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Tag Archives: Ethics

Self Correcting Processes

Posted on September 26, 2015 by | 2 comments

Far too many of the processes set up by business and government are designed to fail, or at best rely on altruism and trust to get the ‘right thing’ done.  A typical example is safety or quality check lists;  its not unusual to see people spending an hour on a Friday afternoon filing in the sheets for the week and then sending them off to be filed. A complete waste of time! The problem is not the people, it’s a system failure; causes of the observed symptom may be:

  • The process is unnecessary (the work was done safely or to standard anyway);
  • The process is excessively bureaucratic forcing people to choose between getting the job done or getting the paperwork done; or
  • Undetected errors occurred.

Regardless of the cause, the system has failed!

The first question to ask comes out of ‘Light’ and ‘Lean’ thinking; is the process needed at all, and if it is needed can it be made easier to do properly?  A key element in this part of the redesign is asking the question does the process add more value than it costs?

Assuming the process is needed the next area of redesign is making the system self-correcting, in other words designing the system so that it is easier to comply with the process than to circumvent it.   This requires some imagination.

A good example is the visiting security guard at some of our local shops. In the ‘old days’ the guard was required to slip a card under the door to let the shop owner know the check had been done – if 2 or 3 checks were scheduled overnight, the equivalent number of cards were to be found in the morning.  The flaw in the system was no one knew if the guard had visited at the designated times or had called once and slipped several cards under the door……..

The new system has a small RIFD tag fixed to the shop wall and the guard as a reader. If this system is exploited fully, not only is the timing of each visit recorded, but the safety of the guards is enhanced because a failure to ‘read’ the tag at the correct time can trigger an alarm in the guard’s organisation that something has gone wrong, a simple phone call can check if he’s held up in traffic or a more serious situation has occurred.

Every situation is different, but one example of a seriously flawed government process that could easily be improved is the issuing of 457 visas.  The Temporary Work (Skilled) visa (subclass 457) allows skilled workers to come to Australia and work for an approved business for up to four years. The key requirements of the scheme include paying Australian wages and complying with the law. It costs about $2,000 for a visa.

The purpose of this class of visa is to overcome temporary skills shortages in the Australian job market whist local workers are trained; a highly desirable purpose. There are significant penalties for defrauding the system but for reasons discussed in Lynda’s post on ‘Making Ethics Effective’, far too many people are prepared to ignore the low risk of prosecution to make money. 457 workers are employed as shop assistants and waiting staff in food outlets in cities with 6% unemployment. The system relies on trust and the department is understaffed to adequately enforce the rules.  So how could this defective system be redesigned to make it self -correcting??

Step 1 – look at the fundamental objectives – skilled workers, temporary employment, and the training of permanent Australian workers.  Skilled workers are paid between $50,000 and $100,000 per annum.

Step 2 – price the visa properly, the 457 visa is an alternative to training, training a worker costs at least $6,000 per annum – price the visa accordingly.  Set the fee for the visa at $6,000 for the first year and allow 4 or 6 extensions of 6 months each at $6,000 per extension. This cost will focus company management on the desirability of training local workers!

Step 3 – price the risk properly, 457 visa holders are supposed to go home at the end of their work, require a $10,000 bond payed at the time of approval (ie, before the worker arrives) that is released once the worker permanently leaves Australia. This sound a lot but reputable businesses can obtain bank guarantees at around 0.75% of the amount guaranteed = $75 per worker per year and all that is needed is a couple of tweaks to the visa control processes to record a permanent departure.

Step 4 – eliminate some of the obvious areas of abuse; eg, make it illegal for a 457 holder to change employers. If the employee is terminated and does not leave the country, the $10,000 bond is forfeit.

Step 5 – compensate the legitimate businesses to help offset these additional costs. Legitimate businesses that comply with the law will pay their superannuation guarantee for most 457 visa holders.  For a worker on $75,000 per annum this is about $7,000 a year.  Temporary workers who are leaving Australia have no need for a statutory superannuation fund – exempt all 457 visa holders from the payment (some are already).  This will offset the cost for most legitimate organisations in the first year. By the second year they should be starting to bring trained workers into play.

What this proposed redesign of the system does is minimise the impact on legitimate businesses that are using 457 visas for their intended purpose and are complying with the obligation contained within the scheme to train people. But the revised system will really hit the dodgy operators who are using the 457 visa to import cheap unskilled labour, particularly if they are underpaying wages and not paying statutory entitlements.

Fixing 457 visas is fairly simple and can be introduced for new applications to minimise complications, the old visas will expire in due course; and as an added bonus the government will have additional revenues to help stamp out malpractice in other classes of visa.

Fixing the other ‘headline making fraud’ of the VET training subsidies will be more difficult, but a shift towards payment on successful completion of the training (backed up by audits) would go a long way towards eliminating the dodgy operators……. VET FEE-HELP is supposed to encourage people to become qualified for work, not enroll in courses!

Enrollment is a key step towards qualifying, but pay for what you want (qualified people in the job market), not an interim step that is of no value in itself. At present 100% of the money is paid on enrollment – driving dodgy course providers to focus on maximising enrollments, no one worries too much if people don’t finish the course,  don’t qualify or don’t get a job.  Why not pay 75% of the money on successful completion and the remaining 25% on the person achieving employment?   This would encourage education providers to only engage people who are capable of completing the course and only provide courses that are likely to lead to employment – the government pays for the results it says it wants.

We’ve looked at some problems that are making headlines locally, now there’s the question of your organisation’s systems – how many rely on trust and goodwill to be implemented properly with the remote possibility of sanctions if someone is caught not complying, and how many have self-correcting checks and balances in a lean and light framework that drive correct behaviour? Good Standard Operating Procedures improve consistency and reduce costs, but only if they are used (see: The value of Standard Operating Procedures).

As Lynda concluded in ‘Making Ethics Effective’, achieving ethical and proper behaviours requires more than hoping for a good outcome, intentional design is needed – hope is not a strategy!

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Making Ethics Effective

Posted on September 14, 2015 by | 2 comments

An organisation can espouse the highest ethical standards but if these are not supported and enforced they are simply nice statements that look appealing. The challenge is to have the right levels of support and just enough enforcement.

Headline news in Australia over the last couple of weeks (with months to run) is the appalling treatment of franchisees and their staff by the 7-Eleven chain.  To survive (and in some cases profit) many 7-Eleven franchisees resorted to underpaying staff by a standard 50%.  The TV expose and press reports indicate multiple breaches of employment legislation, occupational health and safety legislation, corporations law and taxation legislation.  Most of the focus at the moment is on the students who allowed themselves to be trapped into the wages scam.  This post will suggest these people are not the ‘biggest losers’.

The whole 7-Eleven chain was benefitting from the scam.  Head office made more profit, the franchisees reduced their wage bill by up to 50% (their primary cost under the franchise arrangements) and the students received their reduced pay.  Whilst in some cases there may have been elements of coercion used to keep the students employed, everyone got into the deal voluntarily.

The major losers in this scam were people who rely on the workings of the law and run their businesses honestly.  Two major groups are the corner shop-keepers who paid the lawful minimum wage and saw their businesses destroyed because the 7-Eleven ‘model’ undercut costs illegally and the unemployed people who did not get jobs because they had the audacity to expect to be paid their legal entitlements.

People in these groups faced a major ethical dilemma, go out of business (or remain unemployed) or ‘bend the law’ to survive in completion with chain that was prepared to allow widespread malpractice.  Not an easy decision!

I would suggest the major failing was not the ethics of the 7-Eleven chain: the erosion of ethical standards is usually slow and insidious. The real problem appears to be the government agencies tasked with enforcing the law.  Over several decades government departments have been steadily stripped of resources and these days can only adequately respond to ‘major issues’ –  they are forced to assume ethical behaviour by most people most of the time and even when advised of blatant breaches will generally ignore the issue if it is considered minor.

One example we confront regularly is breaches of the Australian Competition and Consumer Act 2010 – one of the Act’s primary requirements is honesty in advertising, the advertised price of any goods of services should be the minimum price the consumer has to pay.  We routinely see Google advertisements targeted at our training market in Melbourne offering ultra cheap prices.  Click through to the related web page listing the training courses in Melbourne and the price increases, spend 15 minutes filling in registration forms and you eventually see the price you are required to pay (with all of the taxes and changes now added)!   This is a deliberate strategy by unethical organisations – the low price gets people onto their web site, and inertia keeps them there (particularly after spending effort on filling in the forms) so they end up paying far more than is necessary for an equivalent course.  The practice is so widespread, particularly with overseas based training providers, we regularly find people asking us if our prices are ‘real’ and ‘how much will they actually pay’ – the answer is simple, we conform to the law and charge the advertised price.

However, this was not an easy decision to make! We have had to reduce prices and increase advertising to attempt to off-set the illegal practices of others. Complaints to authorities go unheeded because they simply do not have the resources to deal with a relatively minor issue and business suffers.

When ethical standards start to slip several things tend to happen, ethical people move away to somewhere where their standards are not being challenged, less-ethical people move in and further degrade standards and many other people simply learn to ignore the problem (see The normalisation of deviant behaviours ). And once unethical or corrupt behaviour becomes normalised, reversing the situation is extremely difficult. Press reports suggest that some 7-Eleven franchisees who have been forced to pay proper wages are now using extortion to demand 50% of the money back from the employee (outside of the premises so the extortion is not recorded), or the worker loses his/her job.

At a national level one hopes the 7-Eleven furore when added to the construction of a refuelling wharf in the Tiwi Islands without environmental approval (the government agency did not have the resources to investigate in a timely way), the blatant abuse of the vocational training scheme by some commercial organisations and numerous other failures will cause a re-think of the way business and government approach regulation.

Certainly the removal of unnecessary bureaucracy, regulations and other forms of red tape is to be encouraged. However, if the government decides a regulation is desirable, proper and comprehensive enforcement should be automatically provided. The failure to enforce regulations penalises the honest, ethical organisations who feel obliged to comply; and advantages the dishonest who chose to breach the regulation and balance the low cost of getting ‘caught’ against the additional profits garnered from ignoring the provision. Prosecuting a few ‘rule breakers’ 5 or 6 years after the event is not an appropriate way to govern – the damage is already done.

What does this mean within organisations and projects?  Effective governance sets the ‘rules and objectives’ for the organisation (see: The Functions of Governance). Management and staff operate within those rules to achieve the objectives. A key element in a well designed governance framework is the feedback loop providing assurance of management accountability and compliance.  This loop needs three elements:

  • A clear articulation of acceptable and unacceptable behaviours at all levels of the organisation, with senior leaders ‘walking the talk’.
  • Proactive surveillance to identify issues and opportunities as early as possible backed up by effective improvement processes (see: Proactive Project Surveillance.
  • Rigorous, but fair, enforcement processes to deal with breaches.

The last point is the most difficult to get right.  The system needs to be open and accountable, apply both natural justice and the ‘presumption of innocence’, deal with the root cause of the breach, avoid scapegoating, and be trusted.  One element is ensuring effective reporting and ‘whistle blowing’ processes are available so that people (both internal and external to the organisation) who believe there is an issue can raise the matter safely – its impossible to enforce rules if people in authority don’t know (or don’t want to know) about the breach.

The good news is that if these types of system are in place, the organisation will develop a self-reinforcing ethical culture.  Unethical people will leave to find somewhere easier for them making way for people who want to work in an ethical environment.  Fairly soon, everyone holds both themselves and other accountable.

However, this situation cannot be taken for granted! The presence of the surveillance and enforcement processes underpin these highly desirable behaviours.  If the organisation makes the same mistake the Australian governments have repeatedly made over the last 10 years of deregulation and simply ‘hope’ everyone will do the right thing it won’t take long for the slide into unethical behaviour to start.  Hope is not a strategy, good governance requires assurance that the organisation’s objectives are being achieved, and effective assurance needs both surveillance and enforcement capabilities.

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Ethics, Culture, Rules and Governance

Posted on January 7, 2015 by | 3 comments

Far too many governing bodies spend far too much time focused on rules, conformance and assurance.  While these factors are important they should be an outcome of good governance not the primary focus of the governors.

When an organisation sets high ethical standards and invests in building an executive management culture that supports those standards the need for ‘rules’ is minimised and the organisation as a whole focuses on doing ‘good business’ (see: Corporate Governance).

The order of the functions outlined in The Functions of Governance, places: ‘Determining the objectives of the organisation’, ‘Determining the ethics of the organisation’, and ‘Creating the culture of the organisation’ ahead of both assurance and conformance.  The rational being creating a culture of ‘doing the right thing’ that extends from the very top of the organisation to the very bottom, means most people most of the time will be doing the ‘right thing’ making assurance and conformance a relatively simple adjunct, there to catch the few errors and malpractices that will inevitably occur.

A very strong endorsement of this approach to governance has recently come from one of the world’s most successful business people, Warren Buffet.  His recent memo to the top management of his holding company, Berkshire Hathaway’s subsidiaries (his ‘All Stars’) emphasised that their top priority must be to ‘zealously guard Berkshire’s reputation’ (read act ethically). He also reminded his leadership team that ‘we can afford to lose money–even a lot of money. But we can’t afford to lose reputation–even a shred of reputation’.

His advice to managers also included this good advice ‘There’s plenty of money to be made in the centre of the court. If it’s questionable whether some action is close to the line, just assume its outside and forget it’. This is a simple ethical guideline that avoids the need for pages of precise ‘rules’ designed to map the edge of legality drafted by lawyers and argued over endlessly.  See more on Ethics.

Reading the memo, its clear Buffet has built a massive organisation based on an ethical culture, employs executives that reinforce the culture, and still makes a very good profit. It’s a long term investment but infinitely preferable to the sort of issues that confronted Salomon Bros., 20 years ago (see: Warren Buffett’s Wild Ride at Salomon), the banks associated with the GFC, and the on-going damage continuing to be suffered by the Australian banks as more ethical failures come to light. I’m sure they all had hundreds of ‘rules’ some of which may even have been sensible.

A copy of Warren Buffet’s memo can be downloaded from:  http://www.mosaicprojects.com.au/pdf/Ethics_Culture_Rules-Buffet_Memo.pdf

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Ethics and Governance

Posted on December 31, 2014 by | Leave a comment

One of the long running themes of this blog has been the importance of ethics and governance to the success of organisations and the importance of ethical behaviour at all levels of an organisation from the project level up to the very top.  No one can afford to allow unethical behaviour to continue – the expediency of turning a ‘blind-eye’ is simply not an option.

Within this theme, a couple of years ago we highlighted changes in laws in Australia, the UK, and the USA focused on eliminating bribery of foreign officials (read the post) and the wide reaching effect of these laws.

Since then, a range of high profile companies have been successfully prosecuted and there are numerous on-going investigations. One of the latest to be finalised involves the French engineering group Alstom, which has been fined a record $772 million by the US Department of Justice (DoJ) for corruption in foreign countries. The fine was for an ‘astounding’ history of international bribery. Alstom pleaded guilty to paying more than $75m in bribes to government officials in countries such as Indonesia, Saudi Arabia and Egypt, which resulted in Alstom winning projects worth more than $4bn and gaining profits estimated at $300m (see the full report).

Developing a culture of effective governance is not easy – we will continue this theme in 2015, in the meantime select ‘Governance’ from the category list in the side bar to review our earlier posts.

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Stakeholders generate profits for shareholders

Posted on October 29, 2014 by | Leave a comment

A few months ago I posted on the concept of Understanding stakeholder theory and suggested organisations that focus on providing value to stakeholders do better than those focused on short term rewards for shareholders and the associated benefits flowing to executive bonuses.

A new report: From the stockholder to the stakeholder by Arabseque Asset Management and Oxford University supports this contention. The report reviews existing research on environmental, social and governance (ESG) issues. It is a meta-study of over 190 different sources the authors have demonstrated a strong correlation between organizations that take ESG seriously and economic performance. For example:

  • 90% of relevant studies show that sound sustainability standards lower the cost of capital;
  • 88% of relevant studies show a positive correlation between sustainability and operational performance;
  • 80% of relevant studies show a positive correlation between sustainability and financial market performance.

However, to translate superior ESG quality into competitive advantage, sustainability must be deeply rooted in an organisation’s culture and values. The consequences of failing to take ESG seriously continues to be demonstrated by another of my regular topics, BP. The report contains a plot of oil company share prices from 2009 (pre the Deepwater horizon disaster) through to 2014. BP’s share price continues to suffer the consequences of the short sighted cost cutting that precipitated the Gulf of Mexico disaster.

The report concludes that it is in the best economic interests of corporate managers and investors to incorporate ESG considerations into decision-making processes starting at the governance level right down the organisation hierarchy.

The full report can be downloaded from  http://www.mosaicprojects.com.au/pdf/Stockholder_to_Stakeholder.pdf.

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The Evolution of Ethics

Posted on October 17, 2014 by | 1 comment

Our White Paper on Ethics discusses a number of ethical approaches used to determine what is ethical in the modern world. What is not covered in the White Paper is the evolution of ethical thinking. A blog post by Ricardo I. Guido Lavalle outlining a presentation by Prof. Clovis de Barros, who teaches Ethics at Universidade de Sao Paulo (USP), Brazil; fills this gap.

Prof. Clovis suggests Ethics evolved through five main phases outlined below:

  • Greek times, when ethics were about fitting oneself into the great cosmological order. Right actions were those that helped the Cosmos achieve its maximum order. From this standpoint Greek philosophers (mainly Aristotle) assumed rigid, stable social layers where aristocracy had the most part in the game.
  • Consequentialism, holds that the consequences of one’s conduct are the ultimate basis for any judgment about the rightness or wrongness of that conduct. Niccolo Macchiavelli (The Prince, 1513) is the best known proponent of this school of thought; he strove to maximize prince’s power. Right actions were those that had achieved the most power for the prince. Attention here, the right actions were considered right after they proved to be efficient in achieving the desired outcome – ‘the ends justify the means’.
  • Utilitarianism, holds that the proper course of action is the one that maximises utility, usually defined as maximizing total benefit whilst reducing suffering or the negative consequences. Proposed by Bentham (1780) and John Stuart Mills, is a great justification for liberalism and aims for ‘the greatest happiness of the greatest number’. It is a simple and attractive standpoint, and it even fits with common democratic views. However, it presents some issues regarding minorities.
  • With Immanuel Kant (1781) emerges the inner spiritual origin of ethics. Kant contested utilitarianism with his deontology. An action was right if the very inspiration of it was good, regardless of the consequences. The ultimate goal was to form a corpus of universally valid actions, such they were valid in any context, and forever. The puritan ethics of duty and good purpose is an earlier expression of this long-lasting and very successful ethical view.
  • In contrast to all previous views, post-modernist ethics is about relativism. Ethics has become transactional, an agreement between parties, where openness and transparency of purposes are crucial. Post-modern Ethics is the result of a social contract, and agreement. Professional organisations such as PMI develop an agreed code of ethics to guide their members.

However, the transactional basis of post-modern ethics does not eliminate many of the founding concepts developed over millennia. PMI’s Code of Ethics and Professional Conduct balances many of these themes:

  • Overall the spirit of the Code is Kantian; a code developed by a ‘global’ body should seek to be of universal applicability.
  • Some elements of the Code are a quest for the good intentions inherent in Greek virtues (honour and fairness), (2.4 We make commitments and promises, implied or explicit, in good faith)
  • Others tend to utilitarian (2.1 We make decisions and take actions based on the best interests of society, public safety, and the environment).
  • Whilst others are post-modern ethics (3.1 We proactively and fully disclose any real or potential conflicts of interest to the appropriate stakeholders.).

What this brief scan of history highlights is the way the long history of ethical thinking affects the modern definitions of ethics. The White Paper looks at their practical application.

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The moral underpinnings of good policy.

Posted on September 20, 2014 by | 4 comments

Over the last couple of weeks I’ve needed to look at the relationship between morals, ethics, values, principles and policies to help define several of these terms for use in ISO 21503, Guide to the governance of projects, programs and portfolios.  All of these terms are important aspects of governance but the interrelationships are far from clear.

The best construct seems to be something along these lines, but any thoughts or suggestions to the contrary will be appreciated.

Morals and ethics are the starting point, both deal with distinguishing between ‘right and wrong’ behaviours, but morals are internal to a person, ethics are rules developed by others:

  • Morals are the internal code of behaviour that define what is considered right or acceptable by the person, usually derived from a religious or philosophical base. The choice of which morality to follow is made by the individual, and therefore ‘morals’ tend to refer to that person’s ideals regarding right and wrong; within the framework of the society they live in – there can be different moralities.
  • Ethics involves systematising and recommending concepts of right and wrong conduct, and refers to the series of rules provided to an individual by an external source, typically in a ‘professional code of ethics’; eg, the PMI Code of Ethics and Professional Conduct.

Values are an expression of a person’s fundamental beliefs, founded on their ethical and moral framework. Values are used to define and differentiate right from wrong, good from bad, and just from unjust based on what is important to the individual – things the person ‘values’. Where are group of people operate within an organisational culture, the ‘values of the organisation’ are derived from the values of the members of the organisation. An organisation’s values are the standards used to provide guidance to the members of the organisation as they determine what is the best decision or course of action to take.

Principles are similar to ethics; they codify a fundamental truth or proposition to define an aspect of an organisation’s overall values in an objective way. They are positive statements of what will be done or achieved. An organisation’s enunciated principles serve as the foundation for its policies, behaviours and reasoning.

The final link in the chain is the organisation’s policies. These are a set of rules used by an organization to define how its members will implement aspects of its principles or objectives. Policies provide the guidance and constraints needed by management to operate he organisation effectively.

Ideally, in a well governed organisation, the connections between morals and ethics, values, principles and policies are direct and free of contradictions and ambiguities; with each policy clearly supporting the underlying ethical and moral foundations of the organisation’s culture. In reality there are frequently conflicting pressures and imperatives within the policies that make choosing the best option difficult – in these circumstances the decision maker’s personal morals and ethics come to the fore.  For more on ethics see: http://www.mosaicprojects.com.au/WhitePapers/WP1001_Ethics.pdf

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The normalisation of deviant behaviours

Posted on June 27, 2014 by | 10 comments

The ‘surprise’ recorded in our local paper over the release of a Senate enquiry into the wealth management practices of the CBA (Commonwealth Bank of Australia) is itself rather surprising.  The systems developed by the CBA were effectively (even if unintentionally) designed to generate sub-optimal outcomes for people seeking advice from the CBA financial planning system. And whilst the CBA affair has a way to go, the three clear lessons for all governing bodies and managers should already be obvious; you get the behaviours you encourage (KPIs matter), the normalisation of deviance is a constant threat and focusing on shareholder value over stakeholder value will paradoxically always destroy shareholder value!  For non-Australian readers the executive summary of the Senate report makes chilling reading.

A few weeks back I published an article entitled ‘What you measure is what you get’  the core message in this article was that people will understand precisely what matters to their managers by observing the behaviours those managers incentivise and will adapt their behaviour to succeed in the ways defined by the incentive / KPI system.  The Senate report suggests the incentives paid to CBA financial planners actively encouraged them to sell high risk products. Additionally, the KPIs and bonuses paid to several layers of managers overseeing the planners were directly tied to the profits made by the planners under their control.  In short, the incentive system was designed to encourage the behaviours that occurred, placing the maximisation of bank profits ahead of good outcomes for their clients.  Whilst I’m sure there were countervailing policies within the CBA that talked about customer satisfaction, the strength of the message from the incentive / bonus / KPI system would be much stronger – actions really do speak louder than words.

The transgression from bad policy to bad behaviour, possibly criminal behaviour, is a classic example of the ‘Normalization of Deviance’. The Normalization of Deviance’ is a social process that can affect any close knit group.  American sociologist Diane Vaughan describes the social normalization of deviance as meaning that the people within the organisation, or group, become so accustomed to a deviant behaviour that they don’t consider it as deviant, despite the fact that the behaviours far exceed their own ethical standards or ‘rules’.  I touch on this subject in Chapter 1 of my new book ‘Making Projects Work’ that will be published next year. A recent article by Jeffery Pinto also highlights the critical linkages between governance, project management and the risk of the ‘Normalization of Deviance’ (see: ‘Project Management, governance and the normalization of deviance’). More on this important topic later.

The third lesson is possibly the most important.  The CBA financial planning system was designed to put shareholder value (bank profits) ahead of stakeholder value.  The stupidity of this short term view of the world has been demonstrated time after time with damaging headlines and the trashing of value caused by short term profit focus. A couple of examples include the damage caused to BP by the Deepwater Horizon disaster and the disastrous loss of reputation suffered by, and $1.2 billion fine paid by, Toyota caused by the Lexus ‘sticky accelerator’ tragedy.  I suspect the CBA will be added to this list soon.

As the ‘father of stakeholder theory’ Ed Freeman has been saying for more than 20 years, the creation of stakeholder value is the best way to create shareholder value. As I discovered a couple of weeks ago, his message is as compelling today as it ever was.

The reason I find this whole saga of interest is a direct personal experience. Quite a few years ago I took over the management of my mother’s finances. At the time her savings were invested in a product from a major commercial financial services organisation.  The structure of the package was very well crafted but we noticed over a couple of years how little savings had grown compared to my own. We transferred my mother’s funds into a different structure where we pay fees monthly up-front. The difference in the rate of growth of the funds was dramatic.  Whilst we see all of the fees being paid each month to our financial advisers (and they are much higher then the fees we could ‘see’ in the commercial package), the hidden fees must have been enormous and definitely included trailing commissions paid to the adviser that set up the scheme for my mother in the first place. There was no malpractice involved in my mother’s case but the net results were probably sub-optimal and certainly influenced by commissions paid to the adviser.

Which brings me to final thought focussed on how the Australian Government will deal with the recommendations arising from the Senate report over the coming months. Are they going to continue to look after their ‘shareholders’, the major banks and other contributors to the Liberal Party coffers or are they going to look after their stakeholder community?  The big difference between politics and business is it’s the shareholders who ultimately decide on the management of the business, it’s the stakeholders who decide on the next government.  It will be interesting to see if stakeholder management has made its way onto the government’s agenda.

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Tired workers lose their ethics

Posted on January 24, 2014 by | 2 comments

Having recently suffered a week of extreme temperatures and sleepless nights in Melbourne, with more to come, everyone is aware of some of the effects of sleep deprivation including short tempers, the loss of concentration and the reduction in some fine motor skills. In short, tired people are more grumpy, absent minded and clumsy than normal and new research suggests that they are more likely to cheat!

The underlying cause is the same; the lack of sleep reduces the amount of glucose in the prefrontal cortex and only adequate amounts of sleep can restore it. Physiologically, self-control occurs largely in the pre-frontal cortex region of the human brain, and uses glucose as a fuel. The act of implementing self-control draws upon this fuel, and can eventually exhaust the fuel causing one’s ability to exert self-control to reduce. And when self-control is depleted, people are more likely to cave in to temptations to behave badly or unethically. Start with the fuel in short supply due to lack of sleep and self-control dissipates sooner.

This has important business and team management implications. Ethics are central to the ‘good governance’  of an organisation and an important management concern; ethical behaviour will boost the reputation and performance of the organisation, whereas unethical behaviours can damage it significantly. And lack of sleep affects everyone, not just ‘bad’ people. Whilst it is common view that good people do good things and bad people do bad things, the behavioural ethics literature indicates that this is simply not the case; everyone has the capacity for both ethical and unethical behaviour and the balance is affected by how tired they are.

In both laboratory and field contexts, Christopher M. Barnes and his team found that a lack of sleep led to higher levels of unethical behaviour. Moreover, they found that it was small amounts of lost sleep that produced noticeable effects on unethical behaviour. In one of their laboratory studies there was a difference of only about 22 minutes of sleep between those who cheated and those who did not. In their field studies, they found naturally occurring variation in sleep (with most nights ranging from 6.5-8.5 hours of sleep) was sufficient to predict unethical behaviour at work the next day.

Executives and managers should keep this in mind – the more they push employees to work late, come to the office early, and use their smartphones to answer emails and calls at all hours, the more they invite unethical behaviour to creep in. Ethics is defined as ‘doing the right thing even when no-one is looking!’ Particularly the small things needed to ensure a job is done properly and necessary procedures followed, and it only needs one check or test to be omitted or short-cut at the wrong time to open the potential for a crisis.

Smartphones are as bad as a heatwave!! They are almost perfectly designed to disrupt sleep by keeping us mentally engaged with work late into the evening. The problems caused by using these phones late at night include:

  • they make it harder to psychologically detach from the most pressing cares of the day so that we can relax and fall asleep;
  • they encourage poor sleep hygiene, a set of behaviours that make it harder to both fall asleep and stay asleep; and
  • perhaps the most difficult aspect to avoid is that they expose us to light, including blue light. Even small amounts of blue light inhibit the sleep-promoting chemical melatonin, and the displays of smartphones are capable of producing this effect.

One solution suggested by Harvard Professor Leslie Perlow, is improved ‘sleep hygiene’. Sleep hygiene refers to the pattern of behaviours associated with sleep. There are patterns of behaviour that are conducive to sleep, and other patterns that make it much more difficult. With some relatively simple steps, you can improve your own sleep hygiene, making it easier to fall asleep and stay asleep:

  1. Create agreed predictable time off. The best way to start is for management and the team to agree that evenings and normal sleeping hours are the most important times for people to be predictably off. This will allow employees to psychologically disengage from work and minimize exposure to the blue light produced by electronic display screens.
  2. Consistent bedtimes. Your body has a circadian system that functions as a 24-hour clock, regulating processes such as body temperature and heart rate. An important part of that circadian system is the production of melatonin. Melatonin is a chemical that your body uses internally to promote the process of falling asleep. But changing your bedtimes is disruptive to this process. You should enable your circadian system to work smoothly by going to bed at the same time every night (preferably an early enough bedtime to get a sufficient amount of sleep).
  3. No television, laptops, tablets, or smartphones in bed. You may think that watching television in bed is a good way to relax. But physiologically, the light exposure associated with these activities inhibits melatonin production. This is true for any light, but especially blue wavelength light that is common in these devices, and especially when the source of light is so close to you. It’s good policy to stop using any of these devices a few hours before bedtime. But at the very least, do not use them in bed.
  4. No activity in bed other than sleep and sex. Think of Pavlov’s dogs. By pairing one stimulus with another, he created an association between meat powder and a bell that was so strong that the dogs began to salivate when they heard a bell even if meat powder was not present. You want to take a similar approach to your bed and sleep. Strengthen that association as much as you can by pairing your bed with sleep, but not with other activities.
  5. No stimulants within a few hours of bedtime. Physiological arousal and sympathetic nervous system activation oppose the process of falling asleep. Any substance that has stimulant properties should be avoided before bedtime. Nicotine and caffeine are two common such substances. Everyone knows that caffeine makes it difficult to fall asleep. But not everyone knows that caffeine has a metabolic half-life of several hours (typically at least five hours, and sometimes more). So if you plan to go to bed at 10:30, coffee with or after dinner is generally a bad idea. Nicotine persists in the body for a shorter period of time than caffeine, but still has a half-life of a few hours.
  6. Exercise, but not within a few hours of bedtime. Exercise has many beneficial effects on human health. Regular exercise can be helpful in regulating sleep. However, research indicates that it depends on the amount of time between exercise and sleep. One study in particular shows that because exercise is physiologically arousing, it makes you less likely to fall asleep in the very near term, but more likely to fall asleep later. So develop a pattern of exercising, but not late at night.

By following these steps, you can improve your sleep hygiene which will make it easier to fall asleep and stay asleep, Good sleep hygiene is not a fix-all panacea, but the research data indicates that is will certainly help.

And because leaders help to set norms by modelling behaviours, my recommendation is to prioritise sleep in your own life, while encouraging your team to do the same. Do what you can to support employees’ sleep health rather than disrupt it. The better rested we all are, the more effective we will be at work supported by more ethical and considerate behaviours.

These ideas can help with office induced disruptions to sleep. Now all we need is a way to avoid the next heatwave.

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Project Management Ethics

Posted on July 3, 2011 by | 1 comment

The ethical standards required of project managers are increasingly being backed by the force of law. For a number of years the US Foreign Corrupt Practices Act (FCPA) has imposed legal obligations on organisations working, or with a presence in the USA and Australia has had similar provisions in its Criminal Code since 1999 based on the 1997 OECD Convention on Combating Bribery. Now the UK Bribery Act 2010, which came into force on 1 July 2011also places obligations on organisations world-wide. The UK law is intended to be the toughest legislation in the world!

The Act has wide application. It applies to those conducting business in the UK, including international companies. It also applies to those conducting business elsewhere in the world where they have a close connection with the UK, which includes bodies incorporated in the UK, Scottish partnerships, British citizens, British nationals and UK residents. Employees, agents and associated persons of a commercial organisation affected by the UK Act are themselves covered by the UK law and the organisation itself has strict liability if a person associated with it offers, promises or gives a bribe to another or offers, promises or gives a bribe to a foreign public official (with the intention to obtain or retain business or an advantage in the conduct of business for that organisation).

There are three main offences under the UK Act:

  • offering, promising or giving a bribe – i.e. a financial or other advantage;
  • requesting, agreeing to receive or accepting a bribe; and
  • bribing a foreign public official.

These offences can be committed by organisations, as well as individuals. An individual found guilty of any of these offences faces a maximum sentence of 10 years’ imprisonment and/or an unlimited fine; a convicted organisation will be liable to an unlimited fine. If any of these offences is committed by an organisation with the consent or connivance (i.e. knowledge and positive or tacit agreement) of a senior officer (or a person purporting to act as such) who has a close connection with the UK, the senior officer can also be prosecuted for the offence and faces a maximum sentence of 10 years imprisonment and/or an unlimited fine.

Corporations can reduce exposure to their liability by incorporating six core principles into their governance procedures:

  • Proportionate procedures: maintaining bribery prevention policies that are proportionate to the nature, scale and complexity of the organisation’s activities, as well as to the risks that it faces.
  • Top level commitment: ensuring that senior management establishes a culture across the organisation in which bribery is unacceptable, which may include top-level communication of the organisation’s anti-bribery stance and being involved in the development of bribery prevention policies.
  • Risk assessment: conducting periodic, informed and documented assessments of the internal and external risks of bribery in the relevant business sector and market.
  • Due diligence: applying due diligence procedures that are proportionate to the risks faced by the organisation; since an organisation’s employees are “associated” persons, appropriate due diligence may become part of recruitment and HR procedures.
  • Communication and training: ensuring that bribery prevention policies are understood and embedded throughout the organisation through education and awareness.
  • Monitoring and review: putting in place auditing and financial controls that are sensitive to bribery, including consideration of obtaining external verification of the effectiveness of an organisation’s anti-bribery procedures.

Defining the line between legitimate corporate hospitality which is allowed under the Act (provided it is proportionate and reasonable) and bribery will require the development of policies for both the provision of the hospitality and the receiving of gifts. For more on Governance see: http://www.mosaicprojects.com.au/Resources_Papers.html#Governance

With this law now in force, maintaining appropriately high ethical standards is becoming increasingly important. To download a copy of the PMI Code of ethics and professional conduct see: http://www.mosaicprojects.com.au/PDF/PMICodeofEthics.pdf

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