ILM Discussion: People vs. profit

July 18, 2018

Business and finance journalist, Matt Packer discusses key news stories with the Institute of Leadership & Management (ILM) head of research, policy & standards, Kate Cooper.

 

We’ve all heard the old adage: all’s fair in love and war. But what about in business?

While obtaining and defending market share may be likened to battle, there are rules to abide by – whether they’re simply understood as fair practice, or set down in legislation.

Nevertheless, there will always be businesses that try and cut corners for one reason or another, whether that be to the detriment of the market as a whole, their customers, or even their employees.

 

Fair pay

HMRC has levied record fines of almost £2 million against 236 UK organisations that failed to pay their staff the National Living Wage and National Minimum Wage over the past year.

Totalling £1.97 million, the fines have stemmed from the taxman’s latest round of naming and shaming firms that have not met those basic wage requirements.

The exercise that has also identified a record £1.44 million in back pay for the workers concerned. HMRC identified five, main trigger factors for this year’s shortfalls, noting that organisations have:

  • taken deductions from wages for costs such as uniforms;
  • underpaid apprentices;
  • failed to pay travel time;
  • misused the accommodation offset, and
  • used the wrong time periods for calculating pay.

 

Now in its fifth year, the scheme has so far identified some £10.8 million in back pay for around 90,000 workers, with more than 1,900 employers fined a total of £8.4 million since its inception.

TUC general secretary Frances O’Grady said: “Minimum wage underpayment is happening on an industrial scale. Any worker who has been cheated deserves compensation. And their employers should be named and shamed. These record-breaking figures show that investing in enforcement works. But we know that tens of thousands more workers are still being underpaid, so government must keep the pressure on.”

Low Pay Commission Chairman Bryan Sanderson added: “It is crucial that employers understand their responsibilities and workers know their rights around the minimum wage. It is therefore encouraging to see that HMRC has recovered unpaid wages for the largest number of workers yet in this round of naming and shaming. I’m confident that the government will continue to pursue underpayment of the minimum wage vigorously.”

 

Ethical treatment

Given the huge scale of the fines and back pay, it is clearly in the interests of organisations to do better. So what does all this say about leadership within firms that are failing to hit the mark?

Kate Cooper says: “There are a few things going on here. Firstly, it’s entirely plausible that one factor behind this may be a low awareness of legislation. Some leaders may not be sufficiently clued up on minimum-wage laws in particular, or employment law in a more general sense. So we should accept that a level of genuine ignorance is contributing to this picture.

“But secondly, having said that, employers have a duty of care. It’s very much an ethical position – and aside from that level of genuine ignorance, we can infer that leaders are making cheese-paring decisions that are failing to value the people they are employing. If members of their family were employed under such stringent conditions of payment, would they think that it was fair? When we frame the issue in those personal terms, what we’re really talking about is empathy. Do leaders really appreciate the impact that being on the minimum wage – which has been determined not to be a living wage – has upon people’s ability to manage? What’s life like for those individuals?

“Thirdly, if that leads those leaders to form an argument along the lines of, ‘Well, we can’t afford to pay our staff any more than that,’ then we’re essentially in a Carillion situation: we’re pricing jobs unrealistically. If employers can’t afford to pay a reasonable rate for the services they’re providing, then there’s a flaw in their consideration of the Four Ps, which are Product, Price, Place and Promotion. In the case of those leaders, the Price element of their strategy is simply wrong. Therefore, the business itself isn’t working.”

Cooper summarises: “So, there are two levels to this: the micro level, at which the impact upon the employee is severe, and the macro level, at which the business model is inherently flawed. Leaders must understand that any unreasonable decisions they come to while forming their business models carry a human cost.”

 

Compromising integrity

From businesses behaving badly to employees, one in six European employees says they have felt some form of pressure to compromise their organisations’ ethical standards in the past three years.

This is according to a report from the Institute of Business Ethics (IBE). In fact, Ethics at Work notes that the number of employees experiencing such pressure has risen in every country for which historical data is available.

IBE director Philippa Foster Back said: “This is a worrying development. Employees are under more stress to deliver than ever before, and this is increasing the pressure to then cut ethical corners. These figures should be seen as a warning sign to organisations that they need to be more supportive of their employees when it comes to making ethical decisions.”

But despite Foster Back’s call for intensified ethical governance, the report indicates that leadership figures are falling easy prey to the very ills they should be fighting against. IBE’s research shows that managers’ attitudes to petty fiddling have become more tolerant over time – 30% of them actually think that it is inevitable in modern organisations. One in eight managers even take the view that it is acceptable to artificially boost profits in a company’s books, as long as no money is stolen.

 

Whistle blowers

However, underneath all this, there is the encouraging finding that employees are more likely to speak up about misconduct. More than half (54%) of workers who were aware of misconduct in their organisations said something about it: an improvement on IBE’s previous Ethics at Work survey of 2015.

UK staff were most likely to have reported misconduct (67%) while respondents in Portugal were least likely (49%).

Foster Back added: “Global movements like #metoo and #timesup are having ramifications throughout the workplace – not just in terms of people speaking up about harassment, but in feeling empowered to raise concerns about other issues. We hope that this is the beginning of speaking up being seen as business as usual.”

With that in mind, then, how can leaders help their employees to develop high levels of ethical awareness and conduct?

Kate Cooper says: “Individuals typically perceive their own behaviours to be more ethically driven than those of other people, which certainly provides an interesting insight into how people situate themselves within the broader ethical landscape.

“Another theme that has come up over and over again is a call for an end to The Unspoken: a procedure or pattern of behaviour that is taken as read to occur and is consequently waved through regardless of its ethical dimensions. That covers unspoken agreements or unspoken processes. Indeed, that was a key concern at the heart of the Parliamentary expenses scandal. The pattern of claiming expenses in the ways to which MPs had become accustomed for topping up their salaries became part of the furniture. It took intense media scrutiny to flag up just how egregious that pattern was.”

She explains: “If you have a situation in which people are drawing their own ethical lines because of unspoken factors, then it follows that perceptions of what is, or is not, ethical will vary hugely from individual to individual. And if – as the IBE survey suggests – managers are allowing, or becoming comfortable with, minor infringements, then it will make major infringements so much more acceptable. And, therefore, likely.”

The conclusion Cooper draws is that it all comes down to rewarding the behaviours you want to see.

“You can’t reward people for ‘not being unethical’ – that’s a tricky, vague requirement. But you can have defined standards by which staff are expected to abide – and when you see deviations from those standards, you call them out and submit them to discussion. Where you run into grey areas – particularly those that stem from culture clashes – then make every effort to reconcile the difference between those cultural sentiments and the standards that you expect.

“You must show your employees what high standards of ethical awareness and conduct look like. And it must be an ongoing conversation.”

 

For more on these topics, listen to Episode 4 of the ILM podcast in partnership with LID Radio:

About the authors

 

Matt Packer

Matt Packer is a business and finance journalist who provides expert comment for organisations such as CPA Global, Inemmo Leadership Development Consultancy, The Institute of Leadership & Management and the Chartered Management Institute.

 

 

Kate CooperKate Cooper is head of research, policy and standards at the Institute of Leadership & Management (ILM). She has appeared on BBC Television, BBC Radio 4, has a regular column in Dialogue magazine, is a key note speaker at conferences and provides expert commentary on a range of topics arising from the Institute’s research agenda.

 

 

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