The 2018 Edelman Trust Barometer reveals public trust is stagnating. In Australia the general public’s level of trust was ranked 40th in the world – in the lower quarter of the 28-market Trust Index and deep in the generally distrustful zone.
Australia’s spate of Royal Commissions has tarnished the brand and reputation of many once iconic institutions – banks, churches, schools, insurers, charities – and of many of the executives who run them. For some, plummeting share market valuations provide a crude but jangling indicator of the impact of an erosion of trust.
A strong ethical culture is essential for the finance function. Not only must the numbers be trusted – but the team must be trusted to do the right thing with them.
In August, Dr Margaret Byrne and Dr Grant Robertson from UGM Consulting will speak at FEI Growth Series events in Sydney and Melbourne to explore why ethical cultures are so important to finance, how it is possible to make a strong ethical contribution as a finance executive, and what it takes to establish and nurture a strong ethical culture.
Addressing the “why” strong cultures are essential is reasonably straightforward in the current climate – but there are compelling quantitative reasons also.
According to Byrne and Robertson companies whose organisational health is measured in the top quartile compared to their peers are more likely to deliver stronger results on traditional performance measures than less healthy companies. For example, top quartile companies are 2.2 times more likely than those in the lower-quartile to have an above median EBITDA margin. They are twice as likely to have above median growth in enterprise value-book value. And they’re 1.5 times more likely to achieve above median growth in net income to sales.
One of the greatest impacts on organisational health is an enterprise’s culture – which can loosely be described as “the way we do things.” Cultures can be hard to define, tricky to measure – but a bad one sticks out like a sore thumb.
The challenge for finance leaders is that cultures can’t be established by rules alone. Demanding blind obedience, according to Byrne and Robertson, is folly and can lead to higher rates of misconduct. They argue that it’s more sensible for leaders to establish behavioural guard rails which steer people in certain directions, but rely more heavily on self-governance, creating more trust than typical command and control environments.
Ethics training for key individuals can equip the team with the tools and processes that can help establish a strong ethical culture. But as Byrne and Robertson explain – this is not a set and forget task – ethics like gardens, need regular attention or the weeds will again take over.
- Ensure everyone in the team understands they play an important role in making ethics a priority.
- Encourage dissent, challenge, openness and a speak up culture
- Make sure managers understand they need to model ethical behaviour
- Include ethical behaviour in the reward system – publicly acknowledge good ethics
- Share positive stories about good ethical practices – regularly discuss ethical issues
- Ensure timeframes and targets are realistic to avoid people sidestepping good ethics to achieve them
- Promote an ethical culture by insisting on respectful, inclusive behaviours internally and externally