Deloitte looked for common themes behind poor
conduct in the understanding that knowing the cause can help prevent the damaging effect.
Here are four of the eight drivers of misconduct that Deloitte was able to distill from that study, which, while sector specific, generates insights that cut across industries.
- Customer needs and suitability not guiding product lifecycle practices
When the commercial needs of a firm define product design, there is the risk of ignoring customer perspective and, in the financial services sector, of misselling and irresponsible lending. Marketing and sales practices that are driven by maximizing volumes without giving sufficient weight to customer utility can foster poor conduct.
My own son had an unfortunate experience, and not with a financial services company, because of such a situation.
He signed up with a well-known gym for a fixed period of one year. But after that had lapsed, he noticed that the gym continued to charge his credit card, which explains why the outfit insisted on direct credit-card billings instead of agreeing to my son’s original request to pay cash on a monthly basis.
- Failing to have a “balanced scorecard” for human-resource decisions
When you screen job candidates for your organization, do you consider their conduct and compliance history? When you design your development programs, do you incorporate training on values and ethics? Hiring decisions that are guided primarily by an individual’s ability to create profits can be problematic: You might end up staffing your work force with people who value sales targets above everything else. How you incentivize, evaluate and compensate your employees also plays a significant role in shaping their professional behavior. What kind of message will you send to your team if you celebrate an individual who tops the sales league table but who is also known for cutting corners and engaging in unethical practices?
- Individuals and leadership are not responsible or held to account for misconduct
Recently, a prominent international professional services firm made headlines when it fired six of its employees, five of whom were C-suite level, over an ethics breach. An independent investigation into the incident revealed that the involved parties became privy to confidential information that was leaked from a regulatory body. The termination, while unfortunate, sends an important message to the rest of the organization: adherence to the firm’s code of conduct knows no exceptions.
In studying the drivers of misconduct, Deloitte found that many individuals who were guilty of abuses knew they were in the wrong, but they carried on just the same because they didn’t think they would be held responsible for the negative consequences of their actions. Similarly, employees who witnessed bad behavior did not report such incidents because they didn’t think any action would be taken against the wrongdoer.
Organizations that do not have a formalized or hierarchical structure for management accountability risk breeding this kind of mindset.
- Failing to identify and manage conflicts of interest
Earlier this year, massive crowds in Romania took to the streets to protest a government decree decriminalizing some forms of official misconduct. One component of that decree narrowed the definition of “conflict of interest”, making it legal for a public official to favor a business partner when bidding out contracts.
I’m not sure what the Romanian government is looking to achieve with this move, but I do understand why citizens are fighting it: conflicts that go unmanaged may lead to opportunities for misconduct. When an individual has two competing objectives and pursuing one will lead to a personal benefit, this individual may set aside his professional or ethical obligations in favor of his self-interest.
To be continued
The author is the chairman of the Integrity Initiaitve Inc.
Image credits: Nuvo lanevi cata | Dre amstime.com