By David Morgan
28 February 2020
Establishing and maintaining an ethical culture within any organisation is a significant responsibility and it requires leadership and consistent effort. The number and nature of recent Royal Commission investigations into the Franchise, Financial and Aged and Disability Care sectors bring into sharp focus the relationship between misconduct and integrity in a business context. It has led to the urgent need for corporate Australia to reassess business integrity frameworks and bring about much-needed change.
In a country that is seen as quite mature in terms of business governance, the findings of the various inquiries of widespread corporate misconduct have highlighted the fact that corporate Australia is not as squeaky clean in terms of governance and integrity as previously perceived. This has led to:
- Significant brand and reputational damage; and
- The demise of high-profile Board and management careers.
In short, there has been a huge wake-up call for corporate Australia.
Factors that contribute to an increase in integrity-related issues in business primarily relate to:
- A lack of awareness on the part of the management of the drivers of workplace misconduct, e.g. the elements of the fraud triangle:
- Pressure: such as personal financial stress or work-related pressure such as achieving financial KPIs;
- Opportunity:g. a person in a position of trust who can circumvent or override controls;
- Rationalisation: closely related to culture but justifying one's conduct because others are behaving the same way;
- Poor leadership behaviour, more commonly referred to as "tone at the top";
- An all-consuming focus on financial performance and a dismissive attitude of the positive influence of workplace integrity;
- Lack of written guidance and training about operational processes or expected standards of behaviour amongst employees; and
- Inadequate and/or ineffective operational controls.
How PKF Integrity can help
PKF Integrity helps clients heed the call for change by assisting play. There are many benefits to achieving and maintaining a strong, organisational ethical culture. They include, but are not limited to:
- Improving the bottom line. While it can be difficult to quantify, achieving and maintaining a culture of integrity in business has a positive financial effect;
- Greater willingness of stakeholders to speak up about misconduct. This is further enhanced when the stakeholder’s organisation acts on reported matters;
- Reduced staff churn. Employees working in an environment based on integrity and ethics feel more secure and are more likely to stay. This has a positive financial impact due to the decreased cost of recruiting and training new staff;
- Customer/client retention, e.g. when a corporation responds quickly and fairly to negative feedback, customer loyalty grows and so does the organisation’s brand and reputation;
- Reduced reliance on complex and inefficient control structures: a workforce that acts based on principles of integrity become the moral pulse and caretakers of the organisation; and
- Less exposure to the risk of regulatory action.
One of the fundamental strategies for building the desired culture is raising awareness about why acting with integrity in a personal and business context is so important. Making employees aware of the positive and negative consequences of their conduct, together with strong ethical leadership that overtly supports and lives the right culture, will empower them to proactively assist a business to manage integrity risk.
A critical examination of your business operations to ascertain what type of culture exists is the first step on the journey to improving and maintaining the desired ethical culture.
PKF Integrity can assist your organisation in its journey toward achieving the desired culture.
This is Part 1 of the four-part series “The Importance of Awareness and Education in Achieving an Ethical Culture”.
Stay tuned for Part 2.