Date posted: 20/09/2016 4 min read

Chartered Accountants ANZ report - Looking beyond the 'bad apples' in the banking and financial services industry

Rules and regulations need the support of an ethical culture

Countries such as New Zealand remain vulnerable to a repeat of the scandals that led to events such as the Global Financial Crisis (GFC), a report on ethics in the banking and financial services industry has found.

The report, A Question of Ethics – Navigating Ethical Failure in the Banking and Financial Services Industry, released today [20 Sept] by Chartered Accountants Australia and New Zealand says that while rules and regulations play an important role in preventing new scandals, they will not succeed in isolation, without the support of an ethical culture.

“This is a case study for business in general so the report’s recommendations are equally relevant to other businesses,” says Kirsten Patterson, New Zealand Country Head of Chartered Accountants ANZ.

Backed by findings from a six-country survey of over 700 industry practitioners, the report suggests that many of those working in the industry perceive rules and regulations to be the main influence on their behaviour.

Respondents were less aware of the powerful influence of cultural factors, specific to the banking and financial services industry, on deterring or encouraging unethical behaviour. One example given is compensation structures, such as bonuses.

“Individuals in business cannot and should not delegate ethical choices to rules and regulations,” Patterson says.

“As the report says, the challenge is to ensure ethical standards have an appropriate place in workplace decision-making and activities. And that applies to all businesses.”
Kirsten Patterson, New Zealand Country Head, Chartered Accountants ANZ

Scandal backdrop

Against the backdrop of various industry scandals including finance company collapses in New Zealand, the HBOS collapse in the UK, and the global LIBOR rigging scandal, the report suggests that it is unlikely that many of those involved deliberately – or consciously – behaved badly.

“A more plausible explanation is that an industry-wide culture of tacit endorsement enabled wrongdoers to somehow justify their behaviour, irrespective of the ethical implications,” the report says.

It also dismisses the ‘bad apples’ defence. “Blaming the industry’s ethical failures on a few ‘bad apples’ conveniently deflects attention from the cultural issues affecting the industry as a whole. Would it not be more useful to address the culture or the system that grow ‘bad apples’ and allows them to thrive?”

A Question of Ethics says the challenge lies in ensuring ethical standards are given their appropriate place in decision-making and action.

Specific recommendations made by the report include:

  • Providing a clear set of principles to guide decision-making.
  • Greater diversity and inclusion in the workplace to counter 'groupthink'
  • Including ethical considerations when calculating remuneration and incentives
  • Establishing ethical key performance indicators (EKPIs)
  • Banning euphemisms
  • Creating an ethical decision-making framework to help employees identify and navigate ethical dilemmas

The report was written in conjunction with Melbourne University’s Centre for Ethical Leadership as part of Chartered Accountants Australia and New Zealand’s future[inc] thought leadership series.

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