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Category Archives: Ethics

Ethics and Governance in Action

Posted on March 3, 2024 by | Leave a comment


The best governed organizations will have ethical failures, even criminal activities, occurring from time to time. When an organization employs 1000s of people there will always be some who make mistakes or choose to do the wrong thing.  The difference between a well governed organization with a strong ethical framework and the others is how they deal with the issues.

The Bad

Over the last few months there has been a lot of commentary on major ethical failures by some of the ‘big 4’ accountancy firms (see: The major news story everyone missed: KPMG hit with record fine for their role in the Carillion Collapse). With a common theme being attempts by the partners running these organizations to minimize their responsibility and deflect blame. As a consequence, there have been record fines imposed on KPMG and massive long-term reputational damage caused to PWC by the Australian Tax Office scandal.

The Good

The contrast with the way the Jacobs Group (Australia) Pty Ltd (Jacobs Group) has managed an equally damaging occurrence could not be starker! Jacobs Group had pleaded guilty to three counts of conspiring to cause bribes to be offered to foreign public officials, contrary to provisions of the Criminal Code Act 1995 (Cth). But, the exemplary way this issue has been managed is an example for all.

Offering bribes to foreign public officials has been a criminal offence in Australia since 1995, and the Crimes Legislation Amendment (Combatting Foreign Bribery) Bill 2023 has just passed into law significantly increasing penalties.

Despite this, between 2000 and 2012, SKM was involved in two conspiracies in the Philippines and Vietnam. Both conspiracies involved employees of SKM’s overseas development assistance businesses (the SODA business unit) paying bribes to foreign public officials in order to facilitate the awarding of public infrastructure project contracts to SKM. SKM employees embarked on a complex scheme to conceal the bribes by making payments to third party companies, and receiving fake invoices for services which were not in fact rendered. The conduct was known to and approved by senior persons at SKM, although concealed from the company more widely.

Jacobs Group acquired SKM in 2013, after the conduct had ceased. During the vendor due diligence processes, the conduct came to the attention of persons outside those involved in the offending, and the company’s external lawyers.

Despite the lawyers findings being subject to legal privilege, and the very remote possibility of the Australian Authorities discovering the crime, the non-conflicted directors unanimously voted to self-report the findings to the Australian Federal Police (AFP), to waive legal privilege in the draft report, and to make it available to the AFP. The company also reported the findings of its investigation to a number of other authorities, including the World Bank, Asian Development Bank, AusAid, and ASIC.

The company and a number of individuals were charged in 2018, and Jacobs pleaded guilty to three counts of conspiring to cause bribes to be offered to foreign public officials. The matter only came to our attention because of a recent High Court ruling dealing with technical issues around the calculation of the fine to be paid by Jacobs.

When Justice Adamson in the New South Wales Supreme Court sentenced the company on 9 June 2021. She found that while each of the offences committed fell within the mid-range of objective seriousness for an offence, this was mitigated by the fact that the company had self-reported the offending to authorities, and that the self-reporting was motivated by remorse and contrition rather than fear of discovery. The sentencing judge also found that the conduct was not widespread, and effectively limited to the SODA business unit. She accepted evidence from the AFP that it was unlikely to have become aware of the conduct absent the company’s self-reporting, and that the company’s post offence conduct was “best practice” and “of the highest quality”.

Based on these findings the amount of the fine to be paid by Jacobs is likely to be in the region of $3 million – a massive discount from the potential maximum that, based on the High Court decision, is likely to exceed $32 million.

Lessons on Governance and Ethics

The approach taken by Jacobs Group, following the identification of potential criminal conduct, is a useful guide as to how an ethical organization works:

  1. The prompt retention of independent external lawyers to investigate suspected instances of criminal misconduct.
  2. The decisions of the board of directors to self-report the conduct to authorities and provide ongoing assistance and cooperation to law enforcement and prosecutorial authorities, notwithstanding the risk of criminal sanction.
  3. Committing to remediation steps to address the conduct (and seeking to prevent any repeat of it), including by overhauling relevant policies and procedures and making appropriate operational changes including:
  • suspending and then terminating relevant individual employees who had participated in the conduct;
  • operational changes to management and oversight of the SODA business unit that had been involved in the conduct, and changing approval processes for all payments by that unit;
  • introducing a new Code of Conduct which explicitly prohibited the offering of inducements to public officials;
  • introducing a requirement for the completion of a bribery and corruption risk assessment before committing to new projects;
  • upgrading various internal policies, including the company’s whistleblower, donations and gifts and entertainment policies. It also introduced new policies which discouraged the use of agents, and required the screening of all new suppliers and sub-consultants for bribery and corruption risk. The company also engaged an independent monitor to review the changes made to its policies;
  • updating and expanding existing bribery and corruption training programs for staff; and
  • modifying internal audit practices to more closely scrutinize non-financial risks, such as bribery and corruption.

One definition of ethical behaviour is doing the right thing when no one is looking. The contrast between Jacobs and KPMG’s outcomes is a lesson worth remembering.

For more on governance and organizational ethics see: https://mosaicprojects.com.au/PMKI-ORG-010.php#Overview

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One Defence Data – Another ‘Big Consultant’ issue?

Posted on February 8, 2024 by | Leave a comment

Hidden in the pre-Christmas holiday fun, the ABC[1] published an ‘investigations exclusive’ by Linton Besser and defence correspondent Andrew Greene[2] that needs more attention.

It appears project ICT2284 (One Defence Data), a $515 million project to unify and exploit the data resources held by the Department of Defence is in trouble due to Hastie (pun intended) decisions made before the last election. Within this overall project, a $100 million One Defence Data “systems integrator” contract was awarded to KPMG Australia Technologies Solutions on the eve of the last federal election, and the then assistant minister for defence, Andrew Hastie, announced KPMG’s contract, promising it would “deliver secure and resilient information systems”.

This award was made after KPMG had been paid $93 million Between 2016 and 2022, for consulting work on a range of strategic advice, which included the development of ICT2284 and its failed forerunner, known as Enterprise Information Management, or EIM.

Unsurprisingly, the review by Anchoram Consulting highlighted both governance and procedural issues including:

  • The project has been plagued by a “lack of accountability” and conflicts of interest.
  • The documents suggest there is profound confusion inside Defence about who is in charge and what is actually being delivered.
  • Core governance documents have not been signed off and key requirements of KPMG’s contract have been diluted from “mandatory” to “desirable”, sometimes in consultation with KPMG itself.
  • The project had been “retrospectively” designed to justify a $100 million contract that was issued to KPMG Australia Technologies Solutions, or KTech, exposing the department to “significant risk”.

The heart of ICT2284’s problem appears to be the project’s fundamental design work had “not been done due to … the rush to meet deadlines tied to the Cabinet submission and related procurement activities”, with “no understood and agreed, desired end-state”.

Predictably both the area of Defence running the project, known as CIOG, or the Chief Information Officer Group, and KPMG reject the report findings.

The full ABC report is at: https://amp.abc.net.au/article/103247476

From a governance perspective the biggest on-going issue appears to be the lack of capability within CIOG and government generally to manage this type of complex project. The downsizing and deskilling of the public service has been on-going for decades (under both parties). This means the outsourcing of policy development to the big consultancies is inevitable, and their advice will be unavoidably biased towards benefitting them.

The actions by the current government to reverse this trend are admirable but will take years to be effective. In the meantime, we watch.

For more on governance failures see: https://mosaicprojects.com.au/PMKI-ORG-005.php#Process4

For good governance practice see: https://mosaicprojects.com.au/PMKI-ORG-005.php#Process3

[1] Australian Broadcasting Corporation

[2] Posted Tue 19 Dec 2023 at 6:41pm:

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Risk mitigation requires courage – How Cockcroft’s Folly saved 100s of lives!

Posted on July 28, 2023 by | Leave a comment

One of the speakers at PGCS 2023 is Alex Walsh, his presentation Managing wicked program delivery looks at the UK nuclear program to decommission the Sellafield complex, one of the most complex high hazard nuclear facilities in the world that was operating from the 1940s through to 2022. For more on this presentation and the PGCS program see: https://www.pgcsymposium.org.au/.

As part of my work on preparing the PGCS program, I had a virtual look at this project and came across this fascinating risk mitigation story where the courage of two managers probably saved hundreds of lives in the North of England.

The site

Sellafield, formerly known as Windscale, is a large multi-function nuclear site close to Seascale on the coast of Cumbria, in NW England. As of August 2022, primary activities are nuclear waste processing and storage and nuclear decommissioning. Former activities included plutonium production for nuclear weapons, nuclear power generation from 1956 to 2003, and nuclear fuel reprocessing from 1952 to 2022.

After the war ended, the Special Relationship between Britain and the United States “became very much less special”. The British government saw this as a resurgence of United States isolationism which raised the possibility that Britain might have to fight an aggressor alone. It also feared that Britain might lose its great power status, and therefore its influence in world affairs, so in July 1946, the Chiefs of Staff Committee recommended that Britain acquire nuclear weapons.

Two reactors (called ‘piles’ at the time) were constructed to enrich uranium to create plutonium and other isotopes. The designers of these reactors desired a passively safe cooling system. In place of water, they used air cooling driven by convection through a 400-foot (120 m) tall chimney, which could create enough airflow to cool the reactor under normal operating conditions. The chimney was arranged so it pulled air through the channels in the reactor core, and huge fans were positioned in front of the core, to greatly increase the airflow rate.

The risk

During construction, physicist Terence Price considered the possibility of a fuel cartridge splitting open, causing the hot uranium to catch fire, resulting in fine uranium oxide dust being blown up the chimney and escaping into the environment.

Raising the issue at a meeting, he suggested filters be added to the chimneys, but his concerns were dismissed as too difficult and too expensive to deal with. However, Sir John Cockcroft, leading the project team, was sufficiently alarmed to order the filters.

They could not be installed at the base as construction of the chimneys had already begun, and were constructed on the ground then winched into position at the top once the chimneys were complete. They became known as Cockcroft’s Folly as many regarded the delay they caused and their great expense to be a needless waste.

This all changed after the Windscale fire of 10th October 1957. This fire was the worst nuclear accident in the United Kingdom’s history, and one of the worst in the world. The fire was in Unit 1 of the two-pile Windscale site and burned for three days releasing radioactive fallout which spread across the UK and the rest of Europe[1].

But, the filters trapped about 95% of the radioactive dust and arguably saved much of northern England from becoming a nuclear wasteland. With typical British understatement, Terence Price said “the word folly did not seem appropriate after the accident“.

The UK government under Harold Macmillan ordered original reports into the fire to be heavily censored and information about the incident to be kept largely secret. It later came to light that small but significant amounts of the highly dangerous radioactive isotope polonium-210 were released during the fire. But the presence of the chimney scrubbers at Windscale was credited with minimising the radioactive content of the smoke.

Both the ‘piles’ were shut down after the fire, but a large quantity of radioactive materials are still inside the sealed #1 pile; this is one of the challenges for the decommissioning program Alex will be speaking about at PGCS in a couple of weeks’ time.

More relevant to this post though is the moral courage exhibited by Sir John Cockcroft in doing the right thing rather than the easy thing to guard against an accident that ‘could not happen’, but did! Thinking through this dilemma puts a whole new perspective on risk assessment and mitigation – in the right circumstances ‘black swans’ can kill.

For more on risk management see: https://mosaicprojects.com.au/PMKI-PBK-045.php

[1] For more on the fire see: https://en.wikipedia.org/wiki/Windscale_fire

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Built to last

Posted on July 22, 2023 by | 1 comment

This is a cross section of a Roman Road some 1900 years after it was built. The Fosse Way linked Isca Dumnoniorum (Exeter) in the southwest of England and Lindum Colonia (Lincoln) to the northeast, via Lindinis (Ilchester), Aquae Sulis (Bath), Corinium (Cirencester), and Ratae Corieltauvorum (Leicester). Built in the first and second centuries, this cross section excavated in the early 1900s demonstrates the standard road building techniques of the time. The surface ruts show the road was heavily trafficked for an extended period*, and the road was clearly built to last. 

Compared to many modern road construction techniques that seem to need continuous maintenance was the high level of initial investment repaid by well over a millennium of use? The concepts of good substrata, good drainage and a long-lasting wearing course are the same today as in Roman times, so why are we building roads designed to fail? Are the cost horizons too short??

A similar concept is Roman cement. The Roman recipe, a mix of volcanic ash, lime (calcium oxide), seawater and lumps of volcanic rock, held together piers, breakwaters and harbours (as well as structures such as the Pantheon) for centuries. In contrast to modern materials, these ancient structures became stronger over time. 

The chemical processes involved in the cement are known[1], and what we consider corrosion processes can produce extremely beneficial mineral cement and lead to continued resilience over time. The study of Roman cement offers clues for a concrete recipe that does not rely on the high temperatures and carbon dioxide production of modern cement, while providing a blueprint for a durable construction material, particularly for use in marine environments.

Everyone is talking about ESG and we are seeing ‘green buildings’ with bits of timber bolted onto the exterior to get a ‘green star’ – with a life span of 50 years if you are lucky…… 

The 30-year old timber facade at Melbourne Central.

Is it time to start thinking about long term durability and building for 500 to 1000 years with a view to repurposing rather than recycling?

For more on Green Building see: https://mosaicprojects.com.au/PMKI-TPI-005.php#GB

* Note: Despite this photograph proving Roman roads developed cartwheel ruts, there is no support for the common myth that these ruts are linked to the creation of standard guage railways (correlation is not causation!), see: https://mosaicprojects.com.au/Mag_Articles/AA016_The_Origins_of_Standard_Gauge_Railways.pdf

[1] See: Jackson, Marie D., Mulcahy, Sean R., Chen, Heng, Li, Yao, Li, Qinfei, Cappelletti, Piergiulio and Wenk, Hans-Rudolf. “Phillipsite and Al-tobermorite mineral cements produced through low-temperature water-rock reactions in Roman marine concrete” American Mineralogist, vol. 102, no. 7, 2017, pp. 1435-1450. https://doi.org/10.2138/am-2017-5993CCBY

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The 19th century Spanish Prisoner Swindle!

Posted on July 7, 2023 by | Leave a comment

Every improvement in technology leads to a new way of parting people from their money, and it appears gullible victims can still be found after at least 150 years of swindling.

One of the first technological advances that allowed direct communication to individuals occurred in the 19th century.  In the 1840s Britain introduced a pre-paid national postal service and the ‘Penny Black’ postage stamp, you could post a letter to anyone and expect it to be delivered. Shortly thereafter, this new service was being used to scam unsuspecting victims, and as similar postal services were established in other countries, the scam spread.

The ‘Spanish Prisoner’, as the name suggest, was operated by criminals based in Spain. Using trade directories to obtain names and addresses of people, they sent out hundreds of letters across Britain spinning a tale of a person held in a Spanish prison. In other parts of the world, similarly close, but difficult to access places became the location of the ‘prison’. 

Generally, the story was that a former military officer was being held prisoner in a Spanish prison. He wrote that his father or grandfather was English, but he had entered the military of service of Spain and had been wrongly accused of stealing money. He was now seriously ill and was in fear of death.

He would announce that he had a daughter who needed looking after and in his Will had appointed the recipient of the letter to be his daughter’s guardian. Furthermore, he had a large sum of money hidden away which needed to be recovered from a secret location. Once the victim responded sympathetically to what they thought was a sincere and truthful story, money would be requested to pay for the daughter’s travel expenses, etc. All totally fictitious of course.

As with modern scams, there is no doubt that victims were found. There are numerous newspaper articles starting around 1876 which refer to the fraud and how victims had been taken in, and the occasional article detailing a successful police response.  

It appears some things never change:

–  Developers of new technologies rarely think about potential abuses

–  Criminals are always early adopters

–  People get caught out.

This post is outside of our normal range focused on the history of projects and allied disciplines but this subject does raise questions around the ethical responsibility of people developing new processes and technologies. For more on the evolution of ethics see: https://mosaicprojects.com.au/PMKI-ZSY-015.php 

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New Articles posted to the Web #91

Posted on June 23, 2023 by | Leave a comment

We have been busy beavers updating the PM Knowledge Index on our website with Papers and Articles.   Some of the more interesting uploaded during the last couple of weeks include:

You are welcome to download and use this information under our free Creative Commons licence.

Visit our PMKI Library for free access to many more papers and articles: https://mosaicprojects.com.au/PMKI.php

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Phronesis – A key attribute for project managers

Posted on May 21, 2017 by | 3 comments

Phronesis (Ancient Greek: φρόνησις, phronēsis) is a type of wisdom described by Aristotle in his classic book Nicomachean Ethics. Phronesis or practical wisdom[1] is focused on working out the right way to do the right thing in a particular circumstance. Aristotle understood ethics as being less about establishing moral rules and following them and more about performing a social practice well; being a good friend, a good manager or a good statesman. This requires the ability to discern how or why to act virtuously and the encouragement of practical virtue and excellence of character in others.  But in a post-truth world, the ability to use ‘practical wisdom’ to discern what is real and what is ‘spin’ in rapidly becoming a key social and business skill. So prevalent is this trend, the Oxford English Dictionary named ‘post-truth’ its 2016 word of the year.

This problem pre-dates Donald Trump and ‘Brexit’, but seems to be getting worse. How can a project manager work out the right way to do the right thing in the particular circumstance of her project when much of the information being received is likely to be ‘spun’ for a particular effect.  There may be a solution in the writings of Bent Flyvbjerg.

Professor Bent Flyvbjerg, Chair of Major Programme Management at the Saïd Business School, Oxford University, has a strong interest in both megaproject management and phronesis. A consistent theme in his work has been the lack of truthfulness associated with the promotion of mega projects of all types, worldwide and the consequences of this deception. To help with the challenge of cutting through ‘spin’, and based on his research, he has published the following eight propositions:

1. Truth is context dependent.
2. The context of truth is power.
3. Power blurs the dividing line between truth and lies.
4. Lies and spin presented as truth is a principal strategy of those in power.
5. The greater the power, the less the truth.
6. Power has deeper historical roots than truth, which weakens truth.
7. Today, no power can avoid the issue of ‘speaking the truth’, unless it imposes silence and servitude. Herein lies the power of truth.
8. Truth will not be silenced.

There is, of course, a book, Rationality and Power: Democracy in Practice[2] that goes into more detail but just thinking through the propositions can help you apply the practical ethics that underpin phronesis.  Being virtuous is never easy, but regardless of the power brought to bear, sooner or later the truth will be heard.

The problem is which ‘truth’, understanding and perception will influence what people see, hear and believe to be the truth. Nietzsche, a German counter-Enlightenment thinker of the late 19th century, suggests that objective truth does not really exist; that objective absolute truth is an impossibility. The challenge we all face is the practical one of understanding enough about ourselves and others (we are all biased[3]) to achieve a reasonable level of understanding and then do our best to make the right decisions (see more on decision making), and to do the right thing in the right way.

___________________

[1] From Practical Wisdom, the right way to do the right things by Barry Schwartz and Kenneth Sharp.  Riverhead Books, New York 2010.

[2] See: https://www.amazon.com/Rationality-Power-Democracy-Practice-Morality/dp/0226254518/

[3] See,  The innate effect of Bias:  http://www.mosaicprojects.com.au/WhitePapers/WP1069_Bias.pdf

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The Profession of Project Management?

Posted on October 21, 2016 by | 8 comments

Project management has taken another significant step towards becoming a profession.  After several years of debate and decisions in the UK High Court (see: Project Management is a Profession), the Privy Council considered the application by the Association of Project Management (APM) at its meeting on 12 October 2016 and has now issued an Order of Grant, which has triggered a process which will see the association awarded a Charter.

This process combines a modern assessment of the ‘worth’ of an organisation and the members it represents, their value to society, with the traditions of the UK Crown going back centuries. In keeping with history, the Charter will be printed on vellum and have the Royal seal attached.  In keeping with the modern age the APM will then need to reconfigure its structure, and how it qualifies project managers.

Once the Charter has been sealed APM will implement the procedural, legal and accounting transition to re-constitute itself as a Chartered body during 2017 including transferring the assets and liabilities of the existing charity to a new Chartered Body Corporate. The new body will then conduct a public consultation on the criteria for admission to its planned register of Chartered project professionals, placing project managers on the same professional level as other professions in the UK.

Achieving Chartered status on behalf of the project management profession is expected to:

  • raise standards through a robustly assessed register of project professionals who are committed to professional development and a code of conduct;
  • enhance the status and recognition of project management as a means of delivering effective change that improves our economy and society;
  • facilitate continued collaboration and research with other professions to develop the practice and theory of delivering successful change across sectors and industries.

Whilst this process is very UK centric, and based on the traditions of the Royal Courts, it has much wider implications. When the transition is complete in 2017, project managers, or at least the newly designated Chartered Project Managers will be on the same professional standing as Architects, Engineers and Surveyors.

Whilst there will still be on-going debate of the nature of ‘professionalism’ in the 21st century in at least one major jurisdiction the concept of placing project management in the same frame as other ‘modern professions’ is close to becoming an accepted fact.  The challenge will be to drive the change in behaviours needed to allow project managers to live up to the code of behaviour and ethical standards expected of a professional – as many of my other posts on ethics show, this will not be easy.

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Stakeholders and Reputational Risk

Posted on April 25, 2016 by | 1 comment

Your reputation and your organisation’s reputation are valuable assets. The willingness of others to trust you, their desire to work with you and virtually every other aspect of the relationship between you and your stakeholders is influenced by their perception of your reputation (see more on The value of trust).  But reputations are fragile: they can take a lifetime to build and seconds to lose. Some of the factors influencing them are:

  1. Reputation cannot be controlled: it exists in the minds of others so it can only be influenced, not managed directly.
  2. Reputation is earned: trust is based on consistent behaviour and performance.
  3. Reputation is not consistent: it depends on each stakeholder’s view. One organisation can have many different reputations, varying with each stakeholder.
  4. Reputation will vary: each stakeholder brings a different expectation of behaviour or performance and so will have a distinct perception of reputation.
  5. Reputation is relational: you have a reputation with someone for something. The key question is therefore: ‘with whom, for what?’
  6. Reputation is comparative: it is valued in comparison to what a particular stakeholder experiences or believes in relation to peers, performance and prejudice.
  7. Reputation is valuable: but the true value of reputation can only be appreciated once it is lost or damaged.

Estimating the ‘true value’ of your reputation is difficult and as a consequence decisions on how much to invest in enhancing and protecting your reputation becomes a value judgment rather than a calculation. Your reputation is created and threatened by both your actions and their consequences (intended or not).  Some actions and their effects on your reputation are predictable, others are less so and their consequences, good or bad are even less certain. This is true regardless of your intention; unexpected outcomes can easily cause unintended benefit or damage to your reputation.

Building a reputation requires hard work and consistency; the challenge is protecting your hard earned reputation against risks that can cause damage; and you never know for sure what will cause reputational damage until it is too late – many reputational risks are emergent.

Managing Reputational Risk in Organisations

Because an organisation’s reputation is not easy to value or protect, managing reputational risk is difficult! This is particularly true for larger organisations where thousands of different interactions between staff and stakeholders are occurring daily.

The first step in managing an organisation’s reputational risk is to understand the scope of possible damage, as well as potential sources and the degree of possible disruption. The consequence of a loss of reputation is always the withdrawing of stakeholder support:

  • In the private sector this is usually investor flight and share value decline; these can spiral out of control if confidence cannot be restored.
  • In the public sector this is typically withdrawal of government support to reflect declining confidence.
  • In the professional sector client confidence is vital for business sustainability; a loss of reputation means a loss of clients.

Each sector can point to scenarios where the impact of reputation damage can vary from mild to catastrophic; and whilst the consequences can be measured after the effect they are not always predictable in advance.  To overcome this problem, managing reputation risk for an organisation requires three steps:

  • Predict: All risk is future uncertainty, and an appropriate risk forecasting system to identify reputation risk is required – creative thinking is needed here! The outcomes from a reputational risk workshop will be specific to the organisation and the information must feed directly into the governance process if reputation risk is to be taken seriously (see more on The Functions of Governance).
  • Prepare: Reputation risk is a collective responsibility, not just the governing body’s. All management and operational staff must recognise the organisation’s reputation is important and take responsibility for protecting it in their interaction with stakeholders. The protection of reputation should also be a key element in the organisation’s disaster recovery plans.
  • Protect: A regular vulnerability review will reveal where reputation risk is greatest, and guide actions to prevent possible damage. Each vulnerability must be assessed objectively and actions taken to minimise exposure. Significant risks will need a ‘protection plan’ developed and then implemented and monitored.

Dealing with a Reputational Risk Event

When a risk event occurs, some standard elements needs to be part of the response for individuals and organisations alike. For reputation enhancing risk events, make sure you acknowledge the ‘good luck’ in an appropriately and take advantage of the opportunity in a suitably authentic way. Over-hyping an event will be seen as unauthentic and have a negative effect on reputation; but good news and good outcomes should be celebrated. Reputation threatening risk events need a more proactive approach

  • Step 1: Deal with the event itself. You will not protect your reputation by trying to hide the bad news or ignoring the issue.  Proactively work to solve the problem in a way that genuinely minimise harm for as many stakeholders as possible minimises the damage that has to be managed.
  • Step 2: Communicate. And keep communicating – organisations need to have a sufficiently senior person available quickly as the contact point and keep the ‘news’ coming. Rumours and creative reporting will always be worse then the fact and will grow to fill the void. All communication needs to be open, honest and as complete as possible at the time.  Where you ‘don’t know’ tell people what you are doing to find out. (see Integrity is the key to delivering bad news successfully).
  • Keep your promises and commitments. If this becomes impossible because of changing circumstances tell people as soon as you know, don’t wait for them to find out.
  • Follow up afterwards. Actions that show you really care after the event can go a long way towards repairing the damage to your reputation.

Summary

Reputation is ephemeral and a good reputation is difficult to create and maintain. Warren Buffet in his 2015 memo to his top management team in Berkshire Hathaway emphasised that their top priority must be to ‘zealously guard Berkshire’s reputation’. 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’ (discussed in Ethics, Culture, Rules and Governance). In the long run I would suggest this is true for every organisation and individual – your reputation is always in the minds of other people!

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Ethics and competition

Posted on March 26, 2016 by | 1 comment

The report of The Senate Education and Employment References Committee report: A National Disgrace: The Exploitation of Temporary Work Visa Holders; released on the 17th March highlights a major National problem.

The report consolidates and affirms issues raised in some of our earlier posts including:

In a nutshell, the report confirms that large numbers of unethical employers are routinely exploiting 1000s of temporary visa holders to inflate their profits.  The report is worrying reading and hopefully will result in proactive government action to stamp out the worst of the excesses.   It’s in the government’s interest, many of the exploited visa holders in work are preventing an unemployed Australian from obtaining work; this is equally true in the unskilled categories and in skilled categories where skilled, older workers are frequently discriminated against.

What is more worrying, and the focus of this post is the ‘Coalition Senators’ total failure to understand business and competition.  One of the major areas of malfeasance with some of the worst exploitation of temporary workers is the Labour Hire business.  The committee recommendation #32 is that:

9.309 The committee recommends that a licensing regime for labour hire contractors be established with a requirement that a business can only use a licensed labour hire contractor to procure labour. There should be a public register of all labour hire contractors. Labour hire contractors must meet and be able to demonstrate compliance with all workplace, employment, tax, and superannuation laws in order to gain a license. In addition, labour hire contractors that use other labour hire contractors, including those located overseas, should be obliged to ensure that those subcontractors also hold a license.

In an annex to the main report, Coalition Senators state that they do not agree with this recommendation on the basis ‘it would punish those labour hire firms which are already complying with relevant laws’; and that the actions of a ‘minority of labour hire firms which are doing the wrong thing, in most cases, is already illegal’.

No one likes additional ‘red tape’ so superficially the Coalition Senators position is understandable.  What the Coalition Senators ignore is the effect the illegal activity is already having on the honest firms they purport to support!  The owners and operators of the dishonest firms using illegal and exploitative practices do not expect to get caught, and if they are caught expect the profits they make from their activities to significantly outweigh the penalties. Unethical is not synonymous with ‘stupid’ – the people making the decision to act illegally expect to make large profits. However, as a consequence of their illegal actions:

  • Honest labour hire firms cannot compete on price with the dishonest firms exploiting temporary workers and suffer as a consequence. The honest operators either make far less profit or go out of business.
  • The users of ‘hired labour’ from labour hire firms are also in competition and need to minimise input costs. They are incentivised to accept the low-cost offerings from the dishonest firms exploiting temporary workers and not to look too closely at their practices to compete within their market.  The alternative is to pay more for the workers and be at a competitive disadvantage to organisations that ‘turn a blind eye’ to the problem.

A licensing scheme will increase the cost of compliance for all of the businesses in the labour hire market, but if implemented properly, it will have the effect of largely eliminating the unfair competition created by the unethical exploitation of temporary workers.  Which will be hugely beneficial to those ‘honest’ businesses that are acting ethically and already fulfil their legal and moral obligations; both within the labour hire industry and the wider community.

The Coalition Senators do ‘support the prosecution of these illegal operations’ (as does everyone) the problems with implementing a clean up strategy focused on prosecutions alone are:

  1. The damage is done before the prosecution can take place.
  2. No prosecution stops illegal behaviour in the future. In an unlicensed regime the same unethical people can set up other businesses and carry on indefinitely through a series of ‘phoenix companies’.
  3. As suggested above, no criminal expects to get caught – deterrence is highly overrated.

Licences may not be ideal, but they do offer a practical way to support ethical behaviour that ‘prosecutions’ cannot. Good governance at every level is getting the balance between rules and flexibility right – the balance needs to support ethical behaviour without constricting innovation and growth. No one except the criminals benefits from the situation exposed in the Senate report that allows virtually unfettered unethical behaviour.

The art of ‘practical ethics’ is to develop systems that disadvantage unethical behaviour and encourage people to do the right thing. The combination of a beefed up ability to prosecute offenders and a licensing system that will make it difficult for unethical operators to remain in the labour hire business is the best way to drive the culture change needed in this industry, and in the businesses that rely on labour hire firms for their staffing needs.

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