What have we learned from the wash up of the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry? How can we use that knowledge to make better, more informed, and more ethical business decisions?

These were the some of the questions posed at AGSM @ UNSW Business School’s recent Masterclass: Unravelling Ethical Dilemmas at the 2019 AGSM Professional Forum. Designed to equip alumni, students and corporate partners with the ability to navigate ethical dilemmas, Professor Pamela Hanrahan investigated two case studies with participants, focusing on ethical decision-making in the superannuation sector.

Joining Professor Hanrahan was a panel of thought leaders including Patrick Sharry, AGSM Fellow, Program Director and Adjunct Faculty Member, Dr Dimity Podger, Director and Principal, Barasa Consulting Group Pty Ltd, Tim Bednall, Partner at King and Wood Mallesons and Vivek Prabhu, Head of Fixed Income at Perpetual Limited and Member of the UNSW Business School Alumni Advisory Board. The four provided the perspectives of an academic, ethicist, lawyer and senior executive.

With the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry fresh in everyone’s minds, Professor Hanrahan, who was an Expert Advisor to the Royal Commission, introduced the context for the case studies.

“Only 958 individuals occupy the office of director of an RSE Licensee in Australia. This means less than 1,000 people carry an enormous weight on their shoulders, with huge amounts of money under management,” said Professor Hanrahan.

Considering the many stakeholders superannuation funds have – members, taxpayers, employers and the government – Professor Hanrahan posed, “Superannuation trustees also have a great responsibility for our future posterity and prosperity. And they’re regularly pushed into considering the fine distinctions around ethical decision making.”

There were two case studies considered, and the highly engaged participants explored three key themes throughout the masterclass including frameworks for decision-making, diversity of thought and stakeholder empathy.

Frameworks for ethical decision-making

The dilemma Professor Hanrahan presented was a fictitious underperforming fund in a regional location. It had been in the lowest quartile for performance for eight years.

  • Lack of economy of scale
  • Fees and expenses higher than average (but fully disclosed to members in the PDS)
  • Lacklustre investment portfolio performance
  • Lawyers advised the trustee is meeting legal obligations, so that is not an issue
  • Sound member satisfaction, members prefer the local feel of the fund
  • Knowing the members may end up retiring with less than they would if they had been with a better performing fund.

The experts on the panel agreed first and foremost, there was a need for an ethical decision-making framework through which to consider ethical dilemmas. For Patrick Sharry, the academic representative on the panel, his focus was on the last aspect of the case study. “If members will retire with less, there is a duty to address that. The issue isn’t ‘should we do something’, the issue is ‘what’s our decision-making process so we can create better economies of scale and investment returns?’” And the room agreed.

Facilitating boardroom dissent and diversity

Diversity of thought and opinion is vital in the ethical decision-making process. This particularly comes into play in the boardroom, where Sharry expressed concern over whether dissenting board members could be heard effectively in this scenario.

“Often we don’t do a good job of leveraging the power of the dissenting voice. This is an important part of the space. From my observation, Australian boards don’t do dissent very well and they’re paying an innovation penalty for that,” said Sharry. “For me this suggests a well-designed process is what is required.”

Tim Bednall agreed this is an issue. “Australian culture doesn’t accommodate dissent, challenge, tension in the room. But a good chairperson will draw out individual views in a safe environment,” he said. “The issue with Australian boards is you have to come to a collective decision, and everyone is responsible whether you disagreed or not. It’s important to land in a position of consensus.”

Applying conscious empathy to determine stakeholder needs

Within an ethical decision-making quandary, leaders need to be able to self-reflect. Ethicist Dr Dimity Podger agreed the problem needed to be approached from a process perspective – but through a lens of self-awareness. “When making a decision you need to be thinking about your biases,” said Dr Podger. “Are you from this place? Do you feel beholden in some way? Is there overconfidence that the business might achieve scale? Being confident and optimistic can be your detriment and a detriment to your members.”

The challenge is also in the collective working together to identify the stakeholder needs. Tim Bednall of KWM provided a legal perspective. “In this case, where you’re technically meeting the legal obligation, the consideration must be whether you’re acting in the best interest of the members. The bottom line is to identify as a Board what you believe the members’ interests actually are.”

The core ethical question from Dr Podger was, “Will a member of the fund be happy to take $100k less because of what the fund does for the community? Conscious empathy is fundamental to the decision-making process.”

The attendees and panellists discussed questions of disclosure, responsibility of consumers, data consent and the many grey areas in between. Vivek Prabhu added a business solution, focusing on scale and lowering the costs. “You need to figure out how to achieve those goals and still meet the needs of your members – which here seems to be being local, accessible and with a return to the community. So the best alternative might be to merge with another local super fund.”

Every organisation needs an ethical practice

The trouble with ethical decision-making is, it’s not black and white. “There will always be more than one right or wrong answer, as well as answers that are right in the medium-term but wrong in the long-term,” said Professor Hanrahan. “And it’s for this reason that everyone needs to be developing their ethical reasoning capacity. It’s not just something learned in a two-hour lecture. It’s an ongoing practice that must be built into the culture of an organisation.”

Professor Nick Wailes closed the day with some final thoughts. “Leadership is an ethical act. Today’s conversation has reinforced the truth of this statement, and how we should be thinking differently about leadership.”

Each year, AGSM holds a professional forum for our students and alumni. To learn more: www.agsm.edu.au

Any questions, call or email: +61 2 9931 9490 or admissions@agsm.edu.au