Woman of the year: Margaret Hodge ?

The key person who has successfully lead the team to hold leaders to account is Margaret Hodge, Chair of the Public Accounts Committee. She has done a sterling job this year. It is fitting for this blog, which was set up to focus on the need for more transparency in business (as a way of building trust and boosting value), to pay tribute to her as the "businessinthebuff's woman of the year" ! The focus for this blog will continue throughout 2014 to focus on the three T's, transparency, fair treatment as ways of building trust.

In the real Honours it is also interesting to see the two whistleblowers for Staffordshire NHS awarded with an OBE and CBE. This recognition is a significant symbol of the need for openness in all organisations to expose poor leadership,inadequate management and appalling behaviours so as to make the appropriate cultural changes to build confidence and engender trust.

Merry Christmas Npower's vulnerable customers

Today it is announced that Ofgen is fining Npower £3.5m for "breaching sales rules". In this instance it is because their sales process did not allow customers to compare offers from competitors fairly. (Just for a bit of context, back in October 2011 Npower were fined £2m by Ofgen for failing to handle complaints properly.)

Npower has stated that the latest penalty will be used to help "vulnerable customers" ie those customers on the "warm home discount" who will be given £25 each so it's a good Christmas present for them.

Ofgen states that there are 2 more investigations with the big power companies underway. Along with the financial regulator, the investigations and fines we have seen over the last couple of years have shown their real commitment to getting it right for customers. These companies and the sectors they represent are being damaged significantly in terms of reputation and public trust.  Key elements in building reputation/trust are transparency and fair treatment of stakeholders, to build sustainable long-term value,which is surely what their shareholders want.

To ensure that "conduct risk" is mitigated surely the only long-term, successful strategy has to be deep-rooted and committed cultural change to ensure that everyone behaviours in these large organisations is really geared up to improving customer outcomes.

Merry Christmas.

Can legislation change the culture of banking, or any organisation?

The Banking Reform bill could be passed before Christmas.This will give the Regulator, the FCA, powers to hold the most senior bankers personally responsible for failure of the banks. A key question has to be will this be a sufficient incentive to change behaviours/conduct ( the core of any culture) for the better?

 A  key part of culture is the taken-for-granted beliefs of people both inside and outside the organisation. Do senior managers really believe that the FCA has the clout and the motivation to call individuals to account? Are there "stories" of people being taken to account so that the threat seems real and meaningful?

 If we look at Gerry Johnson's and Kevan Scholes cultural model, the cultural web, as a way of understanding culture, then the task ahead is not easy. The model looks at 6 key factors of culture. The so-called "hard" (but easier to implement) factors of organisational structures, control systems and power structures and the "soft" factors of stories, routines and rituals, and symbols which underpin the culture. These latter factors are much harder to change and take a lot of time.

2013 has been another horrendous year for banking's reputation. In 2014 it would be good to hear positive stories of how change is genuinely being implemented so that customers are no longer taken for granted and do actually deserve better outcomes simply because it is the right thing to do, generates a more sustainable future and provides competitive advantage rather than being a way of preserving bankers' personal wealth and status.

A bit of theory might help the banks get it right

This is another week where the FCA has found the banks wanting fining Lloyds £28m for "serious failings" in its bonus schemes for banks which saw staff threatened with pay cuts or demotion if targets were not reached.

If you look at some basic ethics theory there may be an explanation as to why the sector keeps on getting it wrong and why they still fail to get it right.

If we look at two kinds of theory, one "deontological" (from the Greek word for "duty") focuses on just doing the "right" thing regardless of the outcomes (consequences). The other, teleological (from the Greek word for "goal") focuses on the concept of the outcome justifies the means ie if you get the right result it doesn' matter HOW you got there.

This latter theory is possibly behind all the poor treatment of staff and customers and all the mis-selling ie the sole focus on "goal"- making profits, regardless of the on-going consequences ie the HOW, the conduct and behaviours. What is needed now perhaps within the banking sector is to adopt the unfashionable deontological theory where measurement and rewards are based on the behaviours which engender "doing the right thing" ALL THE TIME.

That's why this blog is deliberately focused on EVERYDAY ethics and EVERYDAY decision making. It is essentially about the need for cultural change and paradigm shift "HOW we do things around here" or as the FCA states "customers, not sales, must come first".

. The FCA is quite rightly on a war path and as more individuals get fined for getting it wrong eg a former finance director of the Bradford and Bingley has been fined £30,000 today for failing to provide accurate information to the board, this will hopefully now focus the minds of the leaders on making significant change- perhaps these kind of threats of personal financial penalties will prove just as effective for the sector's leaders as their sales staff.

Customers fiendishly confused again, as the financial watchdog snarls

If you go into a supermarket to buy, say, green tea you are likely to find a plethora of different flavours from Tetley from pure green tea right through to green tea with citrus and spice or cinnamon and honey. The choice, along with so much else on offer by so many brands can get confusing for customers. All you want is a pot of green tea but at least you can walk away or try something new without too much financial outlay.

The pension market, where what most retirees just want is the best income for life (so that they can sit and relax with their well-earned cup of tea) is fiendishly confusing and the buying stakes for customers is much, much higher.

One of the key arguments for ethical business practice is that an organisation (or business sector) is more likely to avoid the scrutiny of the Regulator. So today, the Financial Services Consumer Panel, which works with the FCA, reveals that some firms confuse customers and charge them high commissions when they are out in the market trying to buy an annuity. "The general outcome for consumers is akin to a lottery", exploitative pricing and hidden charges are also discovered.

Compliance with regulation costs business a lot of money. Making the changes to treat customers fairly with clear, simple, transparent pricing and explanations will undoubtedly increase costs initially but with c 400,000 annuities sold each year, building up a reputation for fair, simple and transparent treatment of customers surely makes good, long-term business sense and hopefully will keep the snarling financial watchdog more at bay.

The cost of mis-management, mis-selling and unfair treatment

Yesterday the European Commission fined RBS £324m for Libor rigging. Barclays avoided a fine as they were one of the Whistleblowers, a strange kind of "reward" for bad practice but good incentive for others to come clean.

If you review some of the fines/compensation imposed by the Regulator over the last year or so the argument for everyday business ethics, ie everyday well-considered decisions, is clear. The PPI mis-selling scandal alone has cost the financial services industry c £15bn . The FCA has also fined the likes of Swinton £7.38m, PAS £ 2.8m and CPP £10.5m (with c £1.3bn compensation across the 13 high street banks associated with CPP's mis-selling). This is without even looking at the energy market where the likes of SSE were fined £10.5m earlier in the year, again for mis-selling.

One of the key arguments for business ethics is cost and risk reduction particularly minimising the risk of greater regulation. The FCA's focus on "conduct" now means a much greater emphasis on internal behaviours and the conduct/behaviours of other stakeholders. While these are all judgements about past mis-management/"misdemeanours" the financial services sector really needs to deliver some on-going good news stories sometime soon to build up its tarnished and ever sinking reputation.

Reputation- it's just a story

"Reputation- it's just a story" was the title of a lecture given by Chris Fill (specialist in corporate reputation) at the University of Huddersfield Business School earlier in the week.

Some of the reasons/benefits Chris gave for managing corporate reputation included attracting quality resources and investment, gaining competitive advantage, differentiation, positioning and driving confidence and innovation.

In the same week, the University of Huddersfield had been named the Times Higher Education "University of the Year" due to its exceptional performance. This follows the award of Times Higher Education "Entrepreneurial University of the Year" in 2012. The university is developing a good story under the leadership of the Vice Chancellor Bob Cryan who has also won the "Inspiring Leader Award" at the Guardian Higher Education awards.

The university is now in the Top 10 of English universities for financial strength and has been declared debt free even though it is expanding its campus under its "building without borrowing" project. It is now in the Top 10 for student satisfaction (NSS 2012) and Top 10 for Graduate Employability. The vision "to be an inspiring, innovative and university of international renown" is well under way and the story is gaining momentum and clearly demonstrates how it might now be reaping the benefits outlined by Chris above.

In complete contrast is the damage the Charity Commission has done to the reputation of charities as the National Audit Commission reports today. Chris Fill mentioned in his lecture a number of reasons why stories get "disrupted", key ones here are managerial incompetence and negligence. The management team are now going to have to divert extra effort and energy into undoing the damage to their story so as to regain and build confidence (and funding) for the charities they represent.

Engendering loyalty in the modern world

Professor Steve Van Belleghem states in an article in Brand Republic that customer loyalty is declining and that consumers put less trust in brands and tend to switch brands a lot faster. Modern consumers expect companies to act properly and this means treating customers well, treating employees well and doing good for society. Professor Van Belleghem cites Ben and Jerry as an example of a company that does this.

He then mentions that the key is for "those on the highest rung of the corporate ladder to have a clear vision of the added value their company has to offer and to translate that vision for their employees and customers".

Adding to Van Belleghem's views, it is likely to be even more effective for companies to also translate their vision for all stakeholders so that they can maximise opportunities and value. Transparency (which is now more available through digitisation) and fair treatment of all stakeholders are essential components in the increasingly difficult task of building and retaining trust and loyalty in today's business world.

Ofgen: The importance of profit transparency in building consumer confidence

This week Ofgen published its report following the commissioning of the accountancy firm BDO's independent analysis of the big 6 energy companies 2012 performance. BDO reported that disclosure was better than the previous year but that there was still need for more disclosure.

Ofgen seems determined to promote better information on profitability by improving transparency with a view to rebuilding consumers confidence and trust.

While there is no right or wrong profit margin as such, understanding fully the profits a company makes is important in building confidence and trust. The figures revealed that there had been a 17% increase in profits on average in the domestic supply market.

Being able to scrutinise the figures easily simply means that consumers can chose whether to change supplier and, probably more important in a market still essentially stitched up by the big 6, whether the margins are sufficient to attract new entrants who could possibly provide more competitive alternatives.

Transparency and fair treatment of stakeholders are essential in any market to build confidence, trust andsustainable value.

Paying less than the minimum wage, not unethical but unlawful

In today's media there is news that almost half of the private firms providing care for the elderly are paying less than the minimum wage to the care workers who give essential personal care to someone's mum or dad.This isn't just unfair treatment of employees but actually an illegal practice and reflects the general ethos of these "caring" companies, who also often operate on zero-hours contracts.

While Richard Preece, chairman of Allied Healthcare, announced last week that he intends to do away with these zero hours contracts, it is difficult to see how this limited gesture can improve the treatment of their ultimate customer, the frail, older person. Hopefully as the practices of these companies are more exposed by HMRC they will start to take their legal duties more seriously and  respond both to the letter and spirit of the law for the benefit of our increasingly older population.

How to avoid being "hodged", develop your own hodges.

Margaret Hodge chairs the Public Accounts Select Committee and she does a pretty fine job in holding leaders to account.

Apparently the leaders who have to face the Select Committee are now employing expensive media training consultants to help them to prepare answers to the searching questions members of the PAC may ask them. It looks like it is becoming a burgeoning industry.

When Margaret Hodge was asked about this in a BBC Radio 4 interview she simply stated that all that was required was "honesty, openness and directness" in the answers provided to the questions. The going only got tough when there was "obfuscation, waffling and dishonesty" i.e. evading being accountability.

The key to avoiding this kind of grilling or of being "hodged" is to promote transparency, honesty and integrity in both personal and organisational behaviours. Organisations could start to engender and encourage a challenging internal culture, developing their own "hodge" skills where asking and answering difficult questions and airing differences of opinion are encouraged before the impact of key decisions hit the market place. Margaret Hodge might then eventually be out of a job, saving even more public money, and we might have a band more confident business sector.

Business models: do any engender better ethical behaviour?

As the Chairman of the Co-operative Group has now resigned because of his involvement in the appointment of the wayward Paul Flowers,a key question to be asked is whether the mutual movement is any better equipped to engender ethical values and behaviours?

 In theory, it could be argued that this is the case. Mutuals are owned differently with often a broader focus on their stakeholders and do not have to concentrate solely on shareholder return and profits.In theory the stakeholder or stewardship models of business can adopt fairer and longer term approaches providing valuable competitive alternatives to customers.

However, as we have seen recently, these business models are no better if the people at the top of them have lost sight of organisational and individual values and beliefs. Reputational damage goes far beyond the individual and organisation impacting the whole sector as we have also seen.

As shareholders start to demand more ethical behaviours and focus, the mutuals may be given a run for their money and need to re-group to clearly demonstrate their differentiation in the market.

This might mean a complete overhaul at the top!.

Real integrity

Just to follow on from yesterday's blog about individual and organisational integrity (as the news coverage of the Co-operative Bank's ex-chairman continues, and with it ongoing damage to the reputation of a bank whose whole market differentiation is/was ethics).

The "Real Integrity" Report mentioned yesterday also states " it is surely right to seek to influence the organisational environment so that the vast majority of people feel supported in making ethical choice, confident of their ability to do so, and motivated to act with integrity".

This is why the "tone from the top" is so important, to have leaders seen to have integrity, and why so much damage can be done to confidence and trust both outside and inside an organisation.

Individual and organisational integrity

Over the weekend the media has covered the story of Paul Flowers, the ex-Chairman of the Co-operative Group, being filmed undertaking a "drug's deal". This is a fine example of the need, within everyday business ethics, for both the organisation and the individuals working within the organisation to have integrity and to adopt ethical behaviours. Without this, organisations' reputations can be seriously damaged.

In "The Real Integrity" research project undertaken by the IDEA Centre at Leeds University, the importance of individual and organisational integrity is emphasised. Two of the research's defined aspects of integrity include "wholeness of character" where individuals act and speak consistently and the organisation exhibits consistent behaviour and processes and "ethical values" where individuals act on the basis of ethical commitments and organisations have embedded ethical values.

The Flowers example just shows how difficult it is to instill individual ethical behaviours within an organisation without deep-rooted and on-going emphasis on the need for the values and behaviours to be everyday i.e. the basic and fundamental mindset of how business is conducted.

Thankfully Flowers is the ex-chairman. 

Big bonuses: gimmick, gesture or greed?

In Elephant Communication's market research entitled "Seeing the world through the consumer's eyes" respondents were asked the question "what would I do if I ran a financial services company for a day?". The results showed that the first changes consumers would make were:

1. Have UK-only call centres (66%)
2. Make financial products simpler to understand (60%)
3. Stop any big bonuses being given (60%)

The final point is interesting bearing in mind the discussion aired over the weekend by npower chief executive Paul Massara who is reported to say that "giving up my bonus would be a gimmick." This was in the context of Centrica's boss Sam Laidlaw turning down his bonus. Massara's reasoning was that his bonus was linked to performance which was linked to getting it right for customers.

In terms of getting it right for customers, it is pretty clear what the majority thought in this research. It would be interesting to see any research about the impact of big bonuses on building trust with stakeholders.If consumers perceive bonuses to be about greed, regardless of their link to performance, then a short-term gimmick/gesture does at least display some awareness of current issues. The key question though will be whether the top team's performance is every linked to such measures as openness,customer trust and fair treatment.

Transparency is key: yet again

Apart from Ed Davey the Energy Minister today calling for the energy companies to "stop treating customers like cash cows," there is also a call for more transparency into the real cost of the green levy and its impact on pricing.

And the National Audit Office (NAO) is also calling for the private sector companies (e.g. Serco, G4 etc), on big contracts to the public sector, to be more transparent about their profits and performance. The NAO also wants the public sector to demand more from their suppliers ensuring they have such things as Whistleblowing policies in place before they are granted public sector money.

These examples show the importance of moving to more transparent and open business practices as a way of building trust with multiple stakeholders leading to better and more cost effective business relationships.

Tone from the top: Ryanair's shareholders revolting

It's good to see that the shareholders of Ryanair have had a wake-up call and are starting to see that for long-term sustainable profits the fair treatment of customers is essential. The contempt, arrogance and machismo shown by CEO O'Leary for his customers has hopefully had its day.

Profits are set to dip for the first time in 5 years and the share price is making a dive south hitting the shareholders where it hurts most. To quote O'Leary they are now going to "stop unnecessarily pissing people off... [give] better customer service ....we're listening to you. We're responding to your needs".

 This is a fine example of the need for shareholders to use their power and pressure to shape the businesses they have invested in for all stakeholders. Why? because it reduces reputational damage, reduces the costs of dealing with dissatisfied staff, customers, strategic partners etc etc builds trust and ultimately builds value.

Also good on easyJet for creating the competitive pressure and alternative "role model".

An easy way to contact the Chief Executive

Customers with genuine grievances or complaints about companies, which they find are not being addressed seriously or adequately by the relevant customer services teams, may often experience real difficulty getting through the "gate-keepers" to the top team. E mail addresses and phone numbers  are frustratingly not public or easily available.

An organisation has set up a website to help facilitate the process to give customers access to the CEO. It can be found at www.ceoemail.com.

In today's connected world keeping secrets is just no longer possible. It would probably be much more effective for businesses to be actively more transparent so that customers' grievances and anger is dissipated rather than fuelled by deliberately obscuring the contact details they need. Make it easy to complain,address their needs and move on.

Ethics: true point of value for the Co-operative Bank

On BBC 4 Today programme, the new CEO of the Co-operative Bank Euan Sutherland mentioned that ethics was one of two points of value for the Co-operative Bank (the other one was turnaround), when asked about why the venture capitalists were interested in investing a 70% stake in the company. The management team have ensured that their values and ethics are written into the Articles of the bank to protect its key point of differentiation. It will be interesting to see how all this plays out over the long term when the demands of a new and dominant stakeholder start to bite.

Supermarkets: just too big to care?

In this weekend's Guardian there is a feature about the pricing of wine at the major supermarkets. It is interesting because it demonstrates the whole grey area of what is ethical behaviour, ie the fine line between legal practice and what is acceptable to business, and what is acceptabale to customers.

mySupermarket.co.uk has compared the price of wine at major supermarkets over a period of time. It has shown that some of the "special offers" or "half-price" wines are not quite what they seem. To make these claims legally a retailer has to advertise the product at a higher price for a certain period of time before it can be advertised as discounted. And this is what the supermakets have been doing and will continue to do i.e.advertise a £5 wine for a certain period of time at £10, then discount to £5:50 say. Nothing illegal. But in terms of fair treatment of customers and transparency this has got to be dubious practice as consumers become increasingly confused by the complex pricing adopted and increasingly duped into so called "good deals" and "little bit extras".

Some may argue that this "clever" and competitive pricing is all fair game and what business, profitability and shareholder return is all about. But to have genuine customer focus (which will eventually translate into a more sustainable and profitable business) there really has to be a more ethical approach and commitment to treating customers fairly. Presumably the supermarkets are now just too big to care.

Tone from the top: collaboration and transparency

Hannah Jones, Nike's global head of sustainability and innovation is reported in the "Management Focus" magazine of Cranfield School of Management to have said " We believe that the innovations required to create the future won't come from a single source. Not from science. Not from technology. Not from governments. Not from business. But from all of us. We must harness the collective power of unconventional partnerships to dramatically redefine the way we thrive in the future.

Her boss, Nike CEO Mark Parker responded. "Our future depends on innovation,collaboration and transparency."

These statements show that one of the major international companies is now responding actively and creatively to sustainable solutions. They will be doing this because they believe it gives them competitive advantage.  Competitive advantage is one one of the many business benefits of a commitment to ethical behaviours. Setting this kind of "tone from the top" with an emphasis on transparency (being open to your stakeholders) and collaboration, is a really good starting point for all organisations.

Addressing social issues can build a stronger business

In the October Harvard Business Review (HBR) there is a case study about how Walmart decided to address social issues and build a stronger business, i.e. they saw these two objectives as having synergies.Apparently they set goals relating to such things as sustainability, women (!) and more healthy food. The HBR article states that Walmart "has shown that taking on board social issues can be compatible with building a better business".

The key seems to be for organisations to just focus on genuinely being a better business, building up trust over the longer term, rather than the short-term focus of "greenwashing" PR.

The organsiational cost of getting it wrong for customers

This is a direct quote from "utilityweek". "Following the revelation that Scottish Power mis-sold energy deals through door-to-door salespeople and telesales. UK regulator Ofgem has fined it £8.5m. Ofgem says "today's announcement is a clear sign to energy suppliers of the consequences of breaching licence obligations and of the importance of taking action to put things right for consumers when they go wrong".

This, and the £10.5m fine to SSE energy company earlier in the year, provides further evidence of the monetary cost of failing to instill genuine customer focus and commitment within organisations and the reputational damage (which is much harder to evaluate) to the organisations involved and their industry.There is clear need here for cultural change to improve ethical behaviours throughout the organisation.

Responsible Business?

One of the main culprits of the PPI mis-selling scandal was Lloyds Bank representing one third of compensation claims (c£5 bn). In response to this scandal and the Parliamentary Commission on Banking Standards report it has introduced a "Responsible Business" strategy and it looks pretty promising. There is top level support for Responsible Business with a non-executive director chairing the Responsible Business steering committee. Staff (or colleagues as they are termed) have Codes of Responsibility to follow, to generate the correct behaviours. Their incentives focus on both a mix of rewarding low-risk culture as well as meeting the needs of customers. They state "we are trying to do the right thing based on the right judgements. Being legal is not enough". And they have independent assessment of their Responsible Business metrics.

What I find concerning is that the company undertaking the Responsible Business assessment is the Lloyd's bank auditor.  It is one of the "big four" accountancy firms which were criticised during the financial crisis for not doing enough to warn about company balance sheets or scrutinise banks' books in enough detail. It might have been far more reassuring for all of Lloyd's stakeholders and more of the "right thing" if they had looked to other companies outside the established "club" to conduct the independent Responsible Business audit. We can only hope that someone in that vast organisation is really accountable for the true "independence" of these various audits and that the previously criticised culture of the Board for "an indisposition to challenge" has now changed..