HR´s role in corporate culture governance and ethical leadership

Sweeping changes, underway in the Australian financial services industry following a challenging report by royal commissioner Kenneth Hayne, present a unique opportunity for human resources professionals to play a bigger role developing tomorrow’s leaders.

The banking royal commission’s report, published in February 2019, followed an in-depth inquiry into misconduct and a number of high-profile scandals within some of Australia’s leading financial institutions.

In the inquiry’s wake, all financial institutions and regulators now need to overhaul their current operating models to create more accountable, collaborative and responsive organisations where misconduct is identified in a timely manner and dealt with appropriately.

Organisations will only succeed once they embed and foster an appropriate culture that discourages misconduct. The royal commission defines culture as “the shared values and norms that shape behaviours and mindsets within an entity”.

These should at the very least encourage employees to obey the law, act fairly, provide services that are fit for purpose, and act with reasonable care and skill in delivering them, and discourage unethical behaviour, which misleads or deceives.

Human resources directors (HRDs) are perfectly placed to make an impact on corporate cultures and help support organisation-wide efforts to overhaul and design systems and processes that drive ethical behaviour and tackle unethical practices.

As the April 2019 Chartered Institute of Personnel and Development (CIPD) research report Rotten Apples, Bad Barrels says: “Along with boards, they are natural guardians of ethical culture.”

Dr Juliet Andrews, partner in EY people advisory services, concurs, “savvy HR practitioners are able to influence leaders and the workforce with strategic advice and guidance that shape culture.”

“savvy HR practitioners are able to influence leaders and the workforce with strategic advice and guidance that shape culture”

Overcoming unethical corporate cultures

HRDs should start by developing a clear definition of what constitutes unethical behaviour. The CIPD cites “counter-productive work behaviour”, which goes against the values of the organisation for which employees work, such as theft, fraud and bullying.

Unethical pro-organisational behaviour, which is believed to support business success, such as accounting fraud, is also a major risk for HRDs to consider, along with other more passive forms of unethical behaviour, including absenteeism and poor performance.

HRDs need to understand and identify key drivers of unethical behaviour among employees, which may include individual personality traits, corporate culture or a combination of both factors. For example, narcissism can drive impulsive and unethical behaviour just as much as an organisation-wide remuneration policy that drives a highly competitive, and therefore pressurised, sales environment.

Of course, there could be myriad factors driving an employee to behave unethically, which is why it is imperative that HRDs are aware of all possible factors at play. This awareness may support the future direction of corporate policies, particularly those regarding recruitment, whereby managers will be urged to consider the personality traits and cultural fit of prospective employees, to help optimise the ethical behaviour present within their business.

It is imperative HRDs share insights with team members as part and parcel of ensuring the HR function is a credible, value-driven business unit and is perceived assuch by the rest of the organisation. Only then can HRDs expect to be able to secure buy-in for their strategies.

EY’s Dr Andrews says: “I’ve seen HR do this successfully where they’ve had a genuine seat at the [boardroom] table with the executives; they are absolutely afforded the same amount of resourcing and support as other enabling functions.“

They are given strategic opportunities to be part of decision-making across the organisation and they work collaboratively with risk, with finance, with technology, so these functions aren’t just looking after their own business unit at the exclusion of working across the others. HR and risk will have to work very closely together on these regulatory requirements and with business leaders.”

Dr Andrews’ comments echo the findings of the Global Leadership Forecast 2018, which revealed that almost three quarters (71 per cent) of the 2,500 HR professionals polled saw an increased need to become a trusted senior adviser within their business.

Complying with the Hayne commission’s recommendations

The research also shows that around the same proportion (70 per cent) of respondents saw an increased need for analytical and data skills, which Dr Andrews agrees are crucial in HRDs’ mission to build the credibility necessary to help their organisations comply with the Hayne commission’s recommendations.

“HRDs will need practitioners who understand risk, finance, how to cost and manage programmes, and how to work out the return on investment for these programmes. This is what HR has been getting better at in recent years and certainly been asked to do more frequently,” she says.

“HRDs will need practitioners who understand risk, finance, how to cost and manage programmes, and how to work out the return on investment for these programmes”

This capability will support HRDs in communicating to business leaders the importance of their role in fostering and role-modelling the ethical behaviours required by the royal commission.

The commission is clear in its belief that only organisations underpinned by solid corporate culture governance frameworks and with ethical leaders at their helm will be able to discourage misconduct and thrive in a new-look financial world. Dismissedare organisations that undertake annual governance tick-box exercises led by executives who merely pay lip service to the importance of an ethical workforce.

Once buy-in has been secured, HRDs need to evaluate the ethical climate of their organisation through employee surveys and focus groups, followed by a review of all systems and processes.

Results of these efforts should inform the development of a code of conduct, which clearly outlines the ethical behaviour employees are expected to embrace, along with training programmes and communication campaigns that support staff to do this.

But perhaps the most important task for HRDs will be to determine how best to evaluate the effectiveness of their new code and its impact on corporate culture. For example, ANZ uses ongoing cultural audits to assess the extent to which its business units are fostering an appropriate culture, in line with the Hayne recommendations.

The banking and financial services business uses a cultural assessment tool designed by its internal audit team to measure four levers – leadership, middle management, risk environment and transparency – which it believes affect its culture.ANZ then uses this, together with online surveys and focus groups, to assess how its culture has changed over time. Executive buy-in has enabled the business to make positive cultural shifts in just two or three years.

But Dr Andrews warns HRDs to be realistic about the volume of work they can realistically manage alone. “If the HR function is being tasked with solving cultural issues, they are facing an impossible task. The business and its leaders have to own these resolutions. HR can certainly enable solutions and provide the needed advice, but they can’t do it alone,” she concludes.