This was published 8 years ago
Companies can nurture an ethical culture and still be competitive
Business values need to be consistent with society's ethical expectations.
By Benjamin Koh
The current buzzword in the financial services sector is "culture".
From bank executives proclaiming employee (mis)conduct that is inconsistent with their company's culture, to regulators seeking to operationalise culture into a legislative standard and, most recently, David Murray, who led the Financial System Inquiry, invoking moral panic that enforcement of culture could thrust Australia into a neo-Nazi era.
The idea that efforts to enforce corporate culture are akin to the actions of Hitler is misinformed on many levels. It adopts a passive view of culture and neglects the fact all employees are active players in shaping company culture.
Yale University psychologist Stanley Milgram examined the conflict between obedience to authority and personal conscience. Prompted by the explanation given by Nazi soldiers for their conduct towards the Jews during the war, he designed a social experiment involving ordinary volunteers aged between 20 and 50 role-playing in a "learning" research. One volunteer was the "teacher" and one a "learner".
David Murray, chairman of the Financial System Inquiry, says ASIC's attempts at enforcing 'culture' in financial services is akin to the actions of Hitler.Credit: Quentin Jones
The experiment involved the "learner" being strapped to an electric chair in one room. The volunteer "teacher" was in a different room with a device that would generate an electric shock on the person sitting in the electric chair in the next room.
The study began with the "learner" recalling word pairs he was asked to commit to memory. Every time the "learner" made a mistake, the "teacher" was told by the research scientist (as "authority") to administer an electric shock. With each mistake, the level of shock increased until it reached the highest level of 450 volts.
What the "teacher" volunteer did not know was that there was actually no electric shock applied, and the "learner" was actually an actor deliberately giving wrong answers. The "learner" acted in pain every time an electric shock was supposedly being administered.
If the volunteer did not want to administer the electric shock, he was told: "The experiment requires that you continue." And if the volunteer still refused, was told: "It is absolutely essential that you continue."
Illustration: John Shakespeare
Whenever a volunteer raised concerns about permanent physical harm to the "learner", he would be told by the "authority": "Although the shocks may be painful, there is no permanent tissue damage. Please continue."
If the volunteer indicated the "learner" clearly wanted to stop, he would be told: "Whether the learner likes it or not, you must continue until he has learnt all the word pairs correctly. Please continue."
And, finally, if the volunteer asked who was responsible for any negative effects, the researcher would reply: "I'll take responsibility." This provided comfort and many volunteers continued giving the electric shocks.
Before the Milgram experiment, the expert consensus was that only about 1 to 3 per cent of subjects – the so-called "bad apples" – would not stop giving shocks. The view was that individuals would have to be pathological or psychopathic to not stop very early.
However, the findings of the experiment shocked everyone. Almost two-thirds of the volunteers continued giving electric shocks to the highest level of 450 volts, and all volunteers gave electric shocks to the "learner" up to 300 volts.
What Milgram's experiment tells us is individuals will obey an authority when they believe the authority will take responsibility for the consequences of their actions.
It also suggests many of us have an almost innate behaviour to do as we are told, especially from people of perceived authority. An implicit message from the experiment was that the culture of what is acceptable behaviour is dynamic and continually being reinforced.
Old-school views of culture are that they are prescriptive rules and, if breached, carry consequences. Here, individuals are considered passive unthinking players – mere pawns and victims of that culture.
Contemporary understanding, however, is that culture is constructed daily through interactions between individuals and their surroundings, within their cohort and with society at large.
Organisational cultures from this postmodern view allow the shaping of culture by everyone in the organisation, and over time conform to higher values. The key is ensuring such values are consistent with society's ethical expectations.
All companies must act in a manner that is not just legal, but also fair, just, reasonable and conscionable.
Having regulatory ethical guides helps ensure behaviours within all companies are shaped correctly and to a standard that society expects, no matter what the company's financially focused stated mission is.
A company mission statement, for example, of enhancing financial wellbeing would operate thus not only within what is acceptable in the court of law, but also in the court of public opinion.
The attitude that inconsistent conduct can only be due to "bad apples" is misinformed. Senior leaders in companies must recognise that both their words and actions shape the company culture daily. It is an active and dynamic process.
Being innovative, competitive and taking risks does not preclude having an ethical culture. If a higher regulatory authority guides companies towards a fundamental focus on conscionable conduct, rather than profit at all cost, surely that cannot be a bad thing.
Dr Benjamin Koh was the chief medical officer and whistleblower at Comminsure, the insurance arm of the Commonwealth Bank.
