Business - and customers - pay for bad business behaviour

It's remarkable the way the Business Council of Australia constantly lectures us on the "reform" we should be accepting to improve our economic performance (and, purely by chance, their profits), but never seems to lecture its big-business members on their manifest need to "reform" their own standards of behaviour.

Among its most profitable members would have to be the four big banks. But the litany of scandals over their bad treatment of customers never seems to end.

The latest was CommInsure's denial of legitimate life insurance claims, but there's also been ANZ's alleged manipulation of a key commercial interest rate and the Commonwealth Bank's bad financial planning advice that lost money for many customers.

Now the chairman of the Australian Securities and Investments Commission, Greg Medcraft, has joined Australian Prudential Regulation Authority boss Wayne Byers in demanding the finance industry fix its corporate culture.

"Time and again, we have seen firms blaming [behaviour] on a few bad apples driving bad outcomes for consumers, rather than taking responsibility by looking more closely at their organisation and implementing the necessary changes to address the cause of the problem," Medcraft said on Monday.

"At the end of the day, you need to have a culture that your customers can believe in."

The captains of finance have not reacted well to the bureaucrats' admonition. David Gonski complained about the corporate regulator being the "culture police", while someone from the Institute of Company Directors offered the uncomprehending advice that corporate culture could not be imposed by law.

It would be wrong to focus only on the bad behaviour of the banks, of course. There have been other instances from other industries. Take 7-Eleven's underpaying of foreign workers.

Or take the many notorious cases of businesses rorting government subsidy schemes in ceiling insulation, childcare and vocational education and training.

It's possible what we're seeing is merely greater exposure of the bad behaviour of big business thanks to a surge in business investigative journalism, with Fairfax Media's Adele Ferguson at its head.

But I've been in and around businesses since I left school 50 years ago, and I think bad corporate behaviour is definitely worse than it was. As executive remuneration has headed for the stratosphere, so the willingness to exploit customers and staff has grown.

But why? One reason is the rise of a more fundamentalist approach to economics. "Economic rationalism" has prompted much deregulation, privatisation and outsourcing, which has made competition a lot more intense in many industries.

That's not necessarily a bad thing, but as managers have experienced greater pressure to perform – as it's become harder to keep profits high and rising – they've passed the pressure on to staff and customers.

Economic fundamentalism is both a product of the greater materialism of our age and a cause of it, with all its emphasis on monetary values and view of "labour" as just another resource to be exploited along with other raw materials.

What's worse is that economic fundamentalism has had the effect of sanctifying selfishness. When I put my own interests ahead of other people's, I'm not being greedy or self-centred or antisocial; I'm just being "rational".

One effect of the greater pressure to perform is the present "metrics" fad – the obsession with measuring aspects of the firm's performance, then using those measures to improve performance, such as by setting targets based on "key performance indicators".

What the KPI obsession is saying is: just get results; how you get them is of lesser interest. I'd lay money that the reason people at CommInsure were knocking back legitimate claims was they were being encouraged to do so by KPIs or other "performance incentives". (That's why it's dishonest for people at the top to blame "a few bad apples".)

Most people's sense of what is acceptable, ethical behaviour is determined by what they believe their peers are doing. If they do it, it's ethical for me to do it; if they don't do it, maybe I should feel guilty about it.

The trouble is, studies show that adults, like children, often harbour exaggerated impressions of how many others are doing it.

Social conformity (aka "culture") is such a powerful influence that it's always been hard for people to follow their own "moral compass". With the decline of religious adherence, it's harder even to have one.

The Business Council and its members ought to be a lot more worried about the decline in their standards of behaviour than they seem to be.

One fundamental the economic fundamentalists keep forgetting is that market economies run best on widespread trust: mutual trust between management and staff, and between businesses and their customers.

Allow declining standards of behaviour to erode trust and the economy suffers. Customers become harder to persuade, argue more with counter staff, are surlier with call-centre staff and more inclined to take their business elsewhere. They resist "upselling".

With less trust you have to waste a lot of money on increased security in its many forms. And governments react by multiplying laws and legal requirements.

When so many companies demonstrate their contempt for other taxpayers by the way they manipulate the tax they pay – their ethic is that if it's (barely) legal, it's ethical – it becomes much harder for governments to get voter support for cutting the rates of those taxes.

Who knew?

Read more >>

Let's 'reform' lack of satisfaction at work

Has it ever occurred to you that, in all our economic striving, most of us – almost all our business people, economists and politicians, but also many normal people – are missing the point?

It occurred to me years ago, and I've thought about it often, but reading a little book by one of my gurus, Barry Schwartz, a professor of psychology at Swarthmore​ College in the US, has revved me up.

In my job I have to focus mainly on whatever issues everybody else is getting excited about. I've written a lot lately about the budget deficit, mainly because I see the Coalition swinging from exaggerating the size and urgency of the problem while in opposition, to virtually ignoring it now it's in government.

They had one big ill-considered and ill-fated attempt to fix the problem in their first budget, but now they don't even want to think about it.

Of course, getting the budget back to surplus is really just a housekeeping measure. It doesn't advance our cause in any positive sense, it just stops problems building up for the future.

No, the more positive efforts to improve our lot have focused on the need for "reform". The economists have noticed that the rate of productivity improvement has slowed and, since improving our productivity is the main way we keep our material standard of living rising, they're casting around for something we could do to improve matters.

When economic-types look for things to improve, their first thought is to "reform" taxation in a way that does more to encourage people to "work, save and invest".

Sorry, but all this is missing the point. Schwartz's little book is called Why We Work, and he asks us to reconsider the most basic question in economic life: why do we work?

To most people that's a stupid question. We work to make money, which we then use to keep body and soul together and buy the other things we need to give us a happy or satisfying life.

Next question: do we enjoy our work? Answer: sometimes yes, sometimes no. Some people do most of the time; most people don't.

The basic economic model assumes that people don't enjoy work; they do it only for the money. And, except perhaps to the individual, whether they do or they don't isn't of great consequence.

Most employers organise work in ways designed to maximise their employees' productivity – their productiveness. If their workers happen to enjoy their jobs, that's their good luck. If they don't, that's not something a boss needs to worry about.

Schwartz's argument is that we've allowed money – and the economists' way of thinking about work, which goes back to Adam Smith in 1776 – to get us muddled between means and ends.

Money is merely a means, not an end in itself. The end money is meant to be a means to is life satisfaction. But if satisfaction is the object of the exercise, why on earth would we organise the economy on the basis that whether or not people get satisfaction from their jobs doesn't matter?

Why fixate on earning money to buy satisfaction when we could be doing much more to gain satisfaction while we earn?

When you remember how much of our lives we spend working, think what a fabulous "reform" it would be if more of us got more satisfaction from our work.

If we got more satisfaction from our work, economists and politicians wouldn't have to worry quite so much about ensuring our money income kept growing strongly so we could keep attempting to buy more satisfaction. (Tip: the satisfaction you get from enjoying your job and doing it well is more powerful than the satisfaction you get from buying more stuff.)

And if bosses got more satisfaction from their own jobs, maybe they wouldn't be so obsessed by achieving ever faster-growing profits so as to justify ever-bigger bonuses.

You'd think that, with all the status and executive assistants to wait on them and people to boss about, bosses would be rolling in job satisfaction.

But when I see how obsessed they are with pay rises and bonuses, it makes me wonder if they actually hate their jobs more than most of their employees do.

Of all the company's workers, they're the ones showing most sign of only doing it for the money.

By now, I know, many managers will be thinking, if I made making sure my workers had a good time at work an objective, their productivity would suffer.

That's certainly why many jobs have been designed in the soul-destroying way they have been, and the mentality that informs the way many managers manage. Treat 'em mean to keep 'em keen.

But consider the reverse possibility. There's growing evidence that workers who gain satisfaction from their jobs try harder and think more about how they could do their jobs better. Is that so hard to believe?

I'm convinced greater effort to make jobs more satisfying could leave most of us better off with, at worst, no loss of efficiency.

How do employers go about making jobs more satisfying? How can someone with a deadly job make it more emotionally rewarding?

These questions have been well studied by industrial psychologists and Schwartz has lots of useful things to say. But I'll leave that for another day.

Read more >>