Allan Moss' Address to the ERBEI Forum, 26th July 2000

Allan Moss

The Business Olympics:

Is it just about winning? Or how you play the game?

Allan Moss

Good evening and thank you very much.

As I had a chat this evening, prior to coming into this room, I met quite a number of you who are involved in management in one form or another. Not all in business organisations but in community or professional organisations as well. I imagine that most people who have been involved in managing a reasonable number of people for a period of time, have at some point suffered a disappointment – a disappointment in terms of the conduct of a colleague, with respect to an ethical matter. This is sometimes the case even with people who appear to have a very good track record and at least speaking for myself, hopefully on those few occasions when that occurs, it’s a surprise, and sometimes really an astounding surprise. I’m not just talking about the really serious cases of people doing something that is actually illegal or harmful, but it may be a lapse that is less than that – it may be an untruth, actively or by omission, or it may be mistreating a colleague in some way, or not behaving completely ethically in a client relationship through a communication that is less frank than it should be. Whatever it is, it is typically a surprise. The question that I’d like to discuss with you this evening is why it is that good business people do wrong, and canvas with you some alternative explanations for that dilemma.

Is it ignorance, just not understanding what the right way to behave actually is? Or is it that this person whom you thought was good is actually a evil character underneath all along? Is it the large dollars that are sometimes available, particularly in business? Is it the unusual personal crisis that turns somebody who normally behaves in an ethical way to less ethical behaviour? Or is it the hubris, arrogance or contempt for the rules that bind us as a community?

Let me first of all talk about ignorance and whether really that is the explanation. Is it that people who have done wrong typically haven’t known what the right behaviour was? Frankly, in my experience, I doubt it. Most of the things that people do that are really wrong and are really bad things in terms of being harmful to an organisation, really detracting from ethical standards, would have known the answer if the question had been put to them objectively. These are typically, in my experience at least, no subtle points. In fact these are points like telling the truth, not taking money, not bullying colleagues, and really these are the points that most people learn in kindergarten. People learn you shouldn’t lie, you shouldn’t steal, you shouldn’t bully your colleagues. These are, by and large, subtle points. As I say, I am a big supporter of ethical education because I think there area cases where people do not understand and reinforcement is always helpful, even if it is in a small minority of cases, then of course it is going to be worth it. But really these points are typically, in fact, well understood. Occasionally at any particular time there will be a minority of issues where there isn’t a social consensus and at various times in history, there hasn’t been a good understanding of some of the things that are on this slide, where society has been in transition and people have come to realise, slavery is inappropriate, or come to understand a proper role of women in the workplace. At the moment, I think people of good conscience are having a debate about environment versus jobs, but at any given time, I would put it to you, that most of the dilemmas are actually, the answer is reasonably well understood in terms of how people should behave. When people do wrong, they mostly knew that they were doing wrong.

Let me turn to an alternative, which is really, I suppose, the sort of character that we see on TV. This is your sort of Dr Jekyll and Mr Hyde. This is the person that you see on TV who probably looks a bit shifty-eyed from the beginning of the program and who has a fiendishly evil plot for personal aggrandisement or to do some evil.

Frankly again, that hasn’t been my experience actually, that when people behave unethically, particularly if it’s a significant lack of ethics, typically these aren’t the people, that I at least, would have identified.

In my experience, it has been a surprise. I am talking about people who are established in the business that then go off the rails. The acts don’t seem to be by people who prospectively, or mostly even in retrospect, seem terribly evil people in their general relationships with their family or the rest of the world or even, probably, their work mates. It is in fact very difficult and perhaps well nigh impossible, for truly antisocial people to succeed over a period of time in a business activity.

I’m not talking about the individual who may seek to sell his or her own house, once in an unethical way and sort of paint over the damp. That’s not a business activity, that’s a transaction but it’s not running a business. I’m talking about the people who have established themselves in business activities.

By and large, it hasn’t been my experience that they are leading a double life here, and that they’ve been mostly evil, because actually, word does get out. It does get around and this is really quite a transparent society in which we live, particularly in a business society.

Let me turn to another potential explanation, which is of course, the ‘large dollars’. There are from time to time very large dollars in business. I do think that sometimes of course that is a motivation, that the temptation of the big dollars is just too much for some people, and this is again, I suppose the Wall Street caricature really.

Nevertheless, I don’t think it can be the only explanation. Because, if it were the only explanation, then of course, we would always get behaviour that was totally ethical in large bureaucracies, wouldn’t we? Where bonuses aren’t really a big factor. We would always get total frankness in dealing with large institutions, and in particular, with the public sector, where bonuses are really just starting to creep in.

Somehow, that doesn’t seem to be the case does it? There are other motives, money is one of them, but there are many other motives. In terms of personal gain, certainly greed is a common theme here very often, but it may be greed for status, it may be seeking to control a situation through misdirection, it may be as simple and as difficult as a fear of failure. Wanting to push the boundaries of ethical behaviour, in order to achieve a particular objective, not actually for large amounts of money, but to achieve and be seen by ones colleagues to achieve.

If it was all about really large dollars, then shoplifting by retail staff would never be an issue because we would never see somebody stealing a $10 item of clothing from their own store, and yet we do.

This is one of the explanations, but greed actually does come in many forms.

Let’s turn to one of the sadder cases. That is the personal crisis.

Personal crises can take many forms. In our society, it’s relatively rare that someone who is established in a business position is driven by absolute, outright economic need, in terms of just survival.

But there are other explanations and there are addictions. Not just to alcohol and drugs, although these addictions can be very pernicious, but there are addictions to gambling and gambling can take many forms as well. Sometimes it is the classic casino or racetrack, but it can take modern forms as well, frankly, day trading. This is a modern form of gambling, which for some has become a modern form of addiction.

It used in fact, to be the case that Bankers, particularly in the United States, being conscious of this, were in fact banned from race courses in the United States. I don’t think ever in Australia because this is such a fundamental part of the Australian way of life that no-one could contemplate life without access to a race course, and certainly not in the UK, where it was compulsory.

In the US, this was a feature of banking life for quite a long period of time, and actually, perhaps not a bad idea to address this particular risk of personal crisis. It is part of the story from time to time that there are such personal crises.

Let me now turn to another explanation which in a way is the most pernicious, threatening form of temptation for those who have succeeded in life. That I think is Hubrus. This is the tragedy of the fallen hero, this is the cover-up. The reluctance to admit error. This is, Richard Nixon at Watergate. This is Bill Clinton denying the affair with Monica Lewinski and thereby arguably committing perjury. This is the Board of Directors who may have a problem they’re hoping will go away, which they don’t disclose. Not because they’ve got a lot of options, perhaps, but when you’ve been really successful, sometimes it’s hard to admit failure. The more successful you’ve been, the harder it is to admit failure.

While I think it may be that everybody, or nearly everybody in this room can honestly say that they’ve never been tempted by large amounts of money and have no addictions and would never steal and so forth. This is a temptation that, I suppose, few who have been successful would say that there’s never been a hint of that temptation in their lives. Just to skate over a problem.

Really, there are of course a whole variety of these reasons and combinations of them. I think the answer is in the combinations, but I think, if there’s a theme here, and there are some themes. To some extent greed is a theme here, but to some extent also, I’d like to come back to the question of openness and consultation.

In every case, I put it to that, just about every case where someone does something seriously wrong, that if they’d had the objectivity to consult someone who wasn’t involved, even if it was the trainee, they would have been told the right answer. These aren’t subtle points.

What does this mean for those of us who are seeking to manage these situations? Recognising that for organisations, there is no conflict between winning and playing the game. For organisations, in the long run, word gets out and the only way to win is to play the game by the rules.

In general, we would take the view, at least in Macquarie, that the best disinfectant is sunlight, by which I mean openness. How does one achieve that? It’s actually not easy.

First of all, you’ve got to make the standards clear. Even though, mostly the rules are pretty simple, it does help to articulate them and have a set of principles.

Education does help for reinforcement and to make those principles clear, and to make it clear that the organisation is serious about those principles. It is not just a ‘nod and a wink’. We have a phrase that we try to communicate to our senior people in particular, to our managers, which we encapsulate in the phrase 'on the record'. What that means is, that everything is on the record. If you live your life as a manager, on the basis that everything you say, everything that you do in your relationships with other staff and clients, is ‘on the record’, then you pretty much automatically behave in an ethical way. Mostly we do all know what’s right and what would embarrass us if it became public.

We have a lot of avenues for disclosure. We try to provide many routes for people to elevate ethical concerns. Not just through the typical management structure. We also have an Integrity Officer and this is somebody to whom anybody in the Bank can go on a confidential basis, to discuss an integrity problem, as another source of escalating the issue in a confidential way. By the way, we have the same thing, a different person for discrimination issues.

Again, just trying to provide every avenue that we can for people who may have concerns, to get it out in the open. Once these things are out in the open, typically, they can be dealt with.

Another issue, and this is really sort of the toughest decision a manager has to make in dealing with ethics. Sometimes in dealing with ethical issues, less is more when it comes to punishment. Why do I say that? Basically, because you do want to encourage self reporting of at least minor infractions. If somebody has a problem that recognises that they’ve made a mistake. You want people to be able to, in a sense, share it and try to be part of a team that’s addressing it.

Frankly, the other reason is that in this society, we are all taught from the age of 5 ½ that dobbers are unpopular. That’s an Australian expression, ‘dobbing in your mate’. In organisations, this is a behaviour that one wants to encourage to identify problems, but if you’re seen to be punishing too harshly, you discourage that behaviour. At the same time, you’re seeking to set standards and terminate where necessary. Striking this balance is a challenge for managers, and it’s not obvious that even for the most ethical manager that more punishment is better.

Other avenues, transparency, we typically have open floor plan. I think open floor plan is a big thing in terms of encouraging ethical behaviour. The censure of colleagues is a very powerful force, because typically the team wants to be associated with people who have a good reputation, wants to be associated with an organisation that has a good reputation. This can be a very powerful force.

The other, and this sometimes may seem unfair, is that we wont accept the Nuremburg Defence. The Nuremburg Defence, as you all know, is ‘I was acting under orders’.

With a junior staff member, who may in fact have been acting under orders, that may seem unfair. Should a junior person be punished because a senior person four levels up in the organisation told him/her what to do? Well, our answer is ‘Yes’.

We do this basically because we take the view that everybody should know and when it comes to ethical issues, everybody is in that sense, equal. But also, because if you don’t take that approach, then there is no meaning in dual controls. If you don’t take the view that orders are no excuse there is no purpose in dual controls. In our view, you just have to take that view that orders are no excuse. Even though it may sometimes produce results which are seen to be harsh in isolation. By and large, people understand that.

The final point I make is that, sometimes people say to me, 'well, gosh really what you’ve just got to do, is you’ve just got have people of good character'. That sounds right, of course, it’s good to have people of good character, but the problem is, just which ones are they. Or putting it another way, it’s good to eliminate the people who aren’t of good character, but which ones are they? Because, you know that most are of good character, or probably nearly all are of good character, but which aren’t. I’ve found that advice of no help at all in my business career. Of course, it’s something that one wants to do, but it’s pretty hard to know in advance.

Whenever anything really bad has happened, I’ve always gotten out the ‘Psych Test’ and we ask everybody who joins the Bank in a professional position, to do Psych tests and they’re good tests, but I’ve generally found them useless in this regard. They don’t seem to be able to test for ethics.

My experience is that good reporting systems are a lot more effective than Psych tests. Bascially, organising to get the issue out in the open is actually a much better guarantee than trying somehow to hunt around for the person who is secretly of poor character.

Having said all that, and after doing all of that, there is still the risk of the aberrant individual and that’s of course very distressing when that occurs. If you’ve got a large number of people over a period of time, then despite every precaution, that will occasionally occur, and of course we can’t be complacent about it.

Apart from the moral issues, there is actually a lot of commercial value at stake here in ethics. I’d put it to you that actually, as never before, ‘market value’

Description of a Slide, noting ‘Market Value’.

The Market Value of companies on the Australian Stock Exchange has gone from being a bit above book value, to being way above book value. Much more than twice book value. What are the assets here, because there are assets, it’s not all about hype, enthusiasm and dot coms. It’s things like brand, staff loyalty, proprietary information and clients. These are all things that poor ethics can destroy.

Poor ethics can destroy a Brand. Poor ethics can cost you staff, because people actually don’t want to work in an organisation where there are poor ethics. Proprietary information can be stolen and clients can certainly be lost in a great hurry, by an organisation that is perceived to be unethical.

Investment in ethics has become a better investment by far than it has ever been before in the history of business. These charts, and there’s probably an even more dramatic chart that applies to US companies, this is a phenomenon in the Western World, that these intangibles which are so vulnerable, have become so fundamental to business value.

I welcome the opportunity to discuss this with you. Not because I consider myself an expert in this regard, but because I hope that by doing so, I’ll pick up a few things myself to help in this critical area where we need to invest and continue to invest in.