The question of executive responsibility
Updated: Jan 27, 2018
An edited version of this article was first published by The Ethics Centre on the 14th March 2017. Click here to view that version.
As we witnessed at the inquiry into the banking sector by the House of Representative Committee on Economics last week, executive accountability is a vexatious topic. The members of the committee made a point of highlighting the apparent lack of consequence for banking executives during a period when the industry has been involved in a number of ethical mishaps.
Putting aside the executive who knowingly engages in, condones or turns a blind eye to unethical or illegal conduct, one can understand why increased accountability would concern executives. After all, it is entirely possible that even in situations where the executive conducts themselves with unquestionable integrity, employees somewhere in a large organisation can go rogue and engage in unconscionable conduct.
Although there are some exceptions, history shows us that even in these types of scenarios executives play a role. Typically they miss the signs that, although subtle at the time, should have alerted them that something was amiss. Their failure to act sends a loud message to the organisation that the wrongdoing is permissible, helping shape the crucible that incubates ethical failure.
My experience in the NAB FX trading scandal was a classic illustration of this. In the independent investigations conducted by PWC and the Australian Prudential Regulatory Authority subsequent to the incident, there was no evidence suggesting that the executives were involved in the illegal conduct, or for that matter knew it was occurring. But there was ample evidence suggesting that they should have known.
Amongst other things, continuous limit breaches and warnings from regulators and other institutions should have acted as clear warning signs. For whatever reason these were either dismissed or ignored. Although these misses in and of themselves do not fully explain why the incident occurred, they were a contributing factor.
And this is one of the burdens carried by executives. What might to them appear to be a slight and inconsequential omission can send a deafening signal to the organisation. They must, in the words of Professor Max Bazerman from the Harvard Business School, become “first class noticers”. And so often the warning signs are missed not because they are obscure or hidden, but because for a whole raft of reasons executives are subliminally motivated to turn a blind eye.
Executives can also be blindsided by ethical failure when they create environments that shields them from bad news. This is of course what happens in organisations that don’t embrace those who speak up. One of the best ways to ascertain whether speaking up is valued in an organisation is whether bad news travels up the chain of command – quickly.
In many organisations, there is a tendency for people to obsequious and sycophant to the executive. One of the side effects of this is that information delivered to the executive is sugar coated and wrapped up in lolly paper. This provides them with a fictitious, rose coloured image of the organisation they lead. Then, when a scandal does break out, they are left genuinely shocked while those below them had been watching a train wreck unfold before their eyes.
Without question it is difficult for executives to be on top of everything that happens within their organisations. But it would also be unreasonable if we didn’t hold those who are responsible for the stewardship of our largest institutions accountable. If they are to begin winning back the public’s trust, executives must demonstrate that they carry the heavy burden of responsibility associated with their roles. Failing to do so is bordering on an admission that large organisations are unmanageable.