Wages et al — Ethics and Morals in Business

Writing about other businesses, as a business person and company director is always risky. Will I or one of the organisations I am involved with fall foul of compliance issues, making me look like a pompous twat?

But if we can’t discuss this in an open forum, then I suggest we are merely hiding our head in the sand.

In this article, I will use George Calombaris’s restaurant group as the case study, like most I don’t know the ins and outs of his organisations, nor do I know Mr Calombaris, and I certainly don’t mean him any harm. At least he had a crack at building a significant business.

I want to discuss three things.

  • How the business community (business media, business lobby groups, directors, etc.) doing themselves a disservice as they respond to these issues?
  • The role of company directors, even when you perhaps don’t see it as your profession?
  • How do we find the ethical balance?

It is essential to state that Mr Calombaris situation is far from unique in Australia. In the hospitality sector, other famous organisations have also had allegations regarding challenges to correct wages, including, Neil Perry’s Rockpool Dining Group [1], Merivale Group [2] and the Retail Food Group [3]. There is also the much broader business sectors where issues have been visible in large organisations such as Woolworths [4], Caltex and 7-Eleven [5], and even the ABC (in the public sector) and the RSPCA in the not for profit sector [6]

Business Response

There have been many different responses from the business sector, some calling for an amnesty on investigating wages through to it is the “complexity of our industrial wages system”, union pressure, or even a government conspiracy around using the term “wage theft” [7]. The CEO of the Australian Industry Group (a business lobby group) was reported in The Australian as stating, “Despite this, the heat put into the issue of wage underpayments through using unnecessarily loaded terms like ‘wage theft’, have had the result of costing more than 400 people their jobs.” So somehow, employees have lost their jobs because employers have not been able to pay their staff correctly?

Some commentators have even suggested that the response to employers underpaying staff is some unreasonable “moral panic” in the wider community [8]

Is the business community telling the truth around “award complexity”? According to Professor Joellen Riley from the University of Technology, Sydney’s Law School as reported in Crikey [9] ongoing work from all governments since 2010 has seen a significant reduction in the complexity of awards. For each industry, there is generally one award for each major category of employees, so it is not that hard to find the awards and to implement them.

One has to recognise that Calombaris’ organisation self-reported the issue. While that was the ethically responsible thing to do, that doesn’t mean that the organisation is automatically immune to whatever the consequences may be.

Many of the business lobbyists are calling for more and more restrictions on union activities (and there has been some extremely poor union behaviour), the same business lobbying organisations call for a “free pass” when businesses are found wanting?

What has been particularly noticeable has been the relative silence from the business leadership/director community around this issue of wage underpayment. The Australian Institute of Company Directors in late 2019 commented that “systematic underpayments are concerning” not just because of the financial impact on the employees, but continues to “undermine community confidence in corporate Australia”. [10]. The AICD quite rightly discussed risks, both financial and reputational, and spends more time on the personal legal exposure of directors. However, they don’t raise or discuss the ethical and moral implications of what they call “systematic underpayments”. Regrettably, ACID also fuels the notion of a “complicated industrial wage system” as a potential defence or excuse for such systematic issues.

The Role of Directors

Directors work in a complex environment, with the significant legislative environment, and the vital activity of setting the organisations strategy, risk appetite and monitoring the successful achievement of the plan.

Many directors find themselves there by accident, being on a not for profit, or their family business’s board. They focus on the activities of the business and at times, forget some of the critical activities of being a company director.

One of the critical activities of company directors is in the area of risk, and associated with that is the process of assurance around the key controls.

It would be reasonable to suggest that for organisations that have a significant proportion of their expenditure on wages, then payroll compliance would be seen as a relatively high-risk area.

One of my observations of corporations (and also governments) has been the ongoing reduction in the processes of assurance, that process to assist us as directors to have a level of confidence that those key controls are in place and working.

When I started my professional life in Internal Audit in the 1980’s we not only undertook detailed payroll internal audits on a regular cycle but also had a routine that automatically recalculated the payrolls and tested for differences in the main payroll runs. Perhaps the latter was overkill, but the former should be in place and often isn’t.

Internal Audit as a profession has, in many ways, been gutted and often outsourced. It is often driven as an “internal audit costs” rather than a mentality of internal controls assurance. The number of times I have seen internal audit scopes; where the sample size is so small (when with computer-assisted auditing techniques it is possible to test the entire payroll) or where there are so many exclusions (we won’t test for overtime, or expenses, or something else), that the effectiveness of an internal audit assurance process has become questionable.

As company directors, we must consider the full cost of running our businesses, which includes paying people their rightful wage, but also the cost of an effective assurance process. We might feel we are doing the right thing in managing down “back office” costs in areas such as internal Audit, but as we are now seeing, we are seriously leaving our businesses exposed through lack of compliance, and in Calombaris case, ultimately the potential destruction of the company.

The Ethical Discussion

What I have found concerning during the discovery of this entire wages issue, has been the lack of discussion on businesses operating ethically.

Some commentators have been inferring that having been caught, an amnesty should be provided to those not in compliance with awards or legislation, whatever that means?

The Australian Institute of Company Directors was right in its brief article on the wages issue that the reputation of corporate Australia is at risk. How many more Royal Commissions to we have to have to show how corporations are misbehaving (Institutional Child Sexual Abuse, Financial Sector, Age Care, Disabilities)?

What do these Royal Commissions and the wages issue say about the effectiveness and professionalism of company directors in the critical area of compliance?

There are a couple of crucial discussions that directors need to be having in their board room at the moment, the role of the organisation in the area of social responsibility and ethics.

There are still some senior company directors in Australia who take the view that corporations and company directors don’t have a role to play in social responsibility or broader social issues. I think the community has moved on and have an expectation that corporations will have an active role in broader social issues. While that question is not entirely settled, to engage within those more general social issues, company directors and corporations do need to have a view on ethics and morals.

The response from the business community to the issue of using the Australian Institute of Company Directors language of “systematic underpayments” would suggest that there is still some way to go in the area of ethical values and morals. Ethics and morals need to be an area of focus with in the world of business if the wider community is going to regain confidence in corporate Australia.

Jason Masters is a company director having sat on boards of financial institutions, pharmaceutical start ups, government and not for profit boards. His key expertise is in the area of corporate and IT governance as well as risk and audit. Jason is a leading probity advisor, advising on the integrity of large complex transactions.

Originally published at https://societyethicsbusiness.com/blog-1/f/wages-et-al---ethics-and-morals-in-business

Business leader, LGBTIQ Advocate, Gay, Christian, Author, Occasional Blogger, Father, Traveller

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