As shocking cases of bad business behaviour continue to hit the headlines, organisations are increasingly being held to account. What should HR be doing to contribute to the building of strong ethical cultures? HRM talks to the experts.

It’s time to step up. That’s the blunt message to HR professionals from a range of ethics experts reflecting on the shocking misconduct revealed by Australia’s banking royal commission, the global #MeToo movement and a host of other scandals. From Victoria Police faking breathalyser tests to Commonwealth Bank staff fraudulently manipulating children’s bank accounts, examples of systemically bad behaviour are popping up at an alarming rate.

What is HR’s role

“The HR profession can and should play a fundamental role in creating an ethical organisation,” says Eva Tsahuridu, an associate professor at RMIT’s School of Accounting who has researched and advised on ethics for more than 20 years.

“But some HR departments instigate programs to ‘live our values’, then create and enforce policies and practices that go against those values. The big challenge for HR professionals is to convince the entire executive team to appreciate the ethical implications of everything they do and expect of others.”

Sarah Kaine, an associate professor of human resources management at UTS’s Business School, says it’s about putting the human elements back into HR. “The textbooks used to talk about HR being the conscience of an organisation,” she says.

“But over the past decade, we’ve been trying to be as metric-driven as the rest of the organisation, using tools like analytics and big data. There is a role for that, of course, but there is also a cost in terms of the human elements.

“A lot of companies fall short on ethics because they think the only driver and motivator is the bottom line. And this has infiltrated HR, which leads to a myopic view of what organisations should be doing.”

At a fundamental level, it’s about HR professionals having a deep understanding of what drives ethical behaviour, according to Petrina Coventry, professor of ethics at the University of Adelaide and a former AHRI board director.

“The big challenge for HR professionals is to convince the entire executive team to appreciate the ethical implications of everything they do and expect of others.” – Eva Tsahuridu

She worked in leading multinationals as an HR practitioner for 30 years, including as chief HR officer for energy company Santos, and she says carrots are better than sticks.

“Time and time again, I have seen individuals and organisations fall foul of ethical practice regardless of codes of conduct, codes of practice and limitless policies that supposedly regulate behaviour,” she says.

This is because of the erroneous belief that ethics is about preventing or correcting bad behaviour and poor morals – the ‘school of stick’, or ‘lower-order thinking’.

“True ethicists know that the power of better behaviour, better reasoning, better logic and better decision-making rests within individuals. They believe people are inherently good in their intentions and that the best can be bought out in them in any situation.” This is the ‘school of carrot’, or ‘higher-order thinking’.

“HR leads culture,” says Coventry. “If you want an ethical culture you must know what drives ethics and know what higher-order thinking and culture is. Don’t fall prey to lower-order thinking and practice.”

How do unethical practices arise?

As to why so many companies lose their moral compass, Dennis Gentilin, founding director of ethics consultancy firm Human Systems Advisory, says ethical shortcomings are not caused by a handful of rogues. Rather, they are caused by flawed systems, both human and formal.

“Although we like to believe that we are highly ethical, the majority of us will, when placed in a system that is supportive of unethical conduct, behave in unethical ways,” he says. The banking royal commission has uncovered myriad examples where bank executives – who had rationalised their behaviour to support their belief that they were acting in their customers’ best interest – were caught out by forensic cross-examination and realised the yawning gap between what they said and what they did.

“If we examine ethical failures, there are some common features associated with the systems that incubate them,” says Gentilin, the author of The Origins of Ethical Failures and a speaker at this month’s AHRI national convention. “These include an obsessive focus on hitting targets, support – explicit or implicit – from leaders within the organisation, and a failure to listen to those who raise concerns.”

Tsahuridu makes a similar point. “Some of the reasons companies fall short on ethics are that they attach rewards to goals that can only be achieved through illegal and unethical actions; they do not pay enough attention to how goals are achieved even if they are unethical; and they allow powerful people to abuse their positions to promote their self-interest rather than the organisation’s interest.”

A major driver of these flawed systems is treating investors and shareholders as the only stakeholders who really matter. This ‘shareholder primacy’ movement can be traced back to the 1970s, according to Gentilin – including an article by economist Milton Friedman arguing that the social responsibility of business is to increase its profits. There is a growing realisation that this can create ethical tensions, and many companies have broadened their stakeholders focus to include staff, customers and suppliers.

Gentilin says this new approach is in an embryonic phase and there is still plenty of rhetoric rather than genuine change.

“Although we like to believe that we are highly ethical, the majority of us will, when placed in a system that is supportive of unethical conduct, behave in unethical ways.” – Dennis Gentilin

Technology isn’t excluded from poor ethical behaviour

Adding to the ethical challenges are technological advances such as robotics and artificial intelligence (AI). Toby Walsh, professor of AI at the University of NSW and a workshop presenter at AHRI’s HR Tech conference in August, says one of the biggest issues is the bias of algorithms. “We’ve been sold a convenient lie that algorithms are unbiased, but they can be just as biased as humans,” he says. “At least you can ask a human for an explanation, but algorithms tend to be black boxes.”

An example? Increasingly, large companies are using algorithms to scan through initial job applications, especially for entry-level jobs, to select interviewees. But Walsh notes that if the algorithms are informed by looking at the CVs of the organisation’s star performers, and they happen to be mostly white men, this may violate discrimination laws and will never fix a gender bias problem or lack of diversity.

Another ethical issue arises when companies fail to upskill their employees for the future of work in an increasingly digital world, says Walsh. For example, NAB’s announcement late last year to cut 6000 jobs and hire another 2000 people with digital skills was a “complete failure” to recognise its responsibility to its existing workers. “Responsible corporations will ensure their employees keep ahead of the machines,” he says.

What’s clear from the tsunami of negative publicity about unethical practices over the past year or so is that organisations can no longer hide systemic poor behaviour. “I think it will take a while for boards and executives to realise that what happens inside an organisation is very likely to become public knowledge,” says Tsahuridu. “We need to move from ‘think that what you do and the reasons you do it are plastered on the front page of your local newspaper’ to ‘imagine that all your records, systems, conversations and motivations are made public not for a day but forever, throughout the world’.”

This increased transparency is blurring the separation between the world of business and the rest of the community – and the community is pushing to hold organisations to account. Recent developments – such as Australia’s Modern Slavery Act, which strives for ethical treatment in supply chains; legislation to protect workers from wage fraud; and court rulings that some gig economy ‘contractors’ are employees – highlight that companies no longer have a social licence to do whatever it takes to make a profit.

“True ethicists know that the power of better behaviour, better reasoning, better logic and better decision-making rests within individuals.” – Petrina Coventry

Look after your people

Meanwhile, wage insecurity is growing even as income remains – for most – an indication of people’s worth in society.

“If the proliferation of media reports is anything to go by, the underpayment of Australian workers is more pervasive than we would like to believe,” says Dr Ned Dobos, philosophy and business ethics academic at UNSW Canberra.

“When we condemn employers for paying below-subsistence wages, we usually do so on the grounds that they are being exploitative.  That is, they are taking advantage of the vulnerability of their workers to extract disproportional benefits from their labour. But ethically there is a lot more to it than that.

“Failing to pay a living wage is not only exploitative, but insulting. It is an affront to the dignity of workers, not just an impediment to their material wellbeing.”

Wages carry implicit messages which signal to the worker how much their labour is worth to the employer, says Dobos. “A CEO earning millions gets the message that her work is exceptionally valuable, so the weekly pay cheque also functions as a compliment. At the opposite end of the spectrum we have those employed full-time for not enough to live on. The message implicit in their wage is something like: the contribution made by your labour is of such little value that it does not justify us in sustaining your life. This is deeply demeaning.

“If all workers are treated like machines, the well-paid are at least treated like machines that it is worthwhile servicing and refuelling. Failing to pay a living wage tells its earner that her labour is not worth even that.”

To counter this insecure work environment, it is even more important that organisations build ethical resilience by creating systems that encourage ethical conduct, says Gentilin.

“This means dialling down the obsessive focus on targets and profits, promoting and recruiting leaders who are role models for the organisation’s values and principles, holding people accountable no matter what their status, and creating environments where people can not only speak up, but are listened to and respected when they do.”

This concept of giving employees a voice is close to Gentilin’s heart. As a 29-year-old foreign exchange trader in NAB’s London office in 2004, he blew the whistle on a $360 million scam that saw four of his colleagues jailed. He says that people often stay silent about unethical behaviour because they fear the consequences or think it’s futile. He believes HR has a vital role to play in making sure the organisation has a speak-up culture – and in many other areas.

“HR controls most of the levers needed to build an ethically resilient culture,” he says. “It must play a very significant role.”

This article originally appeared in the August edition of HRM magazine.