Ethical compliance management

by Bill Dee and John Braithwaite

Both of us have dedicated big parts of our lives to advocacy for compliance management in corporate Australia and internationally. We take some satisfaction in the way this aspect of corporate social responsibility has developed. Yet we have one big worry

—that the compliance management field has become too narrowly focused on ensuring that firms comply with the law. Too technocratic and weakly imbued with an ethical sense of vocation.

Recent catastrophes of the world economy highlighted the problem. There was more than a bit of lawbreaking at the root of the Global Financial Crisis, but the more widespread cause was legal forms of deception – using structured financial products to pass risks onto people who did not understand that they were buying risks that had been shifted to them by banks. The old fashioned responsibility of banks to manage risks had become a new art form of risk shifting.

A similar view

[1] was postulated by none other than the Bank of England Governor Mark Carney. Speaking at the University of Alberta, the central banker said previous financial crises have been partly caused by business forgetting its role in society.

The severity of the financial crisis showed what happens when those responsibilities are not widely held,” Carney said in a prepared text for a speech at spring convocation.

In the runup to the crisis, banking became about banks not businesses; transactions not relations; counterparties not clients. The crisis undermined trust, and with it the social capital needed for markets to be effective.

Carney said businesses must embrace a larger social purpose.

Profit is no more the purpose of business than is breathing the purpose of living.

The best organizations are grounded in broader purposes, in crafting solutions for others. Banking, for instance, is fundamentally about connecting borrowers and savers in the real economy.

Likewise with the fiscal collapse of many economies, especially developing ones, through legal financial engineering to shift profits. Starbucks may have used perfectly legal profit shifting techniques to avoid paying any company tax in Australia for 12 years in a row, but is this ethical when the mum and dad coffee shops that compete with them pay plenty of tax? Is it ethical for their drivers to use roads funded by those competitors’ taxes, for their children to go to Australian schools, to be treated at Australian hospitals, without paying their fair share of the cost of those public goods?

In all cultures and religions, honesty, trust and the Golden Rule are fundamental ethical values. The Golden Rule is a biblical[2] as well as an Islamic principle[3], and also a Buddhist[4], Hindu[5], Confucian[6], Roman[7] and ancient Egyptian[8] principle. The Golden Rule must be interpreted broadly. A Starbucks that in effect says to the corner coffee shop and to its customers “You pay our taxes for us” is not “doing unto others as you would have them do unto you”. Or as we Australians put it, this is not a “fair go”. The kind of deception that drove the world to catastrophe in the Global Financial Crisis was not a fair go, especially to the tens of millions of struggling workers who lost their jobs as a result.

The formal guidance available to the compliance management profession on ethics is actually pretty good. Many leaders of the profession were involved in developing the International Standards Organization Social Responsibility standard ISO 26000-2010. We like the way it makes “sustainable development” the core responsibility of business. Especially when firms operate in developing countries, business has that responsibility to create jobs, pay taxes and help drive the economy toward poverty reduction. And it must meet that responsibility in an environmentally sustainable way.

“Ethics” is also at the heart of ISO 26000. There was a time when we might have been critical of “ethics” as vague and meaningless. But we have learned to see ethics as the soul of the compliance management profession to prevent the deception of people by finding ways around the spirit of the law and around the Golden Rule.

Modern techniques for legal and financial engineering around laws are so sophisticated that law reform constantly fails to keep pace with them. So trust, honesty and the Golden Rule are more important principles today than they were at the time when Confucius first articulated them.

While ISO 26000 is laudable on these and so many other ethical values from gender equality to creating opportunities for the disabled, to the UN Guidelines on Consumer Protection and UN human rights obligations, the problem is not a failure of the compliance profession to get together to commit to these principles at the international level. It is our failure as a profession to transform corporate cultures to continuously improve in their ethics. Instead the profession has allowed corporate cultures to become more devious in their commitment to legal and financial engineering around the law in defiance of the Golden Rule.   Compliance professionals must involve staff outside of the traditional “rule-making” functions to build and sustain a strong corporate culture. Ethical business practices must remain an integral part of everyone’s responsibilities.

Of course we agree that CEO’s do have a responsibility to keep businesses profitable but that does not mean that it should not behave ethically.   Put simply, in any given situation everyone in an organization, be it a commercial one or otherwise, should ask themselves “Is what I am proposing to do wrong.”    Put another way just because something is legal doesn’t always mean its right.

Behaving ethically comes from the “tone at the top”.   Employees and managers take their cue from the Board and the Chief Executive Officer, the way they behave and both the explicit and implicit messages they send to those they influence.   To duly perform its oversight responsibilities[9], the Board should

  • Define the organization’s ethical culture – typically in a Code of Conduct/Ethics – as well as core ethical values
  • Monitor compliance and commitment to ethical behavior;
  • Ensure that policies and procedures on ethical conduct are communicated and accessible to all employees as well as relevant third parties;
  • Ensure that adequate protection is available to whistle blowers;
  • Avoid conflict of interest situations – flowing from their fiduciary duties, Directors should always act in the best interest of the Company rather than in their own self-interest
  • Embrace its critics in civil society, debate ethical dilemmas with them and be transparent with them

The Board should ensure that an “ethical values filter” is applied to decision making – hiring, performance appraisal, firing, and reward system and emphasize that when in conflict the ethical values take priority over the bottom line.

It is accepted that some situations may be complex but there are places where advice can be sought.   For example, in Australia the Ethics Centre has an Ethi-call helpline, to deliver tailored ethics training, to advise leaders in some of the world’s largest companies. Its work guides people through highly sensitive and difficult decisions.

The Centre’s ethics-based counselling, consulting and education programs offer a framework to critically examine complex situations, understand multiple viewpoints and explore possible solutions. By equipping people with insight into values and principles and challenging unthinking bias, we support them to be consistent and ethical in their decisions and actions.

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[1] Bank of England governor urges corporate social responsibility in Edmonton speech, By Bob Weber The Canadian Press

[2] M. G. Singer, ‘The Golden Rule’ (1963) 38(146) Philosophy 293; A. Kirk, ‘“Love Your Enemies,” the Golden Rule, and Ancient Reciprocity (Luck 6:27-35)’ (2003) 122(4) Journal of Biblical Literature 667; B. Chilton, ‘Jesus, the Golden Rule, and Its Application’ in J. Neusner and B. Chilton (eds), The Golden Rule: The Ethics of Reciprocity in World Religions, 76-87 (London: Continuum, 2008).

[3] T. E. Homerin, ‘The Golden Rule in Islam’ in J. Neusner and B. Chilton (eds), The Golden Rule: The Ethics of Reciprocity in World Religions, 99-115 (London: Continuum, 2008).

[4] K. Scheible, ‘The Formulation and Significance of the Golden Rule in Buddhism [I]’ in J. Neusner and B. Chilton (eds), The Golden Rule: The Ethics of Reciprocity in World Religions, 116-128 (London: Continuum, 2008); C. Hallisey, ‘The Golden Rule in Buddhism [II]’ in J. Neusner and B. Chilton (eds), The Golden Rule: The Ethics of Reciprocity in World Religions, 129-145 (London: Continuum, 2008).

[5] R. H. Davis, ‘A Hindu Golden Rule, in Context’ in J. Neusner and B. Chilton (eds), The Golden Rule: The Ethics of Reciprocity in World Religions, 146-156 (London: Continuum, 2008); F. L. Bakker, ‘Comparing the Golden Rule in Hindu and Christian Religious Texts’ (2013) 42(1) Studies in Religion/Sciences Religieuses 38; K. K. Klostermaier, A Survey of Hinduism (New York: State University New York Press, 2007).

[6] M. A. Czentmihalyi, ‘The Golden Rule in Confucianism’ in J. Neusner and B. Chilton (eds), The Golden Rule: The Ethics of Reciprocity in World Religions, 157-169 (London: Continuum, 2008).

[7] R. M. Berchman, ‘The Golden Rule in Greco-Roman Religion and Philosophy’ in J. Neusner and B. Chilton (eds), The Golden Rule: The Ethics of Reciprocity in World Religions, 40-54 (London: Continuum, 2008).

[8] J. O. Hertzler, ‘On Golden Rules’ (1934) 44(4) International Journal of Ethics 418.

[9] Ethical responsibilities of the board of directors, March 24, 2014 | Filed under: Insight | Author: Adebisi Adeyem.

By | 2017-10-18T06:33:57+00:00 24 August 2016|Categories: Compliance, Regulation, Regulatory Capitalism|

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