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Slow slide back into greed

by Simon Longstaff

Are the infamous practices of the 1980s about to be revisited on the Australian Community? The answer is that the world of Australian business and the professions is finely balanced on the edge of the precipice. It is now a fine matter of judgement as to how things will fall.

People might be forgiven for wondering about the basis for so dire a warning. After all, where is the evidence of calamitous changes in the way things are happening? There is no such evidence. This is because the slide back to the bad old days has not been accompanied by spectacular convulsions. Instead, it has been slow, steady and largely hidden from the public gaze. Despite this, it has been noticed!

It is very significant that in this month alone there have been two separate editorials in the Australian Financial Review calling for caution and vigilance. Why? Because nearly everybody senses the changes that are afoot. There is little that can be measured. However, people don't need a thermometer to know that it's getting hot. Consistent anecdotes from reliable sources are a good indication that there are serious matters to be addressed. Here are just a few pieces of the jigsaw that, taken together, make up a disturbing picture:

1. There is broad acceptance of the fact that the incidence of insider trading is on the increase;
2. Concerned lawyers are saying that, in the last six months, they have seen the return of sharp practices not been seen since the darkest days of the last decade;
3. Senior figures in the finance industry observe a return to the lending practices that funded some of the worst excesses of the 1980s;
4. Whole sectors of industry are moving away from the concept of responsible self-regulation and are, instead, embracing the alternative view that "if it's legal, it's ok". For example, major corporations have apparently decided against replacing the, now defunct, Advertising Standards Council with a credible alternative that has teeth. The chance to apply ethical standards voluntarily has not only been avoided but appears actively to have been resisted. Inevitably, consumer sentiment will force the government to step in and clean up the mess caused by allowing the lowest common denominator to prevail. This will be another kick in the teeth for the ethos of self regulation.

Fortunately, people are now starting to sound a warning. Unfortunately, it seems that those in charge of our corporations are unprepared to do anything real and sensible to prevent a new cycle of avoidable error. Lest this seem somewhat harsh a conclusion, consider the most common response to the last wave of stupidity.

While it is true that the topic of ethics is widely discussed, very little has been done to address the question in practice. Pointing to the increased incidence of codes of ethics offers little comfort.

For the most part, codes have been developed without any effort to ensure that they apply in practice. Far too often, the development of a code is farmed out to a consultant or brought into existence by picking out the best bits from a representative sample. This done, the document is published with a requirement that employees (but not the Board) sign a declaration that they have read the document and agree to abide by its values and principles. That done, most organisations sigh with relief, put up their feet and congratulate themselves on having 'done' ethics. Alas, for most, this is not a caricature. As a colleague observed, "Some people do ethics like they do lunch!"

There are some notable exceptions. A handful of organisations have taken the matter seriously enough to embark on a programme designed to bring about real and lasting change. However, there is still not a single organisation in Australia committed to conducting a regular ethics audit to see if the things it professes are applied in practice. Only the credit unions are getting close. Hardly any organisation has even one senior manager with explicit responsibility for addressing ethical issues and, in particular, overseeing the development of a culture in which ethical considerations are taken seriously.

The nett result of this is that the underlying attitudes that give rise to past problems have been left to lie dormant like a virus waiting to be reactivated once conditions become hospitable. Such times are with us now. The issue is a complex one, but there are one or two obvious points to be made.

The advent of multi-million dollar remuneration packages (for a few) has helped to set a tone in which the value of a person is determined by their price. In such circumstances, people start to believe that approval is reserved for those who demonstrate success by maximising their personal wealth. Few countervailing signals, if any, work to suggest that the means used to achieve this end are of equal importance. How many bonuses are paid explicitly (in cash or recognition) for acting ethically? People receiving very large amounts of money often feel compelled to justify themselves by doing spectacular deals. 'Spectacular' is not necessarily 'responsible' and while some deals might look good in the short-term (or at least until the options have been exercised) they may contain the seeds of a late-blooming crop of woe. Inevitably, it is harvested by those who couldn't afford to leave.

The bulging bottle-neck of floats, merges and acquisitions means that the rewards are truly tantalising for those who can secure a piece of the action. The attraction of a fist-full-or-dollars should not be underestimated – especially for people who long for the 'good old days' of easy money and high excitement. This is not meant to suggest that people shouldn't receive their just desserts in the market-place. But it is to suggest that there are wider consequences to be thought through by those of our fellow citizens whose decisions affect such matters.

While looking to the ASC and ASX to be well-armed and vigilant is prudent, it offers no real solution to the problem. Nor will elaborate internal compliance regimes save a corporation from stumbling into an ethical death-trap. Surely, the lessons of history are clear. External systems of control are doomed to fail when simply overlaid on a culture in which people don't give a damn about the underlying ethical commitments of the organisation. In such an environment, people look for loopholes as they pursue what they perceive to be their 'real' interests.

All of this might seem to paint a pessimistic picture. Such a judgement would be premature. The techniques to address such issues are known. They are available within Australia. They could be put to good use. Let's heed the warnings this time 'round.

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