Alex Swarbrick: Getting to grips with a culture of misconduct

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The world cup in Brazil kept many of us up at night, but it’s the whistleblowing off the pitch that’s keeping FIFA up at night, and the corruption allegations surrounding the decision to award the 2022 event to Qatar.

From football to banking to care homes, it’s no surprise that ethical leadership and misconduct continue to grab the headlines. Yet the meaning of ‘ethics’ and ‘misconduct’ can seem hard to pin down and even harder for HR to get to grips with.

Having been roundly rebuked for incentive and reward systems which fuelled mis-selling in financial services, what approaches to organisational ethics and misconduct should HR now be taking? Compliance or culture change? How should HR challenge conduct which is toxic with reputational risk, and drives scarce talent out of the organisation? And should HR’s focus be on individuals, on the organisation or both?

What do we mean by misconduct and how serious is the issue?

It’s hard to find a common definition of ethical conduct, and for that matter ‘misconduct’. In financial services, misconduct has a specific meaning, but for others, one working definition of ethics is the “moral principles that govern a person’s behaviour” and for ‘person’ let’s also read ‘organisation’.

For an organisation, its ethical conduct, be that in terms of its ends or means, in other words its strategic purpose, and the means by which it achieves that purpose, ultimately is about its leadership, including the board. Not surprising then that both the Pollard report on the BBC Saville investigation, and Francis report on Mid Staffs Hospital Trust challenged senior leaders’ failure to act on evidence of bad practice.

Earlier this year, Roffey Park hosted a roundtable on ethics in leadership. To the question ‘why does it matter?’ the common view was that ‘great leaders make great companies’, and that leadership ethics have an impact on reputation, brand, talent attraction and retention, and ultimately share value. But according to the Institute of Business Ethics 2013 survey , only one in five of the general public trust business leaders to tell the truth and make ethical and moral decisions, and only one in four trust them to correct issues that need putting right. 

For the last 17 years Roffey Park has published an annual survey, the Management Agenda, of UK organisational life, issues and challenges. This year over 1,800 took part, from all sectors, and junior managers to board Directors.

In 2013, the majority of respondents regarded their organisation as behaving ethically, although there was evidence that this was more about compliance to regulations than a commitment to ‘doing the right thing’.

In contrast this year, misconduct was reported as widespread. More concerning is that although 49% of managers said that they had observed misconduct in their organisation, nearly a third of them said they chose not to report it, and one in five board directors didn’t report misconduct either.

Digging deeper into why, half of managers said they didn’t believe any action would be taken, and one in four feared reprisals. In fact, rather than report it, managers are more likely to walk. We found that, of managers who reported having observed misconduct, 54% said they plan to leave the organisation, whereas among those who’d not observed misconduct, only 41% aim to leave.

So in addition to other commercial impacts, we now also know that misconduct carries a talent retention cost.

Our research also revealed one-fifth of managers not trusting their organisation to be fair and two-fifths of managers reporting a dissonance between espoused values and those in use, which rises to more than a half in the public sector.

So, to get to grips with this, should HR be targeting efforts at individuals? The short answer is yes and no. Of course an organisation’s ethics and ethical leadership shows up in the decisions and choices made by individuals, and to that extent it is a personal responsibility. And there are, and will always be, individuals whose unethical actions seem motivated simply by greed. As the FT reported at the time “Make no mistake, for UBS traders the manipulation of Libor was about getting rich”.

But in getting to grips with misconduct, HR needs to look both at those intentionally pursuing personal gain, and those whose intentions aren’t unethical but the outcomes are. Personal responsibility isn’t exercised in a vacuum but in the context of external organisational and internal organisational pressures. As noted by Treviňo and Brown, “…being ethical is not simple. Ethical decisions are ambiguous, and the ethical decision making process involves multiple stages that are fraught with complications and contextual pressures.”

Take the typical public sector context at the moment, combining externally imposed targets and measures, with internal constraints on resources of budget, staff and time. In that landscape, to achieve the targets, leaders have to make choices, many of which have ethical and conduct implications. Hence the debate which has followed recent care sector misconduct incidents; to what extent have funding cuts, and therefore constrained staffing budgets been part of the landscape in which individual misconduct has occurred?

So a dynamic is at work that looks a bit like this:

 

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In the light of all that, how does HR get to grips with misconduct? In our view, it requires reviewing and making decisions about the ‘hard stuff’ and the ‘soft stuff’; in other words policies, compliance and procedures, but also the culture, behaviour and values.

The ‘hard stuff’

At our ethics roundtable, while there was a view that HR can be the organisational conscience, some warned against this because it can result in the rest of the organisation absolving themselves of responsibility. So, as necessary as robust policies and compliance frameworks are, they should carry a health warning, if organisations are to avoid people acting on autopilot, not making ethical value based judgements, but simply following rules. Further, some research suggests that individuals’ moral reasoning can be less sophisticated in a work context compared to general ethical issues.  So, only adopting a policy compliance approach potentially risks making things worse.

Even the success of whistle blowing policies can’t be taken for granted.

Blowing the whistle requires employees to confront a serious dilemma, frequently that of ‘truth’ versus ‘loyalty’, otherwise known as ‘the whistleblower’s dilemma’. And facing that dilemma requires more than assurances from HR that the employee will be listened to and their concerns addressed. That is vital, and among the organisations we work with plenty go further, explicitly making whistleblowing an obligation of all staff whenever misconduct is observed.

But the evidence of what actually happens after an employee blows the whistle is discouraging. Public Concern at Work (PCaW) in 2013, found that 74% of whistleblowers said they were ignored when they first raised a concern. Among those who weren’t ignored, the most likely response was disciplinary action or demotion, but the second most common response was dismissal, “with 24% of individuals being dismissed after raising a concern once”, the risk increasing with seniority. Evidence of this filled the headlines in April this year, when an Employment Tribunal found the dismissal of Dr Raj Mattu by University Hospital of Coventry and Warwickshire NHS Trust in 2010, to be unfair. Employment Judge Pauline Hughes was reported as ruling that “the consultant did not cause or contribute to his dismissal” and “had been subject to many detriments by the trust as a consequence of being a whistle-blower”.

But the whistleblower’s dilemma isn’t the only one deserving HR’s attention. Misconduct issues often centre on other dilemmas, for example that of shareholders versus customers. And if HR is to make an impact on these commercial dilemmas, where do we stand regarding executive pay rises versus staff redundancies, or short term profit maximisation versus long term investment in talent? As Christine Lagarde recently said in criticism of the still prevailing culture in financial services, “The industry still prizes short-term profit over long-term prudence, today’s bonus over tomorrow’s relationship”

So to get to grips with misconduct, HR needs to take a lead in reviewing the relevant policy and procedural frameworks, including whistleblowing, but we’ve seen that that alone doesn’t change the culture, and isn’t enough. A focus on the ‘soft stuff’ is also vital, and close collaboration between HR, OD and L&D here can make a difference.

The ‘soft stuff’

Our recommendation is to start with the big picture, and adopt an OD mindset. Begin by considering the external environment in which your organisation operates and understand the pressure on ethical behaviour that that exerts inside the organisation. Next, look at the mission and strategy, the organisational purpose, how clearly it is understood and whether it holds ethical issues, for instance in the supply chain.

Then, if your organisation espouses particular ethical values, and takes a clear stance on misconduct, look closely at the quality of leadership needed in order to achieve the ethical standards to which you aspire, and how that compares to what happens in practice.

In getting to grips with misconduct, some participants in our ethics roundtable prioritised what happens upstream, leadership recruitment, and were rigorous about who’s appointed to the board in the first place. Some organisations chose biographical interviewing rather than psychometrics, and some attendees at the round table advocated longer probation periods for senior hires in order to weed out those who can ‘fake it’ at an interview.  So, however you do it, focused leadership recruitment, and on-boarding are key.

There’s also scope for HR, OD and L&D to address misconduct by reviewing the Organisational Culture. In relation to ethical practice, is your culture an asset or a liability? To understand the influences of your culture on misconduct and ethics, it can be useful to ask:

  • In our culture, what are our basic beliefs and assumptions about the world in which we operate? Our suppliers? Our customers? Our competitors? Do we see it as a benign or hostile environment? An environment of which we are a victim or over which we have influence?
  • What organisational values does that view of our environment give rise to? And what are the ethical implications?
  • What norms of behaviour do those organisational values then cultivate or challenge? And what are the implications for our tolerance of misconduct?

Looking at culture also raises the question of rewards and incentives. The evidence is that this is key to understanding what drives unethical behaviour. The Edelman Trust Barometer in 2013 asked respondents who were familiar with banking and financial services scandals over the past year, what they thought was the biggest cause. Only 20% attributed it to lack of regulation, whereas 23% blamed a ‘corporate culture driven by compensation / bonuses’.

Next steps and top tips

Misconduct is costly. So, for HR to get to grips with it:

  • First make the business case clear
  • Be and do ‘HR with an OD mindset’
  • Don’t focus only on the individual without also understanding the ethical landscape
  • Be rigorous about both the hard stuff and the soft stuff –compliance and behavioural change

And the cost of misconduct has not gone unnoticed by either FIFA or Qatar. But, who knows; if FIFA gets to grips with it, then they can be kept awake at night for the same reason as the rest of us, rather than because of a rather spectacular own goal.

Alex Swarbrick, Senior Consultant – Roffey Park

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