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The Actuary The magazine of the Institute & Faculty of Actuaries
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Integrity the rhetoric and the reality

T oday, the word ‘integrity’ is constantly in the news. Sadly, this is because ‘hypocrisy’ and ‘vice’ dominate the political, social, and business headlines. A perfect example of this dichotomy is the Enron code of ethics, a truly worthy document, full of good intent and solemn commitment. In its introduction, Kenneth Lay, former chairman and CEO, proclaims that:
We want to be proud of Enron and to know that it enjoys a reputation for fairness and honesty and that it is respected.
He then finishes with ‘Enron’s reputation finally depends on its people, on you and me. Let’s keep that reputation high’. Fine words indeed, but ultimately they remained just that, fine words.
Hannah Arendt, a 20th-century philosopher wrote:
What makes it so plausible to assume that hypocrisy is the vice of vices is that integrity can indeed exist under the cover of all other vices except this one. Only crime and the criminal, it is true, confront us with the perplexity of radical evil; but only the hypocrite is really rotten to the core.
What we are now facing with Enron et al are not just the obvious vices of greed, fraud, or theft. What we are now confronting is hypocrisy, a fundamental and systemic flaw in business. We say ‘value’; we mean ‘profits’. We say ‘profits’; we mean ‘bonuses’. We say ‘assurance’; we mean ‘risk’. We say ‘trust’; we mean ‘breach’. We say ‘you’; we mean ‘me’.

Personal responsibility
I use the word ‘we’ quite deliberately. Corporations are not sound or corrupt, ethical or unethical. A corporation is just a legal fiction. It has no body, no soul, no heart, and no animus. Yet we think and speak of companies as if they are human: they’re not. But every employee, customer, investor, supplier, creditor, regulator in fact, every stakeholder is ultimately and individually human.
I believe that every human being connected with a business shares personal responsibility for the integrity of that business. For example, the responsibility of an insurer to pay out on a legitimate claim for loss is a responsibility shared by the claimant to be honest about the circumstances and value of that loss. The claimant’s friend, who might know that fraud is intended, shares a responsibility to reason with his friend not to make a fraudulent claim for his friend’s sake, because of the increase in his own premiums, and for the income denied to those pensioners who have invested in the insurer.
This intricately connected web and network of social, economic, and political relationships which defines a business is its integrity. The Latin integritas means ‘soundness’; ‘integer’ means ‘whole’ or ‘complete’. But when we say one thing and do another, we break the trust which binds this sound and wholesome network of human relationships.
At a superficial level, the scandals which continue to surface with depressing frequency seem to be about greed, fraud, and incompetence. But if we accept that a business is a complex network of personal relationships based on trust, the systemic and fundamental reason why these scandals continue is because this hypothesis is not understood. We may feel uneasy about these matters, but we have yet to really think things through in a conscious way.
Instead, we respond with more rules and regulations. We tighten codes of corporate governance. We issue codes of ethics. We punish miscreants and hang them out to dry. Yet things seem to be getting worse, not better. This is because integrity cannot be imposed by governments, regulators, CEOs, boards, ethics officers, or God forbid ethics consultants! It cannot exist just because we say it exists. Integrity exists only if we each consciously take personal responsibility for playing our part; a good part.

Hypocrisy hypotheses
In our paper Integrity in Practice, commissioned by the FSA in 2003, Abbot Christopher Jamison and I referred to Kohlberg’s theory of moral development. Our moral journey through life begins as children with ‘obedience and punishment’. Our ultimate goal is to acquire a ‘principled conscience’, when we accept universal principles of morality and the demands of conscience. In our paper, we asked the question, which is worth repeating now: where in this moral journey is business today?
Last year, I conducted a survey of ethical practice within the UK’s largest financial services firms. The Integrity in Practice survey received responses from 15 firms, with a combined market value of over £200bn, employing over 600,000 people. The results of this survey have helped me to shape a ‘hypocrisy hypothesis’. Of these firms, 73% publish business principles or a code of conduct/ethics. So far, so good.
Unfortunately, most firms:
– do not clearly articulate their business principles;
– do not recognise that everyone in a firm is responsible for ethical standards;
– do not assess the ethical standards or integrity of recruits at any level, including the board;
– do not have effective ethical learning and development programmes;
– do not recognise ethical dilemmas or handle them fairly and with integrity;
– but do recognise that something must be done to ‘embed’ ethical principles, if only the resources were available!
Some of the responses were entertaining, but also, depressing. When asked whether firms aim to do business to the highest ethical standards, ‘Yes, broadly speaking’ from one respondent was not a reassuring start. When asked who is responsible for ethical standards, ‘the director of group communications’ was the revealing answer from another firm. When questioned as to how firms articulated their ethical standards, I decided to select some winners and the third prize went to ‘Ethical policy will not be distributed’. When asked ‘what learning, education, or consultative processes do you have for continuous development in ethical awareness, values and behaviour?’, the runner-up prize went to ‘the communications department sends worldwide emails’. First prize went to the firm which asserted that ‘ we cannot improve our ethical foundations’, but was subsequently fined and publicly censured by the FSA.

Small responses
There are several very serious issues here. First, it is arguable that most of these firms are in breach of the FSA’s high-level principles for businesses, which insist that all registered firms do the things most of them admit they’re not doing. Second, having invested time and effort in responding to the survey, only three out of the 15 firms have expressed any interest in discussing the results in detail. In these three cases, the interest came from those with a full-time job in this area. My writing personally to each of the chairmen concerned led to only two responses, both of which declined the invitation for discussion. While my personal charisma may be defective, given the statutory personal responsibility of chairmen in these matters under the FSA’s Combined Code of Corporate Governance, I did at least expect to be passed politely down the line. Third, and more seriously, these firms are saying ‘integrity’ in public, but mean ‘hypocrisy’ in private.

What to do
The Actuary is the first journal to publish the findings of this survey. I have decided to do so here, because I believe that the actuarial profession should be aware that the UK financial services sector seems to have, by its own admission, a serious integrity problem. Furthermore, I’m guessing that financial services are not atypical of any business sector. So what should be done?
– We must acknowledge there’s a problem. Denial is not a sustainable response.
– We must understand the nature of the problem. Integrity is not a synonym for honesty. Integrity is about every stakeholder in business taking personal and collective responsibility for their actions and for achieving exemplary standards of behaviour. I doubt that the FSA’s emphasis on ‘acceptable’ market conduct, for example, is a sufficiently high bar to be effective.
– Moral education is critical to our understanding of these issues and in our evolution as moral people. This is made doubly difficult because we live in a society where moral education is no longer a central part of our cultural or educational curriculum. The good news is that while moral development is a lifelong quest, moral education is not demanding in terms of time and financial resources. Just a few hours every year, at an employee cost of no more than a couple of hundred pounds, are all the resources required for an effective integrity programme.
– We must acknowledge that those in business with a less developed moral conscience will need a ‘business case’ for ethics and integrity. Fortunately, this is not difficult to make. There have been several major studies which have shown that leaders who demonstrate personal humility and businesses which can demonstrate integrity in terms of a shared sense of shared values, perform significantly better than those that lack such qualities, values, and virtues.
– We must also understand that morality and capitalism are not mutually exclusive. It’s OK for traders in investment banks to make millions in profits for their employer and perhaps for themselves, as long as they work with integrity. The profits they make will flow through the network as income for many investors, including charities and pensioners. But some will argue that to do so by trading tobacco stocks, for example, would not be ethical. The network of mutual values and shared morality is very narrow in such instances.
– Finally, enough people need to take action for integrity to flourish. In the words of Plato, ‘ the penalty good men pay for indifference to public affairs is to be ruled by evil men’.
Integrity is not just another management fad. The holistic nature of integrity is based on the accumulated wisdom of millions of people over thousands of years. As social animals, integrity is not an option for survival it is critical. Without integrity in practice, our businesses, our families, and our social institutions will be corrupted and destroyed by the viruses of greed, fraud, and hypocrisy.

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