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The Actuary The magazine of the Institute & Faculty of Actuaries

Widening the ethics debate

Ethical training should cover business impact as well as individual behaviour, says Roger Bevan, to help ensure that corporate decisions protect a company’s reputation 


Roger Bevan
© Roger Bevan

As an actuary, one feels proud to be a highly regarded professional who works to agreed standards of conduct.  My interest in professionalism and ethics began while working for the actuarial profession with responsibility for professionalism courses, while both my current roles have involved developing alternative ways of improving understanding of professionalism and the implications of ignoring it. 

Enlightened directors are realising they have to be more searching in testing whether their company’s decision making is consistent with its stated ethical and business values.

Ethics are standards expected by the community at large, often ones that are not regulated or controlled by codes of practice but reflecting culture and attitudes. The fairness of tax paid by multi-national companies and the question of who benefits from the VAT refunds in airport shops are examples of companies complying with the law, but no longer meeting the moral and ethical standards expected by their stakeholders and the public at large. The pressure on energy companies to cut prices to the consumer in the light of the falling oil price illustrates the ethical dilemmas that can arise between improving returns to shareholders and satisfying other stakeholders. 

Similar dilemmas occur in the financial services sector, for example in pricing annuities when interest rates change. According to The Institute of Business Ethics’ analysis of news stories in 2014, 38 per cent of all complaints about the way of conducting business were against the financial services sector, more than any other business sector, followed by 13 per cent for retail. Fines issued by the Financial Conduct Authority increased from £424m in 2013 to £1.4bn in 2014. Why is there so much mis-selling of financial products and manipulation of numbers for presentation purposes while obscuring what is really going on? 

Has a culture developed of bowing to pressure from the short-termism of shareholders to the exclusion of other stakeholders, combined with personal greed and job protection? What more could our profession be doing to help reduce the likelihood of poor business decision making in the future, across all industries and not just financial services?

The focus on behaviours will continue, with more questions being asked and issues unearthed by the media and government. Enlightened directors are realising they have to be more searching in testing whether their company’s decision making is consistent with its stated ethical and business values.

Personal and corporate standards

Currently the debate about ethical dilemmas in training programmes is often confined to an individual’s behaviour, in making the right judgment where there is a conflict of interest, respecting confidentiality and behaving responsibly when off duty. Our Actuaries’ Code is worded as “Members will …” such as in “Members will act honestly and with the highest standards of integrity.” The Code seems to be mainly focused on personal behaviour, although it does refer to members needing to speak up to their clients or employers if they believe a course of action is unethical. 

I believe we need to widen the debate and consider more rigorously the ethical aspects of decision making that may impact a business. Do the perpetrators of unethical business practices consider the potential implications for their companies in terms of financial cost, damaged reputation and loss of trust in the management, for example VW in relation to the emissions tests? 

A recent publication by the Institute of Business Ethics argued the need for ethical considerations to be part of a company’s internal audit processes. Actuaries can assist in this regard, enhancing their roles when acting as a consultant or as manager in an insurance business. 

There is a need to understand the culture of a company and to be alert to identifying the extent to which non-ethical aspects of the culture may drive business decisions. One of the UK banks used to state frequently that its chief objective was to maximise the profits for shareholders. Is it any wonder that, when fairness to customers came under the spotlight, the bank suffered multiple mis-selling issues that have proved disastrous for shareholders as well as affecting trust in the bank and its reputation? 

The decision making process needs to identify the potential ethical issues that may affect all  stakeholders, including  shareholders,  customers,  suppliers,  staff,  legislators,  environmental agencies,  media etc. There needs to be a change in thinking in order to meet the rapidly increasing governance expectations, with ethics training for everyone. This must not be regarded as a tick-box exercise, but a clear process with audit trail is needed to protect businesses from the ethical pitfalls that have affected others. 

Training methods

How could actuaries expand the scope of Professional Skills Training for which we must carry out just two hours of CPD each year? The online case studies available are excellent but their worth depends on how they are used. We can watch the videos at home, or do as we did at the University of Kent where a number of us watched and then debated them as a group. This interaction proved particularly worthwhile, opening up one’s thinking and generating a range of different perspectives.

At Elgood we have found that getting people together brings alive the ethical issues, enabling them to experience the effect of their decisions on a business. They can then relate management and ethical considerations to their own businesses, giving them new ideas about processes to follow. Participants can also practice and self-assess their business acumen, communication and influencing skills, as encouraged by our profession. 

I believe priority should be given to developing in managers a greater understanding of the importance of ethics. We also need to start educating people more thoroughly at a young age, in order to improve the ethical decision making of future managers.

The standards set out in The Actuaries ’ Code and the Code of Conduct of The Securities and Investment Institute both cover integrity, regulatory and professional compliance, conflicts of interest and the need to keep competencies up-to-date. In my experience a common reaction by some foreign students is that these codes will never work in their countries because businesses and governments are too corrupt. In the UK we need to guard against gravitating towards the cultures that exhibit unethical standards, without regard for the potential loss of reputation, money and trust.

There is growing pressure from the public, the media and the government for companies to justify business decisions. Companies need to ensure compliance with their own codes of conduct and that all stakeholders are fully considered when decisions are made. Actuaries play an important role in ensuring the financial soundness and profitability of their clients, but also need to bear in mind the ethical implications of their advice.

Roger Bevan is a business trainer at Elgood Effective Learning and lecturer at University of Kent in actuarial science and ethics