(Still) time for business to prioritise ethics: The Governance Institute has released its latest annual Ethics Index

6 minute  17.11.2021 Kate Hilder, Siobhan Doherty

Our key takeaways from the Governance Institute of Australia's 2021 Ethics Index and some points of comparison with the 2020 Index.

Key Takeouts

  • The Governance Institute's latest Ethics Index has found that public perceptions of Australia as an ethical society have dropped compared with last year, and this is reflected in overall drops across sectors, organisations and roles.  
  • The financial services sector is no longer ranked as the least ethical sector overall, though public perceptions of the financial services and corporate sectors remain low
  • Consistent with the 2020 Index, CEOs, Chairs, Managing Directors, senior executives and directors of foreign companies operating in Australia and mortgage brokers were ranked among the top ten least ethical occupations.
  • Climate risk was ranked in the top three ethical challenges facing Australia

Some interesting findings 

The Governance Institute's sixth annual Ethics Index tracks changes in public attitudes to the importance of ethics generally and also changes in public perceptions around the extent to which certain groups can be trusted to behave ethically.

The findings are based on a survey of 1000 people conducted during 10-20th September 2021.  

Australian society is perceived as overall less ethical than last year

  • Overall the 2021 Index found that public perceptions of how ethical Australian society is decreased compared with 2020, with the Governance Institute's overall metric for measuring this dropping from a record high of 52 in 2020 to 45 in 2021.   
  • All sectors saw a dip in perceptions of their ethical behaviour (to varying extents) compared with 2020.  However, consistent with 2020, the education, health and charity sectors remained the top three most ethical sectors.  The sharpest drops were in the government/public service sector (which saw a 10 point drop from 56 to 46) and the media sector (which fell 20 points from 22 to 2).  
  • Governance Institute CEO Megan Motto attributed this overall decline to the additional uncertainties and lack of consensus around pandemic management that have come into play in 2021.   

'Last year, we placed vast amounts of trust in our governments, scientists and health and emergency service workers during the initial waves of lockdown – and our trust was rewarded as we saw, in many cases, COVID-19 numbers settling, lockdown lifting and the resumption of most activities.  The Ethics Index skyrocketed to a five-year high of 52. 

However, 2021 has been a very different year. We have seen major fluctuations in approaches to managing the virus, stronger debate around when to lockdown – and when to open up, and we were all thrown by a new variant of the virus. It has been a tumultuous and anxious locked down year with greater uncertainty. It seems this is reflected in a dip in the latest Ethics Index'.  

Climate action is ranked among the top ethical challenges facing Australia

Top five greatest short term ethical challenges: Respondents nominated the following issues as the top five greatest ethical challenges facing Australia in the next 12 months.

  • 1. balancing personal freedoms with COVID control 54% (up from 44% in 2020); 
  • 2. reducing our reliance on global supply chains 33% (unchanged from 2020); 
  • 3. ensuring climate change and environmental issues continue to receive attention and action 32% (up from 28% last year).  
  • 4. executive remuneration: 'greater scrutiny, transparency and oversight of board and executive remuneration, ensuring economic conditions of the day are accounted for and reflective in senior pay rates' 27% (up from 24% last year)  
  • 5. increased surveillance of the population via CCTV, apps, QR check ins to monitor public health or reduce crime 23% (up from 15% last year)

Interestingly, aged care reform which ranked third on the list of top concerns in 2020 does not appear in the list of 12 priorities included in the 2021 Index.  Likewise, the need to balance fire reduction with hazard reduction and conservation which ranked fifth last year is also not included.  

Climate risk: When asked to nominate who has an ethical obligation to tackle climate change the majority respondents indicated that the Federal and State governments as well as multinational corporations have an urgent ethical obligation to act.  71% of respondents consider the Federal government has an urgent ethical obligations, and 68% of respondents consider that State governments and multinational corporations also have an urgent ethical obligation.  

Corporate and financial sectors still have work to do? 

The 2020 Ethics Index (summarised) found that financial services sector and the corporate sector more broadly had work to do to improve perceptions of their behaviour. For example the 2020 Index found that: 

  • the financial services sector was rated the least ethical of all sectors
  • financial services and social media organisations dominated the list of the most unethical organisations overall 
  • CEOs, Chairs, Managing Directors, senior executives and directors of foreign companies operating in Australia and mortgage brokers were ranked among the top ten least ethical occupations.

The 2021 Index shows some movement.  

Least ethical organisations overall 

  • Fewer financial services organisations are included in the list of ten least ethical organisations in 2021 as compared with 2020.  
  • The 2021 Index lists the ten (perceived) least ethical organisations overall as (ranked from most ethical to least ethical) as follows: 1) Journalists; 2) Life insurance companies; 3) Magazine; 4) Federal Parliament; 5) Instagram; 6)Foreign companies operating in Australia; 7) Twitter; 8) Facebook 9) TikTok; and 10) Pay Day Lenders
  • 'Other insurance companies', investment banks and retail banks which were included in the 2020 list, no longer appear, replaced by Journalists, Magazine and Parliament.  

Perceptions of the financial services sector slipped further backwards  

  • In 2020, the financial services sector was rated the least ethical of all sectors with the lowest ethical score of all sectors (18, up from just -11 in 2019).  
  • The 2021 Index found that public perceptions of the sector have slipped backwards, with the score dropping from 18 to 11 (though not back to 2019 levels).   
  • However, despite this, the sector is no longer ranked as the least ethical sector overall – the media sector has replaced it with a score of just 2, down from 22 in 2020
  • Consistent with the 2020 survey, industry superannuation funds are perceived to be the most ethical of all organisations in the sector.  Pay day lenders are perceived to be the least ethical.  Life insurance companies ranked in second last place above pay day lenders with a score or -8 (down from 1 in 2020)
  • Accountant remains the occupation with highest ethical score in the banking and finance sector.  Mortgage broker remains the occupation with the lowest ethical score in the sector.  

Softening in perceptions of the Corporate sector 

  • Consistent with the 2020 Index, CEOs, Chairs, Managing Directors, senior executives and directors of foreign companies operating in Australia and mortgage brokers were all ranked among the top ten least ethical occupations.
  • The 2021 index found that the ten least ethical occupations overall were (ranked from most ethical to least ethical): 1) mortgage brokers; 2) senior executives; 3) CEOs/Managing Directors; 4) Chair of companies; 5) Lawyers; 6) State politicians; 7) Local politicians; 8) Directors of foreign companies operating in Australia; 9) Real estate agents; and 10) Federal politicians.  
  • At an organisational level, perceptions of:
    • foreign companies operating in Australia dropped from -4 in 2020 to -16 in 2021
    • Australian unlisted and private companies also declined slightly from 16 in 2020 to 11 in 2021
    • listed public companies was almost flat: 27 in 2020 to 28 in 2021.  
  • Company secretary remains the occupation with highest ethical score in the corporate sector.  Directors of foreign companies operating in Australia remains the occupation with the lowest ethical score in the corporate sector.  

Top five ethical issues for corporate Australia

  • Corruption remains the top issue facing corporate Australia(57%), followed by company tax avoidance (47%), misleading and deceptive advertising (45%), discrimination (44%) and executive pay (43%).  
  • Environmental responsibility ranks sixth in the list (40%).  
  • Treatment of suppliers ranked lowest on the list (21%).

Attitudes to COVID-19 measures

  • Some COVID-19 workplace safety measures had strong support from respondents eg 60% of respondents supported employers requiring employees to wear mask in the office.  In contrast, others eg monitoring employees working from home using surveillance technology were not generally supported (30%).  The Index attributes this difference to the extent to which respondents perceived the measure to be ethical (or not).
  • More broadly, support for certain other pandemic-related measures decreased compared with 2020.  For example support for curfews dropped from 41 in 2020 to 15, and support for continued international border closures fell from 67 to 42.

[Sources: Governance Institute media release 17/11/2021; Governance Institute Ethics Index 2021]

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https://www.minterellison.com/articles/summary-governance-institute-of-australia-ethics-index-2021

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