Making Ethics Effective

September 14, 2015

EthicsAn organisation can espouse the highest ethical standards but if these are not supported and enforced they are simply nice statements that look appealing. The challenge is to have the right levels of support and just enough enforcement.

Headline news in Australia over the last couple of weeks (with months to run) is the appalling treatment of franchisees and their staff by the 7-Eleven chain.  To survive (and in some cases profit) many 7-Eleven franchisees resorted to underpaying staff by a standard 50%.  The TV expose and press reports indicate multiple breaches of employment legislation, occupational health and safety legislation, corporations law and taxation legislation.  Most of the focus at the moment is on the students who allowed themselves to be trapped into the wages scam.  This post will suggest these people are not the ‘biggest losers’.

The whole 7-Eleven chain was benefitting from the scam.  Head office made more profit, the franchisees reduced their wage bill by up to 50% (their primary cost under the franchise arrangements) and the students received their reduced pay.  Whilst in some cases there may have been elements of coercion used to keep the students employed, everyone got into the deal voluntarily.

The major losers in this scam were people who rely on the workings of the law and run their businesses honestly.  Two major groups are the corner shop-keepers who paid the lawful minimum wage and saw their businesses destroyed because the 7-Eleven ‘model’ undercut costs illegally and the unemployed people who did not get jobs because they had the audacity to expect to be paid their legal entitlements.

People in these groups faced a major ethical dilemma, go out of business (or remain unemployed) or ‘bend the law’ to survive in completion with a chain that was prepared to allow widespread malpractice.  Not an easy decision!

I would suggest the major failing was not the ethics of the 7-Eleven chain: the erosion of ethical standards is usually slow and insidious. The real problem appears to be the government agencies tasked with enforcing the law.  Over several decades government departments have been steadily stripped of resources and these days can only adequately respond to ‘major issues’ –  they are forced to assume ethical behaviour by most people most of the time and even when advised of blatant breaches will generally ignore the issue if it is considered minor.

One example we confront regularly is breaches of the Australian Competition and Consumer Act 2010 – one of the Act’s primary requirements is honesty in advertising, the advertised price of any goods of services should be the minimum price the consumer has to pay.  We routinely see Google advertisements targeted at our training market in Melbourne offering ultra cheap prices.  Click through to the related web page listing the training courses in Melbourne and the price increases, spend 15 minutes filling in registration forms and you eventually see the price you are required to pay (with all of the taxes and changes now added)!   This is a deliberate strategy by unethical organisations – the low price gets people onto their web site, and inertia keeps them there (particularly after spending effort on filling in the forms) so they end up paying far more than is necessary for an equivalent course.  The practice is so widespread, particularly with overseas based training providers, we regularly find people asking us if our prices are ‘real’ and ‘how much will they actually pay’ – the answer is simple, we conform to the law and charge the advertised price.

However, this was not an easy decision to make! We have had to reduce prices and increase advertising to attempt to off-set the illegal practices of others. Complaints to authorities go unheeded because they simply do not have the resources to deal with a relatively minor issue and business suffers.

When ethical standards start to slip several things tend to happen, ethical people move away to somewhere where their standards are not being challenged, less-ethical people move in and further degrade standards and many other people simply learn to ignore the problem (see The normalisation of deviant behaviours). And once unethical or corrupt behaviour becomes normalised, reversing the situation is extremely difficult. Press reports suggest that some 7-Eleven franchisees who have been forced to pay proper wages are now using extortion to demand 50% of the money back from the employee (outside of the premises so the extortion is not recorded), or the worker loses his/her job.

At a national level one hopes the 7-Eleven furore when added to the construction of a refuelling wharf in the Tiwi Islands without environmental approval (the government agency did not have the resources to investigate in a timely way), the blatant abuse of the vocational training scheme by some commercial organisations and numerous other failures will cause a re-think of the way business and government approach regulation.

Certainly the removal of unnecessary bureaucracy, regulations and other forms of red tape is to be encouraged. However, if the government decides a regulation is desirable, proper and comprehensive enforcement should be automatically provided. The failure to enforce regulations penalises the honest, ethical organisations who feel obliged to comply; and advantages the dishonest who chose to breach the regulation and balance the low cost of getting ‘caught’ against the additional profits garnered from ignoring the provision. Prosecuting a few ‘rule breakers’ 5 or 6 years after the event is not an appropriate way to govern – the damage is already done.

What does this mean within organisations and projects?  Effective governance sets the ‘rules and objectives’ for the organisation (see: The Functions of Governance). Management and staff operate within those rules to achieve the objectives. A key element in a well designed governance framework is the feedback loop providing assurance of management accountability and compliance.  This loop needs three elements:

  • A clear articulation of acceptable and unacceptable behaviours at all levels of the organisation, with senior leaders ‘walking the talk’.
  • Proactive surveillance to identify issues and opportunities as early as possible backed up by effective improvement processes (see: Proactive Project Surveillance).
  • Rigorous, but fair, enforcement processes to deal with breaches.

The last point is the most difficult to get right.  The system needs to be open and accountable, apply both natural justice and the ‘presumption of innocence’, deal with the root cause of the breach, avoid scapegoating, and be trusted.  One element is ensuring effective reporting and ‘whistle blowing’ processes are available so that people (both internal and external to the organisation) who believe there is an issue can raise the matter safely – its impossible to enforce rules if people in authority don’t know (or don’t want to know) about the breach.

The good news is that if these types of system are in place, the organisation will develop a self-reinforcing ethical culture.  Unethical people will leave to find somewhere easier for them making way for people who want to work in an ethical environment.  Fairly soon, everyone holds both themselves and other accountable.

However, this situation cannot be taken for granted! The presence of the surveillance and enforcement processes underpin these highly desirable behaviours.  If the organisation makes the same mistake the Australian governments have repeatedly made over the last 10 years of deregulation and simply ‘hope’ everyone will do the right thing it won’t take long for the slide into unethical behaviour to start.  Hope is not a strategy, good governance requires assurance that the organisation’s objectives are being achieved, and effective assurance needs both surveillance and enforcement capabilities.

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Project Management Ethics

July 3, 2011

The ethical standards required of project managers are increasingly being backed by the force of law. For a number of years the US Foreign Corrupt Practices Act (FCPA) has imposed legal obligations on organisations working, or with a presence in the USA and Australia has had similar provisions in its Criminal Code since 1999 based on the 1997 OECD Convention on Combating Bribery. Now the UK Bribery Act 2010, which came into force on 1 July 2011also places obligations on organisations world-wide. The UK law is intended to be the toughest legislation in the world!

The Act has wide application. It applies to those conducting business in the UK, including international companies. It also applies to those conducting business elsewhere in the world where they have a close connection with the UK, which includes bodies incorporated in the UK, Scottish partnerships, British citizens, British nationals and UK residents. Employees, agents and associated persons of a commercial organisation affected by the UK Act are themselves covered by the UK law and the organisation itself has strict liability if a person associated with it offers, promises or gives a bribe to another or offers, promises or gives a bribe to a foreign public official (with the intention to obtain or retain business or an advantage in the conduct of business for that organisation).

There are three main offences under the UK Act:

  • offering, promising or giving a bribe – i.e. a financial or other advantage;
  • requesting, agreeing to receive or accepting a bribe; and
  • bribing a foreign public official.

These offences can be committed by organisations, as well as individuals. An individual found guilty of any of these offences faces a maximum sentence of 10 years’ imprisonment and/or an unlimited fine; a convicted organisation will be liable to an unlimited fine. If any of these offences is committed by an organisation with the consent or connivance (i.e. knowledge and positive or tacit agreement) of a senior officer (or a person purporting to act as such) who has a close connection with the UK, the senior officer can also be prosecuted for the offence and faces a maximum sentence of 10 years imprisonment and/or an unlimited fine.

Corporations can reduce exposure to their liability by incorporating six core principles into their governance procedures:

  • Proportionate procedures: maintaining bribery prevention policies that are proportionate to the nature, scale and complexity of the organisation’s activities, as well as to the risks that it faces
  • Top level commitment: ensuring that senior management establishes a culture across the organisation in which bribery is unacceptable, which may include top-level communication of the organisation’s anti-bribery stance and being involved in the development of bribery prevention policies
  • Risk assessment: conducting periodic, informed and documented assessments of the internal and external risks of bribery in the relevant business sector and market
  • Due diligence: applying due diligence procedures that are proportionate to the risks faced by the organisation; since an organisation’s employees are “associated” persons, appropriate due diligence may become part of recruitment and HR procedures
  • Communication and training: ensuring that bribery prevention policies are understood and embedded throughout the organisation through education and awareness.
  • Monitoring and review: putting in place auditing and financial controls that are sensitive to bribery, including consideration of obtaining external verification of the effectiveness of an organisation’s anti-bribery procedures.

Defining the line between legitimate corporate hospitality which is allowed under the Act (provided it is proportionate and reasonable) and bribery will require the development of policies for both the provision of the hospitality and the receiving of gifts.

With this law now in force, maintaining appropriately high ethical standards is becoming increasingly important. To download a copy of the PMI Code of ethics and professional conduct see: http://www.mosaicprojects.com.au/PDF/PMICodeofEthics.pdf


Australia’s new Prime Minister – Julia Gillard

June 24, 2010

It has been a fascinating 24 hours in Australian politics. The former Prime Minister Kevin Rudd was dumped and we now have our first female Prime Minister Julia Gillard. The unfolding drama was a mixture of ruthless efficiency in the coup to oust the previous Prime Minister, immediately followed by the start of a process of inclusion and healing.

Managers faced with difficult decisions can learn a lot from today’s events. My thoughts on several key issues are:

  1. Ethical dilemmas are always difficult and need decisions. As Henry Kissinger said: “Competing pressures tempt one to believe that an issue deferred is a problem avoided, more often it is a crisis invented”. There is no right answer to a dilemma, every option has a downside. Leaders choose a way forward and live with the consequences.
    [See: Ethics and Leadership]
  2. When you do decide on a course of action, don’t hide the issues that created the dilemma in the first place, explain your reasoning and acknowledge both the greater good and the consequential harm. When a Deputy takes over from her leader there are inevitable questions of loyalty and trust, honest reasoning lets observers understand the reasons for the decision.
  3. Conversations and transformational negotiations lead to better outcomes than win-lose transactional negotiations but often you need to make the first concession to start down this path [see: Win-Win Negotiations]. The Government and the mining industry were locked in a head to head battle over a new tax. In the space of 5 hours the new Prime Minister had unilaterally cancelled government advertising over the issue and offered open negotiations. The mining industry had reciprocated and suspended their advertising campaign. The negotiations may or may not reach a consensus (no one like having their taxes increased) but both sides are likely to end up with a better outcome if the transformational negotiations work.
    [See: Negotiating and Mediating]
  4. In a disagreement over principles, you only need to achieve your objective; you don’t need to destroy the other party. The former Prime Minister has been offered a position of his choosing in the new government. If accepted, this means his talents and knowledge are still available to the team. Reluctant allies are better than committed opponents.

It’s certainly been an interesting day watching a really effective communicator in action in action; I feel as though I have learned a lot.