banking on ethics – ethical skills in the banking industry shaping up to global banking bankseta...

Banking on Ethics – Ethical Skills in the Banking Industry

Shaping up to Global BankingBANKSETA Conference 20-21 May 2003Gallagher Estate, Midrand

Willem A. LandmanEthics Institute of South Africa (EthicSA)

[email protected]

© 2003 Ethics Institute of South Africa (EthicSA)

20-21 May 2003 Banking on Ethics 2

Outline

Ethics education and training in banking

Ethics – the discipline

Ethics andindividual skills

Ethics inbusiness

Ethics inbanking

Ethics inthe bank


Ethics – the discipline What is an ethical choice?

Choosing values-driven actions Understanding and adopting core values Living core values in practice Solving ethical dilemmas

Choosing right over wrong Respecting moral/legal rights Discharging moral/legal obligations

Choosing good over bad Promoting good consequences Avoiding and minimising bad consequences

Choosing fair over unfair Impartially balancing interests


Ethics and individual skills 1.Ethical competence is an acquired reasoning

skillEthics in all human choice

Ethical competence

Ethical skills education and training

Integrated ethics curriculum

Case-based ethical reasoning skills methodology


Ethics and individual skills

2. Ethical reasoning model

The ethical problem: Formulate Information: Gather Options: Analyse all reasonable options, choices,

actions in the circumstances Ethical assessment:

Assess the ethics of each option in the light of values – what is right, good, and fair

Weigh different options Choose the most ethical option


Ethics and individual skills

3. Ethics Quick Test for individuals

Is it legal? What does my (industry, company) Code of

Ethics say about this option? How would it look in tomorrow’s newspaper? Does it comply with the Golden Rule? How does it make me feel when I tell my family

over dinner?


Ethics and individual skills 4. Case scenario

ABC Bank, an investment institution, owns Research Horizons, a company that offers, as one of its services, in-depth research on the value of companies’ shares. ABC’s CEO puts pressure on the star analyst at Research Horizons to give Gauteng Building, a huge construction company, a favourable rating. ABC’s CEO is able to exert this pressure because he sits on Research Horizon’s Board of Directors. He wants to attract lucrative banking business for ABC Bank from Gauteng Building.

Why did ABC’s CEO act unethically (fraudulently)? What values are at issue? Why does ethics matter in this case? (Apply the ethical reasoning model and the Ethics Quick Test.)


Ethics and individual skills 5. BANKSETA education and

training

BANKSETA skills development commitment BANKSETA Constitution

• Develop and implement skills plan• Establish learnerships and allocate grants• Monitor education and training in the banking sector

BANKSETA Newsletter (September 2003)• Ideal outcome of banking learnership programme –

“Skilled learners who can face challenges in the workplace”

“Ethical challenges in the workplace constitute a major ethical risk area”


Ethics and individual skills 5. BANKSETA education and training

“Address ethical risks in skills training” Ethics training objectives

• Ethical understanding and reasoning skills• Ethical conduct by individuals in the workplace• Ethical culture in the workplace• Individuals, industry, and institutions knowing and doing what is

ethical How?

• Make ethics (values, norms, standards, principles) central – ethics as the constant background condition for all skills training

• Integrate ethical skills training– In all courses, modules, or tasks– With other capacities or skills – reasoning competence; emotional

intelligence; interpersonal/communication skills; legal and other technical skills


Ethics in business 1. Why be ethical in business?

Doing the right thing because it is right Legal imperative – penalties attach to wrongdoing Societal imperative – reputation Pragmatic imperative – good for business; easier to attract

business, joint ventures, and direct foreign investment Change imperative – enables one to reason through new

choices where no policies and procedures are in place, e.g. internet use, e-mail use, or any new technology

Multinational imperative – business across borders Global imperative – special interest groups and media

Acknowledgement: Frank Navran, Principal Consultant, Ethics Resource Center (ERC), Washington, DC


Ethics in business 2. Does it pay to be ethical in

business?

Clients, strategic partners, and investors are prepared to pay a premium for or to a company they have good reason to trust

Acting ethically communicates trustworthiness “Trust” = “the residue of promises fulfilled”

Consider acting unethically: the risks and losses of unethical practices (“crime does not pay”)

Enron, Andersen, Worldcom Leisurenet, Regal


Ethics in business 3. How is business ethics related to

corporate governance/King II?

Ethics is not a component of corporate governance Ethics is the context in which corporate governance is

located (ethics of directors’ duties, auditing, etc) Good corporate governance is about doing business

ethically (respecting core values) in every organisational function and individual action.

Ethics is not… A separate silo An optional add-on An afterthought Window-dressing


Ethics in banking

1. Institutionalising ethics

Identify ethical risk – stakeholder analysis Codify ethics in a Code of Ethics – formulate and re-

formulate Codify values – Values statement (core values) Codify conduct – Code of Conduct (policies and procedures)

Explicitly connect values and conduct Values without action are empty (translate values into policies,

procedures, rules) Conduct uninformed by values is blind (base policies and

procedures in values)


Ethics in banking

2. Approaches to institutionalising ethicsCompliance approach Values approach Integrated approach

Rule-based (emphasis) Values-based (emphasis) Balances values and rules

Prevent unethical conduct

Promote ethical behaviour

Both - promoting ethical conduct, without tolerating unethical conduct (e.g. zero tolerance)

External enforcementFormal accountability

Internal commitmentPersonal responsibility

Internal commitment, but with external enforcement structures in place

Without grounding in values, compliant conduct is blind (undirected, directionless, goalless)

Without compliant conduct, verbal/internal commitment to values is empty (without content, hollow)

Challenge is to ground compliance explicitly in values and ideals (all structures, policies, procedures, actions)


Ethics in banking

3. Universal values (standards, principles) driving an ethicalbanking industry

Integrity and trust Transparency Reliability, accountability, and responsibility Honesty and truthfulness Consistency and fairness


Ethics in banking 4. Case scenario

Thandi saves her first R200. She goes to the nearest branch of Popular Savings Bank, believing her savings would not only be safe, but also grow. Some months later, she inquires about her savings, only to discover she was now the owner of a mere R120, although she had not withdrawn any funds. She asks for an explanation, and is told that it was due to banking charges, clearly set out in Popular Savings Bank’s promotional literature for that type of account.

What is the ethical issue? What ethical values are at issue? How should such a situation be managed? (Apply the ethical reasoning model and the Ethics Quick Test.)


Ethics in banking

5. Case scenario

Foreign investments stream into South Africa following the strengthening of the rand and high interest rates. Bank XYZ receives a large US dollar deposit. Upon reviewing documentation, a senior bank official suspects that the deposited funds have questionable origins. However, she has no firm proof, while Bank XYZ is formally in compliance with all legal requirements.

What should the senior official do? What is the ethical issue? Is it a local or global ethical issue? (Apply the ethical reasoning model and the Ethics Quick Test.)


Ethics in the bank 1. Organisational ethics

management following King II

BANKSETA Banking institutions

2. Purpose of ethics management

Effective ethical compliance Formal – having a Code of Ethics Effective – integrating the Code (induction, training,

enforcement, reporting, external auditing) Ethical culture – “the way things are done here”


Ethics in the bank

3. Why build an ethical organisational culture?

It is the right thing to do Regulations require it Society demands it Our stakeholders deserve it Our strategic partners expect it Special interest groups and the media are

watching us


Ethics in the bank 4. Five components of ethics

management• A Total Ethics Management Programme, following the

US Federal Sentencing Guidelines for Organisations (FSGO) (1991) and King II (2002)

Stage I: Formulate goals and commitmentsStage II: Diagnose ethical risk

Stage III: Codify values and rules

Stage IV: Educate and train in ethics

Stage V: Create ethics sustainability structures – monitor, report, enforce, guide, external audit


Ethics in the bank

5. How is South Africa’s corporate ethics?

Index 1: Effective Ethical Compliance Index 57%

Index 2: Perceived Ethical Conduct Index 76%

• EthicSA Research Report No 3: Corporate Ethics Indicator: Report on the Business Ethics South Africa (BESA) Survey conducted by EthicSA in 2002

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