– Well, we’re all aware of the Royal Banking Commission’s findings. Widespread cultural failings and misconduct, which has eroded the trust of the public in banking and financial services. And it’s not surprising that when Deloitte launched their Trust Index in 2018, and surveyed over 2,000 customers in Australia, less than one in five, 20%, stated that they really believed the banks could no be trusted. So the banks understand that people are hurt, and that they have to ensure that this doesn’t happen again. And all roads point to culture. And we have to ask the question, why is culture being singled out as the significant factor that will really address the problems that are now endemic across banking and financial services?
Why culture, as opposed to governance, systems, controls, incentives? And the answer to that question is a really interesting one. Because the answer to that question is that people find it very difficult to behave in an ethical manner, even when those incentives, controls, and governance is in place.
And it’s hard for people to make ethical decisions. Not because they are unethical individuals, but because of the various steps that one has to go through in order to take ethical action. Let’s start off with the first step. Individuals actually have to be aware that there are ethical components or ethical ramifications to a decision that they’re about to make. And this is a big problem, because very often we are not aware of this. We fade out or blur consciousness of the ethical components of a problem, particularly, if it stands in the way of the objectives that we want to achieve.
Let’s say we are aware of the ethical components, the next step we have to take then, is we have to reach sound ethical judgement. And in order to reach sound ethical judgement , there are often many traps that we fall into that might stand in the way. Obedience to authority, slippery slope, bystander effects, a range of ethical traps, which can prevent us from actually making a sound ethical decision.
And then, let’s say we’ve achieved making a sound ethical decision, we then have to translate this into ethical intent. In other words, we have to decide that our ethical objectives and ethical values with take precedence over all the other values. In other words, being honest, or trustworthy, or having integrity is going to take precedence over wealth, fame, success, or achieving our KPIs.
And then finally, we have to take a fourth step. We have to translate that ethical intent into ethical action. And very often, what happens is, we might know what is the right thing to do, but because of the context, because of the situation, we don’t have the courage to actually do the right thing and then take the ethical action that’s aligned with our ethical intent. And because these four steps that we have to go through can create problems all along the way, the process can break down to making a good ethical decision. This is where culture can come in and play a really important role. Because culture can prompt us at each step of the way, and culture can be designed to operate in such a way that it will help us work through these four steps effectively.
So once we say that a culture will drive ethical behaviour, what then, does an ethical culture look like? Now, fortunately for us, the Financial Stability Board identified in quite a lot of granular detail they key drivers of misconduct, the key drivers that would lead to unethical behaviour in a culture. And they group these under leadership, decision making, and behavioural norms. And even though only one of those items was explicitly linked to diversity and inclusion to counteract group think, when we did an analysis of this extensive list of behaviours, we identified that, in fact, more than half of these behaviours are explicitly related to inclusive leadership and inclusive behaviours.
So how do we know that? How did we reach this conclusion? Well, we took a look at Symmetra’s model, which defines what inclusive behaviour looks like in the 21st century. And that consists of a range of 10 competencies, and it became very clear that the inclusive leadership behaviours that we are out there measuring and trying to build in leaders to build a more inclusive culture, are actually the very same behaviours, half of them, that have been identified by the Financial Stability Board. Behaviour such as embedding psychological safety, behaviour such as creating constructive conflict, behaviour such as having a learning mindset and being open to new ideas, and so on and so forth.
So we argue, that an ethical culture will manifest many inclusive behaviours. And we therefore argue as well, that it would be really important for the integrity teams and the inclusion teams working in organisations to actually not move on to disparate paths, but to work together, that you can actually build a more ethical culture by building inclusive leadership capability.
So where is this empirical evidence that lies between inclusion and ethics? Does it exist out there? And there’s a wide range of research and so many industry examples which demonstrate that organisations who build an inclusive culture behave more ethically. There’s also a wide range of research out there which demonstrates that diversity will lead to more ethical decisions.
Now a small caveat here, which I want to emphasise right from the outset, is we’re not suggesting for a minute that certain diverse groups have the monopoly on making more ethical decisions. But there’s no question that there’s some really interesting research which demonstrates that diversity, having diversity of thought in teams will lead to more ethical decisions. For example, researchers have identified that more diverse groups will make more ethical decisions than homogenous groups.
They’ve also identified that when individuals go out to consult with others in order to determine whether this is an ethical decision, which is a really important step that they need to take when they’re trying to reach the conclusion as to what a sound ethical decision looks like, the research has shown that when they do go out and consult with a diverse network, with critical thinking partners, not just echo chambers, people who are similar to them, they reach far better and more sound ethical conclusions. And the research has also shown that different diverse groups will address different ethical problems in better ways, so that the best that an organisation can achieve is to bring together a composite view.
In other words, a great deal of demographic inherent and acquired diversity, in order to deal with an ethical problem and reach the sound decisions.
So what’s the real world evidence out there that diversity is leading to more ethical decision? There’s heaps of it.
First of all, we know that Ethisphere, who votes in the most ethical companies in the world, has identified that those companies that they’ve voted in as most ethical in the last five years, have got greater gender balance than the Fortune 1,000 companies. We also know that when PWC did their Corporate Directors Survey, they found that 84% of the directors said that their boards were performing better when they had become more diverse. And last piece of real world evidence is the consequence a very broad study done in the UK on over 900,000 companies, where they found that better gender balanced boards lead to better risk management. In that, they found that where the companies had at least one female or more on their board, those companies were 20% less likely to go into bankruptcy.
In conclusion, what we are recommending here is that though training on ethics should continue, we do not believe that this is the key to embedding a more ethical culture across banking and financial services, and all other organisations, for that matter. What we’re arguing is that key is building inclusive leadership capability. Because what we need to be cognizant of is that an inclusive culture is the antithesis of greed and self interest. Because when you train people and build their capability, their skills, their knowledge, and awareness to behave in a more inclusive manner, they have to take into account the interests, the motivations, and the needs of others, not only of themselves. Those others being their peers, being their customers, being society and the community at large.