In the wake of the CommInsure scandal in early 2016, how should corporations respond to an ethical crisis and stand accountable for their ethics culture?

The dissection of CommInsure’s treatment of some of its policy holders (including fellow employees) by Fairfax Media and ABC’s 4 Corners program reinforced every bad stereotype there is about the world of banking and finance.

The people whose stories were featured in the reports were treated in a manner that made me wince. You’d think that people of even moderate decency would have realised that what was being done was wrong. Yet the evidence is incontrovertible.

Basic decency was set aside in favour of the financial interests of the corporation and, one suspects, the people making the decisions. Until now, the cost of this has been borne by those whose claims were denied.

Now, the price is being paid by the Commonwealth Bank and the vast majority of innocent employees who will have been appalled and ashamed by what has been revealed.

Now that the issues have been exposed, the first order of business should be to remedy the harms that were caused to individuals who had a right to expect that their legitimate interests would not be sacrificed for commercial gain.

The particular vulnerabilities of those affected make for especially chilling stories. No person, whatever their circumstances, should have the careful parsing of the language of insurance policies turned against them. We all buy insurance in the expectation that it will be available when we really need it. It is just plain ‘tricky’ when loopholes are used to deny our reasonable expectations.

How can we restore business ethics?

It is time that we developed a more mature understanding of what it means to live an ethical life as an individual or as an organisation.

The second order of business must be to rescue the concept of ‘ethics’ in banking and finance. In recent months, I have spoken to a number of senior leaders in the banking and finance industry about their signing the ‘Banking + Finance Oath’. As things stand, around 600 people have made a personal commitment to the tenets of the oath. Every person with whom I have spoken supports what the oath says and stands for.

However, quite a few are reluctant to sign for fear that something might go wrong – and that in the face of evidence of ‘ethical failure’ they will be accused of hypocrisy.

Their misgivings are understandable – especially after the CommInsure scandal.

It was only at the CBA’s last AGM that the chairman and chief executive officer both raised the issue of ethics – making a commitment to become an “ethical bank”. At the time, cynics scoffed at the idea.

In the aftermath of the CommInsure scandal, and quite predictably, the CBA has been ‘hit over the head’ with this aspiration. No wonder people are nervous about making a public commitment to ethics!

The Ethics Centre worked extensively with the CBA in late 2014 and early 2015 (but not with CommInsure) and I have a high regard for the sincerity with which they laid out a path for ethical development at the 2015 AGM. What was said then should not be dismissed out of hand – and especially not because of recent events. Rather, we should ensure that the standard by which we assess the CBA is a reasonable one – and then judge accordingly.

To think that any individual (other than a saint) can achieve ethical perfection is unfair and unrealistic. I certainly wouldn’t measure up to that standard. To think that an organisation of 50,000 people will be perfect is just ridiculous. What we can (and should) expect is that an ethical organisation will distinguish itself with a number of key features.

Features of an ethical organisation

1. Active reinforcement of values and principals.

First, it will actively seek to reinforce the application of its values and principles – not just at the rhetorical level but as part of an ongoing program to root out and eliminate all systems, policies and structures that might subtly (and not so subtly) lead people to act in a manner that is unethical.

2. Culture of open communication.

Second, it will build a culture of open communications in which people are rewarded (and certainly not punished) for drawing attention to practises that appear to be inconsistent with the organisation’s declared ethical framework.

3. Strong response to ethical failure.

Third, an ethical organisation will be marked by the quality and character of its response to ethical failure. For example, it will own up to its own failings. It will remediate and compensate for any harms done. It will ensure that the lessons to be learned are widely published for the benefit of others. It will aim to do what is right – and not just the minimum that it is required to do.

This third aspect was evident in Ian Narev’s response to questioning on the 4 Corners program earlier in 2016. I believe his expressions of concern were sincere and that he will, or has, followed up, personally, with the affected individuals. Beyond this, I have no doubt (but no certain knowledge) that he is leading a process that will meet the expectations outlined above.

That the CBA follows this path will be a surer indication of its commitment to ethics than the fact that this shameful series of events occurred in the first place. And that is what we need to evaluate.

An ethical organisation will be marked by the quality and character of its response to ethical failure.

Increased accountability required

It is time that we, in society, developed a more mature understanding of what it means to live an ethical life as an individual or as an organisation. If we cannot be perfect, then we can at least be held to account for the sincerity with which we make our best efforts to act, in good conscience, in conformance with our chosen values and principles.

And second, we should be accountable for the competence we bring to bear in our ethical decision making – it’s a skill that cannot be taken for granted and needs development through active, reflective practice.

If this (rather than perfection) was the standard we insisted on – for ourselves and others – then more people in the world of banking and finance might publicly commit to what they know, in their heart-of-hearts to be right and good.

Dr Simon Longstaff AO is the Executive Director of The Ethics Centre.