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Video transcript: Ethical leadership in the workplace – a discussion

Transcript for a video of a presentation about ethical leadership filmed at the 2019 Audit New Zealand client updates.

Title: Ethical leadership in the workplace – a discussion

Professor Karin Lasthuizenon

Tēnā koutou katoa. Well, thank you for the introduction. I came three years ago from The Netherlands, and probably there’s a reason why they hired someone from The Netherlands to address a topic like ethical leadership, because we are known for our quite confrontational approach. So I’ll talk about that a bit later, but the Brian Picot Chair in Ethical Leadership, the idea is that we help to translate all academic knowledge, or empirical knowledge, to the communities of interest. So one of the things there – and I think that Stephen talked about it this morning already a bit; I will do that as well – is the Ethics at Work report, with a lot of data on perceptions about ethics at work. We are the national partner for this research from the Institute of Business Ethics. And I also started when I came here, just talking to people and to ask, “What do you think ethical leadership is about?” And we wrote a letter or sort of research report – this one here. So if you follow the link, you will just find it, and about the Ethics at Work; it’s also on your table. So let’s start.

Ethical leadership is about ethics being core, very core to everything and not added on. And it’s about demonstrating those beliefs at every possible opportunity. That’s what Rob Everett, the CEO of the Financial Markets Authority said. So the ideas that ethical leadership helps to foster and ethical climate, so that’s the way it goes. And then the question is, “Are we doing this?” So let’s talk about the elephant in the room. I’m not sure. Suzanne Snively from Transparency International: it’s a key risk. I think I heard it this morning as well: the idea that it’s a risk that we might be a bit too complacent. The fact that we are in New Zealand; we had a very good reputation; we are far away; we’re all good. And then, also, are we talking enough about it? So at least we do that right now.

Then what is ethics? Well, a very simple definition would be ethic starts where the law ends, so it goes beyond. It says, when the law says that you can do it, well, it doesn’t say that you should do it as well. So why is it important to look beyond the law, where are no rules? Well, it’s not about maybe criminal or illegal behaviours – I would say, the slippery slope. Serious corruption cases often have started with minor offences, often within an organisational culture without clear norms. That’s why we need to look beyond the law to address those issues. When you look into the corruption case, the Auckland Transport corruption case, you see all these kinds of behaviours, and basically, it starts with a bottle of wine. Okay, it didn’t stay with that bottle of wine in this case, so in the end it was wasted in this corruption case. But it starts with long lunches; it starts with all kinds of things that we might record within the grey area of doing business.

This is also what Julia Read says, from the Serious Fraud Office. You see that people start to cover up something, and then this hole just gets deeper and deeper. And Barry Jordan from Deloitte. So you see also that, when people cross that line, it becomes easier. It means that it all starts within this ethical climate. So we need to discuss, when you see something that just doesn’t feel right, to address those issues. It might be nothing, but it can also be that someone tries to cover up, or maybe someone is just going along this slippery slope. Therefore, it’s important to really address a whole range of behaviours. So we developed this typology with the idea that, if it starts, in the end it might be corruption or fraud or theft, conflicts of interest. So that’s where it starts. So it might start a bit more at the outside.

It’s also about, for instance, the improper use of authority and misuse of information. And you can see this whole indecent treatment, discrimination and sexual harassment. So, when that starts to happen in an ethical culture within the organisation, it might end up with corruption. Because, of course, when you try to hide something, then you might need to intimidate others who ask confrontational questions. So ethics management should address this whole range of behaviours, and being sensitive that they have different courses and need also different solutions. You might need to other things to address discrimination within the organisations than you need to do to address conflicts of interest through gifts or sightline activities. So, when you narrow your focus too much on corruption and fraud and theft, then it might be that you also miss those signals that are there in the wider environment.

To give you some facts, I will go back on this Ethics at Work survey, and I think that Stephen already mentioned a few this morning, which is good. So this survey was done in the UK, Australia and also, for the first time, in New Zealand. It means that we have a sort of facts and forms of perceptions among the working population. So I think this one you already have seen, so a quarter, one in four people, have seen misconduct at work. So if you would make that very quick calculation, it would be about 630,000 people in New Zealand. And it’s only 630,000 because we are such a small country, with two and a half million workforce. And from those people, 40% said that they have seen bullying and harassment, indecent treatment, but fraud is still also 9%.

The other is, if people see these things… so it’s not just that you notice that there are… sometimes things happen, right? There can be mistakes, for instance. But did someone report it as well? If you see it, do you report it; do you talk about it? Only 35% says, “Yes, when I see something, I will address it, one way or the other.” So a significant percentage of it is not reported. And if we look into the reasons, then it also becomes clear why it’s so important to look into the ethical climate. 35% thought it will not be followed up, or jeopardise their jobs. And then 16% thought, “It’s not my business,” and it was even 9% says, “I thought it was common practice.” So here are a whole lot of reasons. And we had Emmanuel Lulin for a lecture at the university. He’s the Global Senior Vice President and Chief Ethics Officer of L’Oreal, the most ethical company five times in a row. And he says, well, if you hear one of these things, you can expect something unethical to happen.

For instance, those who said, “Well, I felt it was none of my business,” it might say that the response was, “Well, nobody gets heard,” or, “It will destroy the competition,” or signals like, “Well, we didn’t have this conversation, and I don’t want to know.” It means that the follow-up in the ethical climate and culture is not the way we would like to see. And also, “Don’t worry, it’s part of the culture here; everybody’s doing it.” So then you might believe. So 9% thinks it might be even common practice. New Zealand’s Pacific. This is also from the interviews that we did. Do we have a culture where you cannot make a mistake? Ethical leaders give honest feedback. But it seems that in New Zealand there’s quite a bit of an avoidance culture. We like to talk about, “You’re fine, you’re good.” Maybe we don’t like to say things when it isn’t right.

And I think also it’s very important what Stephen said. It’s important to talk about how we deal with things when they go wrong. It’s also part of having an open conversation on ethics. I think that might be quite a bit of a difference in The Netherlands where we really like to talk about all the things that go wrong. I don’t say that it’s a nice way to do things, but I do think it’s the difference with what we do here. So ethical leadership is ensuring that the right thing is done in the right way for the right reasons. What is it, then, when we zoom in? Well, ethical leadership as a concept I would say has four elements. It starts with the right purpose.

And you would say, “Well, that’s quite obvious.” But most people don’t really formulate what they want ethical leadership to serve. What are the outcomes that you would like to see? Why is it that you do? Why would you invest in ethical leadership? So it’s about the impact of decisions that you make in the business that you operate and how does it impact the people, the communities and the environment. And that’s also what Tim said in the last presentation, right? It’s about these environmental issues or things that become more and more important. So I think it might be a good exercise, also for yourself, to think, ‘So why is it actually that I think ethics is important? What is it that I would like to achieve with it?’

One thing that I think in New Zealand goes quite well is that we do have a lot of ethical persons; we have a lot of moral persons. So part of it’s that you have integrity. You’re a good person. You have values in place. You try to behave in an ethical way and try to make ethical decisions, so you are trying to demonstrate the highest ends of integrity doing that all the time. Something that goes quite well in New Zealand as well is that you need those relationships for it. So I think Iona Holsted from the Secretary for Education said, “Well, you have to put yourself in the individual’s shoes.” It’s about those relationships, things that we do. It’s not that we’re doing it for ourselves; it’s also that we try to make an impact in the community. Also, within the organisations, it’s about those relationships. Without a relationship, you don’t have leadership. You don’t ethical leadership’ you don’t have leadership at all. You can’t bring people along if you don’t have a positive or meaningful relationship.

But I think, when it comes to complacency, is also a realisation that you need to put it in practice. And it’s not something you just do because you’re a good person. You have to think about how you are going to do that. So, for instance, of course it’s not really even very academic to say, “Well, you need to role-model.” But how do we role-model? So we have those big examples, right, but do you role-model every day? Have you thought about how you can make that difference? If you do, it also means that people can approach you to address issues they think that might not be right. If you don’t, people don’t know. They don’t really know if you’re into it, so they might try to avoid that as well. If they see something that isn’t right, they just say, “It’s none of my business.” If you’re an active role model, so if you try to think about what that means, then people will approach you also to bring bad news.

It's also in your communication. Lyn Provost said, “It is open, honest feedback.” Well, those things, it’s all around your communication issue. Do you consciously communicate about ethics? I don’t think we do that enough – not just here in New Zealand, just in general. We think it’s something that we talk on specific days maybe, like today, but is it something that you do every day? So while, yes, I do think it’s important, that conversation, where it goes wrong, and also thinking about, in reinforcement, how you can reward ethical behaviour. That’s not an easy one as well. So that whole area is about how you role-model, live the values in your organisation.

So, if we think about that concept, how it works, then it’s about building a supportive work climate. So you know what you want, but you are a moral person; you try to role-model in the organisation. And then it seems that, while role-modelling, it means that you sort of clarify the values. What we often do is that we assume from people that they know what the values are in practice – so everybody knows the code of conduct. Or, of course, we think integrity is very important – but what is this grey area? Don’t assume that everybody knows what it is, because we already saw that people say, “Well, I thought it was common practice.” If that’s something that you have in your organisation, or even among your colleagues, it means that not everybody knows that it might be not common practice.

So you clarify the norms by role-modelling. And, if you are doing that, it seems very powerful in shaping that ethical climate and it leads to less organisational unethical behaviours. If you try to have more this approach through communication and reinforcement, it seems that people easily pick up that it can report to you, and also leads to support for your policies when you communicate about it. Good, some more statistics to talk about. So, overall, when we look into these figures, we see that most people think that their manager gives a good example – about 70% – and also that that manager, “Supports me in following my organisation’s standards of ethical behaviour.” But it drops when we look into difficulties for, is it also that the manager is explaining the importance of honesty and ethics in the work we do? Or is it something that is implicitly assumed – that you know that is, of course, important – than what it means? Often we don’t talk enough about what it means in practice.

And then we see also that one-fifth – still more than 20% – says, “Yes, my line manager rewards employees who get good results, even if they use practices that are ethically questionable.” So, if you do so, then it doesn’t really matter how you get there, as long as you get there – as long as you produce the right results. So, I think, on the flip side – and I think this was also already presented – the time pressure that we see is increasing, maybe. We try to do more things with less – I think especially in the public sector that might be the case – and, of course, in businesses people try to be as efficient as possible and, “We were under resourced.”

What I find interesting is that 29% says, “I was following my boss’s orders, and there was a pressure for me to compromise ethical standards.” It means, also, that if you think about ethical leadership, and you are in a leading position or in a management position, that if you just say something, people will follow. Most of them just would. They say, “Well, I don’t think it’s maybe 100% what we said in the code of conduct, might be not completely the rules, but there’s always, of course, a bit of room, wiggle-room, and my boss told me so.” So it’s not just about ethical leadership; it’s also about unethical leadership or the other area where you maybe have to first think about what you mean with your leadership. But also, there are enough management styles that maybe promote unethical behaviour. So it might also be a team player or an unethical culture.

So what I find most interesting from an ethical leadership point of view is that it seems that, within the Ethics at Work survey… it was also asked of managers, those who have a leadership role, what they thought about reporting about the financial situation, or actually about fraud. And from those managers, so within the ones that were asked, a certain percentage were managers; I think it was about 30% or 25%. I found that quite shocking. 33% said, “There’s no real difference between fraud and a bit of petty fiddling.” And it’s also something you can’t afford in organisations. In modern organisations, you have to… “If we crack down on every little fiddle, we would soon find we had no staff, or we would soon find we have no suppliers.”

What does that say? So it means you can’t do ethical business, so you have to compromise your own standards, just as an organisation, because, “If we wouldn’t, well, we can’t do trade overseas?” I think it might be right. These are realistic results, right? So it might be that people mean, “If we do so, we don’t have staff or we can’t do trade with others.” But then, we also have to think about what does it mean for… if we say, “Well, we have to do business like that,” what does it mean for our ethical climate will develop in the organisation? If we start to compromise in doing business, if you start to compromise in leadership, how can we expect our employees or the people in the organisation, of those in roles that have to control the financial reports, how can we expect them to really be ethical? It’s already in the business.

10% said, “It’s acceptable to artificially increase profits in the book, as long as no money is stolen.” I think that’s quite significant; 10%, it’s a lot. Okay, what can we do? So I think it’s important… these results tell me, as well, that this is a lot of demand also from managers. Because they don’t say that because they’re not good persons. They say this because they think it’s reality. It means that it might be we need a bit more training on a management level as well, to talk about things, to have these open conversations. So what is realistic? And, if it is realistic, does it mean that we want it? You can still choose to go another way. So what can we do? Going back to this whole idea of ethical leadership is, how can you create a supportive work climate?

Well, it seems that there are a few building blocks. 10% says that, “I don’t recognise those building blocks at all.” I think in New Zealand we have, of course, a lot of small businesses. But, even then, you could say that, even in a small business, there might be a moment you say, “Well, I need to have some sort of guidelines for behaviour.” Or at least, “Maybe we should talk about our core values.” Most of the organisations do have a code of conduct. You also see that there are means of reporting misconduct confidentially. I think that’s a tricky one. I haven’t seen an organisation which really, really can report confidentially. It’s, for all organisations, very hard to find a way to keep all those who report, to keep them completely confidential. There are those reporting lines that you can stay quite anonymous for a while. But, of course, especially when we have a lot of small enterprises, how are you going to stay confidential about something that’s really specific behaviour, or something that’s gone wrong?

I think, maybe, as auditors, you’ve all probably sometimes been in a situation that you want to report confidentially. That’s hard, because, in the end, they always sort of add up. So maybe you should try to think about, how can the organisation open up that you can say more easily that you think maybe something isn’t right? And then we see, well, half of the organisations provides training. But I think one of the most important things that I do miss here in New Zealand, and what we started doing in The Netherlands a while ago, is having integrity offices in the organisations that are also co-workers. So there are in the organisation… you can go there without evidence. You can report, or you can just discuss your ethical dilemmas. Because always, when you see something, it has a flip side, there’s another side.

So the idea of having someone who can help you, to give you advice in terms of ethical dilemmas, I think it’s very important to have that. Or else it might be that you’re surprised that some people just sometimes even obviously make wrong choices, or it waits too long. It’s always in focus. It’s like, “Yeah, actually, I knew something wasn’t right.” Or, when we look back, there were signals. The only way you can pick up on those signals is if you have a more open culture, if you have conversations about ethics. And that’s also a task of leadership. And it’s not just in the formal positions, I would say. If you don’t talk about ethics, how can you expect people to come back to you and to say something about ethics when it doesn’t feel right, if you even don’t talk about when it does go right, what you would like to see?

I think those positions… and I see it my role as well. There are many people sending me emails or knock on my door and say, “Well, actually, can we sit down? There are a few things I would really like to talk about, so what can you advise me?” I’m not always good at giving advice, though. Ethical dilemmas are hard, but at least you try to organise a means to get it out in the open before it goes wrong. I think another powerful thing to invest in is not just having a helpline, so talking about it, but also giving incentives for good behaviour. We often don’t. We do reward people when they deliver good work in terms of financial output or in the end production. We often don’t really reward people who show ethical behaviour. So it often means that you might have chosen not to work for your own individual output but to help a colleague who’s behind in work, or to get this team effort.

So, when we think about incentives, what is it that you can do? 21% of responders in this say that their organisations do provide incentives to encourage employees to live up to its ethical standards, but it also means that 80% said, “No, actually, it’s not something that I know I can try to accomplish and then I get this reward.” Ethics is part of an annual appraisal. 39% said, “Yes, there is some sort of discussion around ethical behaviour.” That’s a good start. Is it also taking into accounting when it comes to bonus payments or salary increase? No, most of them don’t have an incentive like that. But also, you can reward by just saying it out loud. Maybe it’s time that we also include ethics in the financial rewards. But, if not, things like employee of the month, it’s a good start at least.

Because what happens if we do have incentives? So, if we do have incentives for good behaviour? And it’s something that you quite easily can do as an ethical leader or as a manager to think about, how can I reward people for good behaviour? It seems that, if they do, in organisations with more perceived ethical leadership, employees say that honesty is practiced more frequently; 94% in comparison to 63% of those people say that they don’t see ethical leadership. They are also less aware of misconduct. So it seems to lead to organisations that are more ethical, because they are less aware of those signals of unethical behaviour. A very important thing that’s quite a bit of a difference: they are more willing to speak up if they become aware of misconduct – 80% versus 53%. And they are also more likely to be satisfied with the outcome. They also felt less pressures to compromise their organisation’s ethical standards.

So it’s just a package deal; you can’t do only one thing. I think it’s not just that you put it in rules; you have to communicate about those rules as well. And it goes beyond those rules. And it might be just a very human-to-human approach. I think that fits well in New Zealand culture. But also, really reflecting if you’re communicating enough about good behaviour, but also when it goes wrong. I think that might be a weakness. And also, to really make sure that people know that ethics is important so that it is not an added-on; it’s something that you do every day and try to address every day. So that’s what I would like to say. Thank you very much.

For more information and to download presentations, visit auditnz.govt.nz.

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