“Culture is a driver of conduct. It does affect trust.”
— Greg Medcraft, ASIC
Not only yoghurt has culture
Over recent years, ASIC have more explicitly signalled their recognition that ‘culture’ is the root cause of misconduct. They’re not alone. Even before the Royal Commission, successive governments outlined legislative programs designed to ensure good behaviour, enforcing professionalism and hold individuals to account.
This individual focus of these obligations has not been universally celebrated for a variety of reasons but, at their base, a pragmatic recognition (supported by social psychology research) that individuals’ conduct is strongly affected by corporate culture and the examples provided by peers and authority figures.
In her 2009 PHD thesis, “Professionalism and Ethics in Financial Planning”, Dr June Smith and examined the construal elements to make a series of recommendations that were ultimately reflected in the legislation. Her synthesis, application and analysis is impressive but a key objection to the imposition of ethical standards is focussed less on the importance of ethics than the cost/benefit of their imposition.
read “professionalism and ethics in financial planning”
“it is the law, and not codes of ethics, that are the proper repositories for basic norms of conduct”
— Royal Commission, Interim Report, 28/09/2018 page 154
The financial value of ethics
“It’s impossible to argue that a client would want to work with an adviser who can’t demonstrate trustworthiness, competence, honesty, fairness and diligence.”
— Dr Ray McHale, chief executive and co-founder, MyNextAdvice
Although there is considerable anecdotal evidence to support the financial value of ethics, or assert that ethics are important for profitability, it’s difficult, if not impossible, to demonstrate a clear link between financial performance and corporate values.
In fact, because quantifying value would require a level of sophistication beyond the capabilities of most commentators, it’s more convenient to focus on inputs rather than outputs. Adopting this approach, we can assess whether, and to what extent, a reputation for ethical conduct provides a competitive advantage.
Edelman (2020) would argue that the answer is indisputable.
A focus on trust, values and culture is a logical regulatory approach given the limitations of disclosure and the manifest failures of formalist models. It is also an approach that’s gaining ground as technological innovations, such as algorithmic decision making, force radical transparency on existing institutions.
Transparency may be futilely resisted, and sometimes even temporarily subverted, but, even in the absence of whistleblower rewards, institutions are more exposed and vulnerable than ever and the drive towards transparency seems irresistible.
Ironically, despite the Government’s emphasis on ethics and professionalism, the Edelman Trust Barometer 2020 shows that trust in government has dropped significantly.
download 2020 edelman trust barometer
Competency still matters
“72% of respondents agree on some level that it is more financially viable to invest in a contingency [or remediation] fund than to proactively invest in compliance training.” Only 6% strongly disagreed. Despite this, 91% of respondents agree on some level that their organisation has a culture of compliance.”
— “Contrasting views: Thinking, training and technology”, Assured Support 2020
One way to respond to the Edelman survey might be to invest in reputation management rather than in developing and maintaining your competency.
That would be a profound mistake to make for any adviser.
In a highly regulated and highly scrutinised environment, there’s little chance that even the most effective PR can exclude you from making a significant, and ongoing, investment in your competency and capability.
Remember that the Law created FASEA and granted it responsibility for:
i. approving bachelor or higher degrees (equivalent and relevant qualifications);
ii. approving the Ethics exam;
iii. settin the requirements for work and training;
iv. setting the CPD requirements; and
vi. publishing a Code of Ethics.
Where to learn more
“Initial test results … appeared to suggest that compliance officers had lower ethical reasoning scores than financial planners ”
— Dr June Smith, 2009
At the risk of appearing self-interested, we’d suggest that your starting point should be your Compliance Manager because, in most licensees, this role has implicit responsibility for ethical conduct, governance and risk management. They should also be best placed to translate and apply corporate standards of conduct to practical situations.
We can help and we have a wide range of specific and engaging training focused on ethics and professionalism.
In reality, it’s the way in which businesses apply ethics, and the way they respond to unethical conduct, that best expose the nature of their commitment to ethical conduct.
In the absence of real consequences, some businesses place more value in the rhetoric of ethics (and the deferred cost of remediation) than in the present value of ethical conduct.
Unfortunately for them, technology, comparability and social media are creating a level of transparency (and an emerging culture of accountability) that poses a significant threat to their sustainability.