What impact does ethics training have?

  • 14 April 2020

Ethics training is a waste of time, unless it has some form of impact. And to have that impact, it must cover the right things, be relevant to those taking it, and practical enough to be used in their everyday work. All very good you might think, but what evidence do we have for that impact? And by impact, I don’t mean a ‘feel good’ factor, but the actual influencing of business decisions. Recent research sheds some light on this.

Ethics training comes in all sorts of shapes and sizes. I’ve seen some really good varieties, and some, well let’s say, puzzling ones. Of those less than effective ones, the main feedback I’ve given those firms was that they focused too much on where they wanted their people to be, rather than how they should get there. The training often lacked simple skills and knowledge to help people take that vital step from ‘thinking of the ethical side’ to ‘doing something about it’. This made their impact minimal at best.

paper soon to be published in the Journal of Financial Economics looks at impact from a different direction. The three authors saw an opportunity to track the consequences of a noticeable change in a key licence exam for investment advisers in the US.

In 2010, the Series 66 exam changed from being a mix of 80% rules / ethics and 20% technical, to being a mix of 50% rules / ethics and 50% technical. The reason for this was simply that there was more technical material to be covered, while the exam length, cost and time had to remain the same.

Tracking the Ripple Effect

The rules and ethics section covered allowable forms of compensation, disclosure requirements and prohibitions of unethical business practices. The technical section covered topics such as capital market theory, investment vehicle characteristics, ratios and financial reporting.

What this amounted to then was a significant shift in the balance of the Series 66 exam, away from the rules / ethics part. And as it is a compulsory exam for all US investment advisers, the population the paper’s authors were able to track was large and widespread.

I won’t go into the detail of how they configured their research, but from my reading of it, they took account of a number of influences that might otherwise have skewed their findings. Instead, I’ll focus straight in on those findings. And these are findings of clearly documented misconduct outcomes, across 1.2 million investment advisers between 2007 and 2017.

Clear Findings

Firstly, those who took the old Series 66 exam (the 80/20% one) were found to be one fourth less likely to commit misconduct. So the shift from the 80/20 mix to a 50/50 mix increased misconduct amongst investment advisers.

Secondly, where a firm experienced an increase in misconduct sanctions, those investment advisers who took the old Series 66 exam were more likely to leave.

And thirdly, alongside this, and perhaps more significantly, such departures also happened before the misconduct turned into sanctions. In other words, those who took the old Series 66 exam were leaving firms after seeing behaviours that they felt were sure to lead to actual misconduct sanctions.

Lastly, the research also pointed to people who took the Series 66 earlier rather than later in their careers being less likely to behave in ways that lead to a misconduct sanction. So teaching ethics early on in people’s careers made a difference.

Lessons for UK insurance firms 

These findings provide the UK insurance sector with three very clear lessons.

  • be consistent in your ethics training. Don’t play about with it just because something else needs to be taught. This will be noticed and people influenced as a result.
  • bring ethics into your exit interviews and treat what might come out of them as possible lead indicators of misconduct. Consider supplementing this with quantitative data from employee surveys and qualitative data from employment review sites.
  • trainer people sooner rather than later. Don’t wait until they become senior people. Remember that most decisions made in firms are not made by executives. 

I’ve reviewed a number of ethics training programmes in insurance firms. Let me know if you’d like me to take a look at yours.

If you have any questions about this post, please get in touch

Related Posts 

These two posts will also be of interest...

  1. Why ethics training has to be a big priority for insurance people
  2. Four ethics courses for insurance people