Are firms looking in the wrong place for unethical behaviours?

  • 4 June 2019

Many insurance firms have organised themselves to be on the lookout for the big unethical scandals that might ruin their reputations. And that makes lots of sense. After all, as that well known saying about reputation goes, why risk in 5 minutes what it can take years to build. Yet should such big unethical scandals actually be the priority? Research points to the real reputational risks being found from a quite different direction.

Clients and subscribers to this blog will know an oft made remark of mine about the nature of misconduct. It is that most cases of misconduct in corporate settings are not down to bad people making bad decisions, but down to good people making bad decisions, and not realising that they are doing so.

That's not so say that bad apples don't exist. I witnessed the impact of one such case early on in my insurance career. And a watch should certainly be kept out for them, but not to the exclusion of a greater risk to corporate reputations.

The Greater Risk

That greater risk actually comes from the everyday, often rather banal, unethical behaviours that can happen on a regular basis across organisations. This could be a lunch or two, creatively reported under expenses. Or it could be the blind eye taken to the conflict of interest in how clients are re-brokered. And it can be the habits built into how complaints are weighed up and dealt with.

Now you may be asking whether this means that insurance is full of unethical people? Not at all; I've worked with lots of good people in insurance. What the research does point to however is twofold.

Firstly, it points to misconduct like this happening not because people are unethical, but because they fail to recognise that some of their decisions are unethical. They don't consciously think that in such and such a situation, they're going to act unethically. Instead, they fail to recognise the harmful consequences of those decisions. They drift into a sort of ethical 'blind spot' that prevents them from seeing the ethical side of their behaviour.

And secondly, research points to this sort of everyday unethical behaviours being either 'encouraged' or 'discouraged' by the culture and leadership of the firm. And let's be honest with ourselves here: who hasn't seen this happen? In the seminars I run on ethical decision making, almost everyone puts up their hands to having seen such situations.

Everyday Situations

There's the broker who doesn't see the conflict of interest because it's linked with relationships rather than money. There's the business development person who turns a blind eye to an ethical problem because securing that contract is in the best interests of her firm (more here). And there's the claims analyst setting the parameters for the firm's anti-fraud software. He sees no problem with tightening them, because he sees only the group benefits, not the individual impacts.

And there are few insurance firms whose meeting rooms haven't seen decisions at some time or other being swayed because 'everyone else is doing it'. These situations occur because large numbers of people ( and so not just insurance people) just don't understand that there is an ethical side to such situations. I've read that some studies into what is called behavioural ethics find that more than 50% of participants have limited ability to objectively interpret the ethicality of their own behaviour.

Has the Bar been set Right?

Interesting you may think, but what do all these everyday situations really add up to? Is it a mountain or a molehill? If most of us have a problem seeing the ethical side of things, has the bar been set right?

Well, remember the investment banker whose daily commute involved a clever cheat of the transport ticketing system to avoid paying the full fare (more here). Who was worse off because of his little cheat, was his thinking. Yet his offer to repay the amount he'd underpaid was rightly seen as missing the point. Instead, the UK regulator voided his certification under the Senior Managers and Certification Regime because his behaviour was seen as lacking integrity. So ended his career in financial services.

The regulator doesn't seem to think the bar is in the wrong place. Instead, it points repeatedly to the importance of ethical culture and the role of those in senior management to show leadership on delivering it. Yet more rules and procedures then, you may then think? Not at all.

Most people aren't ignoring the existing rules and procedures deliberately. Instead, they just don't connect those rules and procedures with their behaviours and decisions. So adding to the rules won't achieve as much as many people often expect. That doesn't mean there's no role for rules though. They can act as a warning that boundaries do exist and, properly enforced, signal consequences.

Six Steps to Reconnect

Something more tailored is needed for those more everyday situations. Here are six steps that can help:

  • Understanding where those blind spots are most likely to occur. This is done by an assessment of ethical risks and their prioritisation (more here?????);
  • Building awareness of those blind spots amongst the employees involved and reminding them of what ethical and unethical looks like;
  • Reinforcing those reminders by local managers giving support when people in their team are facing difficult decisions;
  • Being clear that excuses sometimes used to justify unethical behaviours are not acceptable and their use should be challenged
  • Engaging with people on a regular basis so that the problem is not just identified but properly addressed as well;
  • Bringing in senior managers to show support, and to highlight progress and the benefits it brings.
Conflicts of interest matter

Let's explore that fifth point in a little more detail. I've written before about a problem that is often encountered with conflicts of interest (more here). There's a tendency to think of a conflict of interest as having been dealt with just because it's been reported. Yet conflicts don't go away after being recorded. They're addressed through their mitigation, and this can involve a myriad of pre-prepared options for reducing, perhaps even removing, the conflict.

 So, in addressing these everyday ethical situations, remember that the bar is set according to outcomes, not ticked boxes.

There's one more point that conflicts of interest can illustrate. It is often called 'the slippery slope'. This recognises that if unethical behaviours become everyday occurrences, then people will move their yardstick of what 'acceptable' looks like. This results in a slow but sure descent down that slippery slope into ever more unethical behaviours. That's why some firms use conflict of interest mitigation as a forward looking metric for bribery.

Ethical scandals can occur, but the reality is that it's in the ethics of everyday decisions that the sector's real progress on trust will be made.