Some comments about ethics and banking

By Simon Longstaff

A version of this article was first published: Advance Bank's 'Public Affairs Issues' - December 1991

Whilst it has only become fashionable to talk about business ethics in Australia recently, the subject has been a matter for serious research in other places, principally the USA, since the turn of the century.

Arising from a general concern about management and the role of business in society, the work of academics and business people in the USA has filtered through England and now down to Australia. It is, of course, essential that a distinctive Australian response to general questions about business and professional ethics be developed.

However, there is at least one observation that we might choose to endorse. Good ethics, it has been realised, is good business.

By prompting a change in community expectations, the excesses of the 1980s in Australia have focussed our attention on this matter. Why should we be ethical in business? For a start, there is a financial cost to running a business where there has been an erosion in the climate of trust. It is something which can be measured and can be quite extreme.

Allied to the question of cost is that of regulation, another cost which businesses have to bear. As soon as voluntary and informal codes begin to lose their efficacy then government is inclined to step in to try to impose a solution that it considers to be acceptable. And of course, the government's view of what is acceptable is not necessarily the same as that of business.

Either way, whether it be a loss of time or energy spent in conforming with the regulatory framework, or the cost of added bureaucracy passed on to society in the form of taxes, the penalties faced when the community loses confidence in the 'good faith' of business, are real in their effect.

But good ethics is not just about minimising costs in order to make a profit. There's another question and that has to do with the kind of society we want to live in.

Do we prefer a society in which people can trust one another in their commercial relationships to one in which the worst about people must always be assumed? This is not just a matter of looking at society at large. It also impinges on issues relating to the quality of life within the many types of organisations to which people belong. In particular, there is a need to understand questions about ethics in terms of what they mean for each of us as individuals within our respective organisations, and how the answers to these questions help to define who we are. For example, is it possible to reconcile the values and standards which people apply at home, and in the wider society, with the values and standards of the workplace? Ideally, they need to be complementary. And that, of course, has very important ramifications affecting how, for example, companies go about developing codes of ethics and how they deal with their staff.

What is ethics in the workplace? It is no different from ethics in any part of life. The fundamental question in ethics is: "What ought one to do?". This is not an abstract question. It relates to practical things to do with the conduct of our daily lives. The first thing to realise is that it is impossible to escape questions about our values. They are attached to everything we do, from the way in which we choose to allocate our time to our choice of reading materials.

Some might think that this is just a matter of taste and fashion. What does the kind of novel I read have to do with ethics? The answer is that all your choices relate, at a fundamental level, to conclusions you have formed abouting what you consider to be the 'good life' for yourself and others like you. And when you start to answer questions about the 'good life' - even indirectly and subconsciously, then you are working in the field of ethics.

It's exactly the same in the workplace. All of us are required to make decisions about how to allocate resources: time, money, personnel and so on. We are called upon to make choices in relation to colleagues and clients. In short, we are asked to answer the question, 'What ought one to do?". So it is that the work environment also challenges us to confront questions about our conception of the ‘good life’.

People also talk of ethics in terms of a system of rules. But rules don't always answer the question: Is it right to do this? One of the real problems faced by philosophers over the centuries is that, with every new generation, someone comes along who makes it his business to show why the existing set of rules can't work for everyone. We have now arrived at a situation where some people doubt that a standard set of rules could ever be developed. This leads some to argue that everything is relative; that right and wrong are purely a matter of personal preferences.

None of this is very helpful to those wondering about how to make their businesses ethically responsible.

Fortunately, there is an alternative that respects individual differences whilst allowing for the development of good ethics in the workplace. This is for businesses actively to develop a certain ethos, or culture, that encourages the formation of certain 'virtues". Having been encouraged in the formation of certain dispositions, employees will go beyond a mere knowledge of the rules so that they have an understanding of what it is right to do by their organisation. As will be seen from that which follows, this does not mean that standards should be imposed by any one group in an organisation. Rather, the values to be adopted and enhanced should be a product of the organisation as a whole.

There are four conditions that have to be met to address the question of ethics in an organisation.

First is to have a commitment from the top. And that means from the board and senior managers. Not just a verbal nod, but a real commitment. Unless that happens people will be justified in asking questions about the level of sincerity lying behind the development of an organisation's ethics.

Second is to have something like a code of ethics which sets out the fundamental principles which people are going to hold to. Codes are very important documents - a bit like the Ten Commandments, in that they make sure that important principles are kept before us. The trouble is that items written in stone tend to become lifeless unless someone takes particular care to nurture their understanding. And a dead code is virtually worthless. A code has to be something that is alive. It has to be 'owned' by all the people who have to observe it. It is not enough that it be approved by management, or by the board. To be really effective an organisation's code should evolve in consultation with all the people it affects. They principally are all the people who belong to the organisation, and often those who have contact with the organisation - suppliers, customers, and so on. That's a living code of ethics.

Thirdly, there also needs to be a commitment to review the code continually. Does it still make sense for this organisation?

Fourthly, the organisation has to be aware of what blocks there are to prevent all of this commitment and goodwill from actually working. It is pointless having a code and a commitment from management and staff if something in the management systems or practices of the organisation prevents the development of this ethos.

When these conditions exist, you can then say to your staff and the people outside the organisation: This is what we are. This is what we stand for.

How does this apply to the banking industry?

It is clear that there is something about banks that is of critical importance to people. It is partly historical and it is partly related to their function. I've not seen - apart from the legal profession - the same fever of attention which has come about through the perception of the way in which the banks have been operating. Why is it? It is because banks are among the notable institutions in a modern society which people look up to for stability and, dare I say it, the best ideals. This is, in part, a popular response to the fact that Bankers have traditionally taken on the role of advising people, helping to get them on the road. So much of the Australian dream is related to what you would discuss with your banker.

You see the implied promise of the banks in the symbolism which they deploy: buildings, language and so on. All of that makes banks incredibly important institutions. And, in an important way, they can be seen as a microcosm of society: They are called upon to deal with a full range of people, with a full range of society's productive elements and are called upon to support a wide range of community pursuits.

As a banker, you touch so many things in our lives. Being so closely tied to tour society, Banks can affect, positively or negatively, the way society sees itself. And when banks begin to do things which threaten either stability or trust, it causes a tremendous sense of unease. You expect your banks to be fair players. I believe with banks, above all, what people seek is truthfulness, trustworthiness and fidelity.

So, I want to suggest that there is a real risk that if the standards applied by banks begin to topple so that confidence is eroded, then it is not only the financial systems that are put out of kilter, but also our expectations about society.

Noted researcher, Hugh Mackay, has found that consumers judge the ethical standards of institutions by the way in which they treat their customers and staff. They generally seem to think that if there is good customer service and good management relationships with personnel, then that indicates good ethics within an organisation.

Thus, customer and employee relations are key elements in a bank's operations. One of the chief ways in which you can involve the employees in the work of the bank is to get them involved in the generation of the ethos of the organisation. It matters not whether they are on the counter or in line or staff management, all should be involved. In particular they should talk about the ethics of their organisation so that it is made relevant to the circumstances in which they work. That is, ethics should come to be seen as being relevant to practice so that the topic comes alive. People should be given a forum in which they can discuss the code and its relevance to the present day.

And when a code of ethics comes alive for those who live with it then the chances are that it will become something of which they can be proud and which they can bring forward to the customer. Bank staff should tell customers the bank has a code of ethics and what it is. You are telling customers, then, that the bank has made various commitments and that the customers can judge the bank's performance accordingly. The customer will register the fact that this bank - and it will vary from bank to bank - stands for something.

And in this day and age of shifting values, that sort of commitment really matters.