A rather startling finding to come out of a study last year into the management of ethics in the European banking and insurance sectors was the almost complete absence of any targets or objectives for how ethics was being managed. Admittedly the study was on the small side (five insurers and five banks), but with 80% having no ethical targets or objectives of any kind and only 10% having a qualitative target, it gave the impression that ethics is in danger of being left to drift according to whatever prevailing priority holds sway.
Perhaps these firms didn’t see the need for any business objectives relating to ethics. However such thinking doesn’t sit very comfortably with the emphasis firms invariable put on their honesty and integrity, and with the regulatory interest in how they actually deliver on such reassurances. Relying on trust when it comes to integrity is putting all of your eggs in one basket, something which may have worked in the past with a light touch regulator, but hardly seems tendable now.
So what would having a business objective for ethics say about your firm? Firstly, it says that your firm takes an active interest in standards of behaviour within the firm. Equally, that it’s something the firm doesn’t want to drop off the radar of its directors and managers, even when things get busy or complex. Secondly, that it wants to at least maintain, and preferably make progress on, what it’s already doing on ethics. It’s not willing to leave ethics to chance. Thirdly, it shows that the directors are aware of the risks they run by not keeping themselves informed about any unethical activities their firm may be exposed to. And finally, it says that the firm has a story to tell about how its people go about their business, certainly to internal audiences and hopefully to external ones as well. Such stories would be a welcome relief from the often very static and unimaginative webpages you get for ethics.
Your objectives for ethics don’t have to require progress every month, but should at least point the firm in the right direction. It needn’t be a closed one (such as ‘improve by 10%’), for an open objective can be a statement of progress that operational managers can then convert into more precise targets for underwriting and claims. This allows the firm to think beyond a one year horizon and join together a series of concrete milestones towards a long term shift in the firm’s ethical culture. There’s a bit of a balance to be struck here – you don’t want any business objective to be so general it does nothing for the firm delivering on its strategy, but you also don’t want it to be so specific that operational managers lack the flexibility to localise a ‘big objective’ according to their particular function.
Over the last few years, the FSA has been preparing the ground, through speeches and research, for the introduction of regulatory interventions around the ethical culture of firms. Having a business objective for ethics, with all the action and oversight that goes with that, would paint a clear picture for the regulator about the ethical culture at your firm.