Date posted: 01/12/2016 5 min read

Ethics in finance

It won’t come as a much of a shock that many Australians view big business, the banks and politicians as unethical, a new study of the nation’s ethics and corporate culture has found

In brief

  • Significantly, the research found more people view company chairs, CEOs and senior executives as being unethical rather than ethical
  • Accountants fared pretty well, being considered the most ethical professionals in the banking, finance and insurance sector
  • If your culture genuinely reflects ‘doing the right thing’, this will be rewarded with longevity, customer loyalty and a sustainable business

In July, the Governance Institute of Australia’s inaugural Ethics Index — the first survey of its kind conducted in Australia — was launched.

Significantly, the research found more people view company chairs, CEOs and senior executives as being unethical rather than ethical. (The research didn’t miss journalists either with 40 per cent of those surveyed rating my vocation as unethical. But I digress.)

Accountants fared pretty well, being considered the most ethical professionals in the banking, finance and insurance sector. This highlights the important role of chartered accountants in creating ethical corporate cultures.

A robust corporate culture can be a driver of best practice, or ethical conduct, declared Greg Medcraft CA, chairman of the Australian Securities and Investments Commission (ASIC), in a speech delivered at the launch of the Ethics Index in Sydney.

“Ethical conduct can help organisations move beyond minimum standards and ‘tick a box’ compliance practices to best practice standards and compliance practices that protect stakeholders and which are commercially valuable,” he said.

“If your culture genuinely reflects ‘doing the right thing’, this will be rewarded with longevity, customer loyalty and a sustainable business.”

Ethical standings

The Ethics Index surveyed more than 1,000 people and found that while Australians regard themselves as “somewhat ethical” with an index rating of 39, large corporations and the banking finance and insurance sector didn’t score so well, which probably isn’t really a surprise given the bank scandals in Australia in recent years.

The banking, finance and insurance sector scored the lowest Ethics Index score among all sectors (-5), though not all the occupations within the classification have been tarred with the same brush. Accountants, for example, lead the sector by being seen as ethical by 1 in 2 respondents, while the lowest rated in the sector, mortgage brokers, are seen as ethical by 1 in 3.

By organisations, superannuation funds are seen as the most ethical (41-47 per cent ethical score), retail banks and life insurance companies score poorly (29 per cent and 26 per cent ethical score respectively), and industry bottom feeders the Pay Day lenders recorded the worst rating of all sectors surveyed (a 63 per cent unethical score).

In the banking and finance sector the data shows Australians regard incentives as being very important to ethical conduct. Incentives and remuneration are key areas of focus for ASIC, according to Medcraft.

“We have also recently commenced a review to examine the mortgage broking market to determine the effect of current remuneration structures on the quality of consumer outcomes,” he said.

Senior execs need to pull their ethical socks up

The index found Australians rate chief executives and directors as the most important “gatekeepers” influencing ethics in organisations. Board chairs and senior management are also considered to be important drivers of ethical conduct, showing these roles are perceived to wield considerable influence over this aspect of corporate culture.

Yet overall, the rating of corporate leaders was poor, according to the Ethics Index.

While company secretaries, directors of Australian companies and chief financial officers rated well, with more respondents viewing them as ethical rather than as unethical, board chairs, foreign company directors, chief executives and senior executives are deemed unethical on balance.

“The message from the index is clear,” said Steve Burrell, chief executive of the Governance Institute. “Boards and the C-suite need to lift their game. The role of leadership in promoting ethical conduct in the business sector is viewed as crucial by 82 per cent of Australians, and these leaders are seen to have the key role in influencing ethical behaviour, but neither they nor their organisations are perceived to be very ethical.

“It explains why ASIC is so keen to get the message out to these gatekeepers that they have an essential role to play in setting the tone from the top and ensuring it cascades throughout the entire organisation,” said Burrell.

For an organisation’s values to be effective at supporting good corporate culture, it is critical its values start with the leadership team and are communicated clearly to the rest of the organisation, according to Medcraft.

“Leaders need to ensure that the firm’s values are understood throughout the organisation, and are ‘lived’ by employees as part of their day-to-day roles.

"If you consider your values to be your firm’s compass, you need to ensure that your employees are empowered to follow the firm’s values in their day-to-day work.”

Translating the firm’s values into business practices is important because it ensures there is no fissure between the firm’s desired values and actual employee conduct, advises Medcraft. For example, the ASIC chair suggested values need to directly influence:

  • How business decisions are made, including how new products are approved
  • How the firm responds to customer complaints and claims
  • How problems and mistakes are identified internally, elevated and fixed, including supporting employee whistleblowers
  • How staff behave and how they are remunerated and the consequences for breaches of internal policies, procedures and internal limit
Boards and the C-suite need to lift their game.
Steve Burrell Chief executive of the Governance Institute

Accountability and transparency

Accountability and transparency were ranked the top two most important factors in ensuring ethical conduct by those surveyed for the Ethics Index, according to Medcraft.

“These are cornerstones of a good governance framework and again tie in to ensuring that business practices encourage transparency and that staff at all levels are accountable for their conduct.”

Whistleblowers also have an important role to play in corporate Australia, with 80 per cent of respondents believing they are an essential element in driving ethical behaviour.

This underlines the importance of the world-leading whistleblowing research currently being undertaken by the Centre for Governance & Public Policy at Griffith University. The Centre is leading the world’s largest current whistleblowing research project Whistling While They Work 2: Improving managerial responses to whistleblowing in the public and private sectors.

The project involves partner and supporter organisations across Australia and New Zealand including the Governance Institute, ASIC and the NZ Ombudsman.

The greater scrutiny placed on companies listed on the stock exchange encourages higher perceived standards of corporate ethics, according to the Ethics Index.

“This suggests that the transparency and accountability obligations they are subject to allow for greater insight into their behaviours and conduct than is possible for private and foreign companies that are not subject to the same disclosure requirements,” notes Burrell.

“Regulatory oversight, financial penalties and scrutiny by activists groups are not seen to have the same degree of importance in relation to ethical conduct as corporate leadership and those accountability and transparency frameworks.

“Given that corruption, tax avoidance, misleading and deceptive advertising, bullying and discrimination in that order are seen as the top five ethical issues for business — ahead of issues such as executive pay — the survey results suggest that companies should also pay attention to how transparent and accountable they are on these issues.

“However, executive salaries and bonuses are considered more important factors influencing ethical conduct in the banking, finance and insurance sectors than leadership by boards and senior executives. From the public’s point of view, these findings are a call to action for leaders in banking and finance to address remuneration structures as a matter of priority,” he added.

This article was first published in the October 2016 issue of Acuity magazine.

A question of ethics

  • What were they thinking

    Chartered Accountants Australia and New Zealand’s latest research examines the ethical failings underlying the ongoing scandals plaguing the banking and financial services industry.

    Supported by a six-country survey of industry practitioners, A Question of Ethics suggests policies, rules and regulations will not prevent further industry scandals unless they are accompanied by an ethical culture.

    Recommendations include ensuring a diverse workforce to guard against groupthink, and for leaders at all levels to lead by example through integrating their organisation’s values in their day-to-day behaviour.

    To download a copy of the report, visit