Monthly Archives: March 2016

Ethics and competition

EthicsThe report of The Senate Education and Employment References Committee report: A National Disgrace: The Exploitation of Temporary Work Visa Holders; released on the 17th March highlights a major National problem.

The report consolidates and affirms issues raised in some of our earlier posts including:

In a nutshell, the report confirms that large numbers of unethical employers are routinely exploiting 1000s of temporary visa holders to inflate their profits.  The report is worrying reading and hopefully will result in proactive government action to stamp out the worst of the excesses.   It’s in the government’s interest, many of the exploited visa holders in work are preventing an unemployed Australian from obtaining work; this is equally true in the unskilled categories and in skilled categories where skilled, older workers are frequently discriminated against.

What is more worrying, and the focus of this post is the ‘Coalition Senators’ total failure to understand business and competition.  One of the major areas of malfeasance with some of the worst exploitation of temporary workers is the Labour Hire business.  The committee recommendation #32 is that:

9.309 The committee recommends that a licensing regime for labour hire contractors be established with a requirement that a business can only use a licensed labour hire contractor to procure labour. There should be a public register of all labour hire contractors. Labour hire contractors must meet and be able to demonstrate compliance with all workplace, employment, tax, and superannuation laws in order to gain a license. In addition, labour hire contractors that use other labour hire contractors, including those located overseas, should be obliged to ensure that those subcontractors also hold a license.

In an annex to the main report, Coalition Senators state that they do not agree with this recommendation on the basis ‘it would punish those labour hire firms which are already complying with relevant laws’; and that the actions of a ‘minority of labour hire firms which are doing the wrong thing, in most cases, is already illegal’.

No one likes additional ‘red tape’ so superficially the Coalition Senators position is understandable.  What the Coalition Senators ignore is the effect the illegal activity is already having on the honest firms they purport to support!  The owners and operators of the dishonest firms using illegal and exploitative practices do not expect to get caught, and if they are caught expect the profits they make from their activities to significantly outweigh the penalties. Unethical is not synonymous with ‘stupid’ – the people making the decision to act illegally expect to make large profits. However, as a consequence of their illegal actions:

  • Honest labour hire firms cannot compete on price with the dishonest firms exploiting temporary workers and suffer as a consequence. The honest operators either make far less profit or go out of business.
  • The users of ‘hired labour’ from labour hire firms are also in competition and need to minimise input costs. They are incentivised to accept the low-cost offerings from the dishonest firms exploiting temporary workers and not to look too closely at their practices to compete within their market.  The alternative is to pay more for the workers and be at a competitive disadvantage to organisations that ‘turn a blind eye’ to the problem.

A licensing scheme will increase the cost of compliance for all of the businesses in the labour hire market, but if implemented properly, it will have the effect of largely eliminating the unfair competition created by the unethical exploitation of temporary workers.  Which will be hugely beneficial to those ‘honest’ businesses that are acting ethically and already fulfil their legal and moral obligations; both within the labour hire industry and the wider community.

The Coalition Senators do ‘support the prosecution of these illegal operations’ (as does everyone) the problems with implementing a clean up strategy focused on prosecutions alone are:

  1. The damage is done before the prosecution can take place.
  2. No prosecution stops illegal behaviour in the future. In an unlicensed regime the same unethical people can set up other businesses and carry on indefinitely through a series of ‘phoenix companies’.
  3. As suggested above, no criminal expects to get caught – deterrence is highly overrated.

Licences may not be ideal, but they do offer a practical way to support ethical behaviour that ‘prosecutions’ cannot. Good governance at every level is getting the balance between rules and flexibility right – the balance needs to support ethical behaviour without constricting innovation and growth. No one except the criminals benefits from the situation exposed in the Senate report that allows virtually unfettered unethical behaviour.

The art of ‘practical ethics’ is to develop systems that disadvantage unethical behaviour and encourage people to do the right thing. The combination of a beefed up ability to prosecute offenders and a licensing system that will make it difficult for unethical operators to remain in the labour hire business is the best way to drive the culture change needed in this industry, and in the businesses that rely on labour hire firms for their staffing needs.

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Stage 1 of the PMBOK® Guide 6th Edition Review process is open

KnowledgeThe Project Management Institute (PMI) has just released the first part of exposure draft for The PMBOK® Guide 6th edition for review and comment. Publication is expected in Q1 of 2017. The Standard section of the guide is currently open for review and will close on Wednesday, 6 April 2016 at 5:00 p.m. EDT (UTC 5). After resolution of the comments on the ‘standard’, the balance of the 6th Edition will be released for review.

For this revision to the PMBOK® Guide, PMI  have divided the exposure draft into two stages. This first stage addresses the Standard for Project Management section only and is a full-consensus exposure draft, a limited exposure draft review for the remaining portions of the PMBOK® Guide will be held at a later date.

Overall there have been some great updates to the PMBOK® Guide as proposed in the exposure draft of the 6th edition. The body of knowledge maturing in terms of content and consistency; and there is greater alignment with ISO21500 and other ISO standards.

The high level changes in the Standard are outlined in the PDF published by PMI (download here).  After the review process, these changes (as amended) will flow through to the main body of the PMBOK® Guide. The major changes are:

  • There are still 10 knowledge areas and five process groups, but there are now 49 processes.
  • Two Knowledge Areas have new names:
    • Project Time Management is now Project Schedule Management, emphasizing the importance of scheduling in project management. This aligns with PMI’s Practice Standard for Scheduling.
    • Project Human Resource Management is now Project Resource Management and people, equipment and physical resources are now included in this Knowledge Area.
  • There are three new processes in the Sixth Edition:
    • Manage Project Knowledge is part of the Executing Process Group and Project Integration Management knowledge area.
    • Implement Risk Responses is part of the Executing Process Group and Project Risk Management knowledge area.
    • Control Resources is part of the Monitoring and Controlling Process Group and Project Resource Management knowledge area.
  • The Estimate Activity Resources process has been removed, this function is now part of Estimate Activity Durations (for the scheduling component) and Project Resources Management for the acquisitions element.
  • The Close Procurement process has been removed and the work captured within Control Procurements and Close Project or Phase

To participate in the review process, go to http://www.pmi.org/PMBOK-Guide-and-Standards/Standards-Current-PMI-Standards-Projects.aspx (you will need a PMI registration to log-in but do not need to be a member).

The PMP and CAPM examinations will be updated in response to the publication of the PMBOK® Guide 6th edition, but this change is not expected until early 2018.  The PMBOK and all other standards are subject to routine updating every 4 to 5 years, this update is simply part of the process of keeping the PMBOK® Guide current and relevant.

Practical Ethics 2

EthicsA couple of weeks ago I posted Practical Ethics discussing the undue reliance governments and others  place on other people’s ethics, Through naivety, undue optimism, or laziness, they set up situations based on blind trust in the ethical standards of others which have resulted in deaths, injury and the loss of $billions.

In this post I want to look inside an organisation and discuss reason why Determining the ethics of the organisation is at #2 in my Six Functions of Governance and Creating the culture of the organisation is at #3.  #1 in the list is Determining the objectives of the organisation.

The underlying approach I’ve taken, founded in stakeholder theory, is the presumption that the best way to achieve an organisation’s objectives is to work with the organisation’s full spectrum of stakeholders so they contribute to the success of the organisation and everyone benefits. This requires a strong ethical foundation and an outwardly focused culture. The role of the governing body is to set the objectives and create the organisation’s culture and ethics, the role of management is to work within this framework to achieve the objectives. Whilst many aspects of governance can be delegated to a degree, setting the ethical standards of the organisation in particular is non-transferable. It starts and stops at the top – with the governing body.

The ethical standards of an organisation are created in two ways:

  • The way the organisation’s leaders act;
  • The ethical standards the leaders are prepared to tolerate in their subordinates.

This post will look at both of these aspects, using the example of the current scandal surrounding Comminsure (the insurance arm of the CBA bank) to highlight their importance – see more on the scandal.

 

Leaders set the standard.

Generally speaking, the top managers in an organisation create a ceiling on ethical behaviours. Leaders at the next level down tend to be rated lower than their managers on every leadership dimension including their honesty and integrity, many may rate equally but it is very rare to find a subordinate acting more ethically than the organisation’s leaders (for more on this see Ethical Leadership).

The key here is the word ‘act’ – leaders set the ethical standards of the organisation by their actions, not their statements. It more than ‘walking-the-talk’, talking is almost irrelevant.

One glaring examples from the Comminsure scandal will serve to demonstrate the issue.  The CBA’s CEO said that he placed a high value on transparency and open communication; this included both encouraging and protecting ‘whistleblowers’ within the bank. A commendable and highly ethical position; and from a practical perspective essential for the minimisation of wrong doing in a workforce of 55,000.

However, actions speak louder than words! In November 2014 the chief medical officer of Comminsure, Dr Benjamin Koh, disclosed his concerns over “an improper state of affairs” concerning aspects of Comminsure’s business to key independent directors at Comminsure including the chairman Geoff Austin. Two months later Comminsure began to investigate Dr Koh and he was sacked by the managing director of Comminsure, Helen Troup, for ‘misconduct’, in August 2015. He is now suing Comminsure and the CBA for unfair dismissal.

The appearance is that the bank’s management won’t fire you for whistle blowing but they will find some other excuse. The bank virtually admits as much, in this statement which states: “Commonwealth Bank encourages all employees to speak up if they see activities or behaviours that are fraudulent, illegal or inconsistent with our values. We provide a number of different safeguards to ensure that there are no negative consequences for raising concerns. We have thanked Dr Koh for raising concerns that led to the CMLA Board conducting a review. Dr Koh’s employment was not terminated for raising concerns. It was terminated primarily for serious and repeated breaches of customers’ privacy and trust involving highly sensitive personal, medical and financial information over a lengthy period of time.”  What they fail to mention was one of major issues raised by Dr. Koh was the manipulation, alteration and loss of information from the records he is accused of mishandling.

The perception may be incorrect, but to anyone looking on from outside of the organisation it would seem the person running Comminsure preferred to sack a whistleblower rather than deal with the problems he raised.

The CEO and the Directors of CBA can talk until they are blue in the face about the ‘ethical standards’ they purport to uphold, their actions speak louder. The person running Comminsure and responsible for the issues raised by Dr. Koh is still in her role, the ‘whistleblower’ is out of a job. If the board really meant what is says, the whistleblower would have been protected and the manager attacking him disciplined. Everyone else in CBA will clearly understand the message.

It really does not matter what the final outcome of all of this is; the actions of CBA and Comminsure management have made it clear to every one of their 55,000 staff that if you raise concerns within the banks ‘whistleblower’ processes you will be fired!

Given this perception, is it any wonder that the leaders of the CBA seem to be continually in the dark about what’s really going on in their organisation……..  Unfortunately for those in governance role not knowing is not an excuse.

 

Tolerating unethical behaviour.

Ethics2The second plank underpinning an ethical organisation is the degree of unethical behaviour it is prepared to tolerate. If an organisation is prepared to tolerate a person increasing his or her bonus by not paying out an insurance claim to a dying person for 3 or 4 years, everyone else in the organisation will understand the acceptable level of behaviour.

Comminsure has been shown to have withheld legitimate payments to claimants for years to boost profits and bonuses (only rectified after the national broadcast was imminent).  As far as I can tell everyone responsible from the managing director down are still in their jobs.

Previously the CBA was shown, courtesy of a Senate enquiry, to have misrepresented information to clients and falsified documents.  Again, most of the people responsible still work for the CBA and the ethical benchmark has been determined by this fact.

If the behaviours were ethically unacceptable people would be fired or moved into roles where they cannot adversely affect customer’s lives. The fact most people are still in their roles and still have their bonus payments from previous years indicates to everyone the CBA believes these behaviours are ethically acceptable and will continue to reward people for placing profits ahead of customers (see The normalisation of deviant behaviours). Management’s actions speak far louder then PR announcements and so called ‘public apologies’ that only eventuate after adverse national publicity.

 

Culture

Culture is ‘the way we do thing around here’ – one of the key elements of culture is the ethical standards people see as ‘normal’; another is the learned experience of how to behave within the organisation. As outlined above these settings are very different from the rhetoric.

But, ethics and culture are always shades of grey; the CBA’s culture is clearly flawed if the bank claims to be concerned about its customers. However, if the CBA is really only concerned with short-term profits, the culture, ethics and PR spin may be appropriate. In the last 6 months, the CBA achieved a remarkable return on equity of above 17 per cent, and a $4.8 billion half-year profit. And, despite the scandal, its shares have increased in price today. The cost is the damaged lives of some of its customers; the unresolved question is what are the acceptable limits? Maybe a Royal Commission will let everyone know.

Legal implications aside, the challenge facing the CBA is that changing culture and ethical standards is a massively difficult task and the people who created and thrive in the current culture are unlikely to be willing participants in changing it.  There’s no easy answer to this dilemma.

 

Conclusion

The real measure of an organisation’s ethical standards are set by the way people behave when no one is looking on – there will always be mistakes and unethical actions by a few, others within the organisation will correct these deviations and being behaviours back inside the culturally acceptable norms of behaviour of the organisation. This has undoubtedly been occurring within CBA and Comminsure on a daily basis, unacceptable behaviours will have been corrected or sanctioned; desired behaviours rewarded. What’s acceptable and unacceptable is determined by the culture of the organisation and its ethical standards.

The ethical standards of an organisation are set by the actions of its leaders. What they do themselves sets the ceiling and what they tolerate in others the floor. The rest of the people in an organisation will generally find a position between these two limits and the culture of the organisation will adapt to see this level of ethical behaviour as acceptable. The problem the governors and leaders of the CBA face is the simple fact that changing the ethics and culture of an established organisation is extremely difficult.

Comminsure Scandal – just more of the same……

ComminsureThe Directors of the CBA Bank and Comminsure would appear to have a lot to learn about basic ethics.  You do not set the ethical standards for an organisation by:

  • Saying ‘we are focused on ethics’,
  • Confusing ethical intent with outcomes,
  • Meeting with people screwed as a consequence of unethical behaviour within the organisation,
  • Saying sorry and/or making belated payments years too late.

This approach is at best second rate PR and the belated payments may be necessary restitution (but rarely compensates for the pain an suffering caused by the CBA’s unethical behaviours extending over years). But none of these actions has anything to do with setting ethical standards – ethics are about doing the right thing when no one is watching and proactively correcting errors as soon as you are aware of them. Ethical standards have nothing to do with implementing a pathetic PR exercise after your extensive wrong doing has been exposed to the full glare of publicity and then only paying parsimonious compensation to a few of the victims.

The ethical standards of an organisation are set by the minimum standards of behaviour its managers condone.  CBA Directors and managers have condoned highly unethical behaviours and the CBA continues to employ many of the same people who have been responsible for the creation and sustainment of this unethical culture over many years. This is a fundamental failure of organisational governance.

The only real measure of CBA and Comminsure starting to cut out the unethical rot in its management systems will be the number of people in senior management ranks fired or otherwise sanctioned for either:

  • Condoning the behaviours outlined in the previous Senate enquiry and the latest ABC 4 Corners / Fairfax report, or
  • For incompetence in not knowing (or not wanting to know) the unethical practices were on-going.

A number of Comminsure Directors should be resigning for exactly the same reasons!

CrisisThe root cause of the Comminsure scandal highlighted over the last 24 hours is identical to the earlier CBA banking scandal (discussed in several previous posts) – CBA management designed incentive systems that paid its staff bonuses to screw their clients and inflate profits. The consequences may not have been intended but nothing was done to correct obvious problems once they became apparent, probably because the managers responsible for oversighting the behaviours were on exactly the same incentive structure. And, the bank continued to pay for behaviours that focused on short term profits over the needs of distressed clients for years. Simply leaving the same group of people who created the mess to clean it up is stupidity of the highest order.

As defined in our White Paper: The Functions of Governance, two of the most important aspects of governance are establishing (and enforcing) the ethical standards and culture of the organisation. These functions cannot be delegated for reasons outlined in Dr. Bourne’s post from last week Practical Ethics.

The question is what are the CBA Board going to do about the core problem?

New Articles posted to the Web #44

BeaverWe have been busy beavers updating the PM Knowledge Index on our website with White Papers and Articles.   Some of the more interesting uploaded during the last couple of weeks include:

And we continue to tweet a free PMI style of exam question every day for PMP, CAPM and PMI-SP candidates: See today’s question and then click through for the answer and the Q&As from last week. You are welcome to download and use the information under our Creative Commons licence