Article of the Month -
August 2014
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Why Technical Standards are not enough for Professionals Working in
Land, Property and Construction and the Importance of International
Standards on Ethics
Gary STRONG and David PILLING, United Kingdom
1) This article was presented
at the FIG Congress 2014 in Kuala Lumpur, Malaysia. The paper explores
the opportunities and very real benefits that could be afforded not only
to professionals working in land, property and construction but also to
clients, the public and society more generally by the setting, promotion
and monitoring of international standards on ethics.
ABSTRACT
The paper will explore the opportunities and very
real benefits that could be afforded not only to professionals working
in land, property and construction but also to clients, the public and
society more generally by the setting, promotion and monitoring of
international standards on ethics.
1. TRUST AND REPUTATION
Trust lies at the heart of any relationship and
certainly at the heart of any business relationship. It flows from
concepts such as ‘my word is my bond’ and ‘you reap what you sow’. It is
also said that trust is hard won but very easily lost and then very hard
to recover.
There continue to be instances where trust has been
lost regarding businesses or indeed sectors, for example, the global
banking crisis, the press and the unauthorised use of personal
information by governments to name but a few.
Trust can also be measured – it isn’t just a
philosophical concept. There are a number of research and survey tools
used globally that look at the public’s view on trust of countries,
organisations, professions and individual professionals. For example:
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the Edelman Trust Barometer – which explores four
factors that influence trust in business – industry/sector, country
of origin, enterprise type and leadership. – in the 2014 findings –
it was found that only one if four general public respondents to the
survey trust business leaders to correct issues and even fewer – one
in five – to tell the truth and make ethical and moral decisions.
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The Ipsos MORI Trust Poll. This poll based in the
United Kingdom (UK) asks people for the views on whether they trust
a range of people in different professions or backgrounds, for
example, doctors, teachers, police, civil servants, business
leaders, politicians and bankers etc. Doctors rate as the highest in
terms of being trusted to tell the truth with 89% of respondents
rating them as trustworthy, the police register with 65%, the
ordinary man/woman in the street at 64%, estate agents are at 24%,
bankers and journalists at 21% and politicians generally at 18%.
Inevitably, things from time to time do go wrong and
all businesses may face crisis. The key is how the business then reacts
and what it does next. There are examples of companies who try and hide
what has happened. The classic example is the case of Enron, and the way
the Executives tried to hide losses and continue to position the company
in a much better financial light than it actually was. Equally, there
are examples of where companies have tried to put right what has gone
wrong.
In the Institute of Business Ethics ‘Occasional Paper
5 – The Recovery of Trust: Case studies of organisational failures and
trust repairs’ - highlights a number of case studies to show how trust
can be re-built. The case of Mattel’s multiple product recall in 2007
highlighted how quickly a problem in the supply chain can become such an
issue that it threatens the reputation of a company. The issue was over
some products contained high levels of lead-tainted paint, which posed a
serious health risk to children. The manner in which Mattel reacted was
critical. The day Mattel was alerted to the problem it ceased production
of the toys affected, promised full cooperation with the national
regulatory authorities and initiated a thorough investigation. Once
Mattel had enough data they launched a massive global recall. Mattel
used its code of ethics as the blueprint for dealing with the problem.
They also issued communications to their staff reasserting the company’s
commitment to integrity and external openness also prevented accusations
of a ‘cover up’ or negative and speculative press coverage. Mattel then
began inspecting every potentially affected toy themselves. In doing so,
the company claimed to have prevented two thirds of the toys reaching
consumers, as well as showcasing a significant investment in its
benevolence and integrity. Mattel issued a full apology to its
customers. By the end of 2007, Mattel had recalled more than 20 million
toys from 43 international markets. Costs were estimated at $40m, and
the stock price fell 30% in five months by December 2007. However, the
recall crisis seems not to have damaged their corporate reputation.
Sales for 2007 finished 6% up, and a poll of American consumers found
that 75% approved of Mattel’s response to the failure.
Another interesting case is that of Siemens, when in
2006 regulatory investigations revealed that hundreds of employees had
been siphoning off millions of Euros into false non-existent
consultant’s contracts, false bills and shell firms, in order to pay
bribes to win contracts. The scandal shamed Siemens, not just with
stakeholders and investors but also the German public and it brought
humiliation to thousands of its employees. Yet Siemens’ belated full
response to the scandal has been widely praised by many independent
anti-corruption and ethics experts. Initially Siemens played down the
extent of the problem and senior Executives made public pledges to
restore the firm’s battered reputation just a month later. Many viewed
this approach as incompetent.
However, Siemens then took a number of steps. As well
as a number of international investigations going on, Siemens announced
their own investigation – which was undertaken by New York law firm
Debevoise & Plimpton. The firm took a rigorous approach and it was not
until the following year that the most serious revelations came to
light. The CEO and Chairman left the company and the newly appointed CEO
announced a month long amnesty for employees to come forward. Forty
whistleblowers came forward. The Board also appointed Michael Hersham,
co-founder of Transparency International to serve as an adviser. Under
his guidance, Siemens rolled out a set of strict rules and processes on
anti-corruption and compliance across the business. They hired 500 full
time compliance officers and their new investigations unit was led by a
former Interpol official. Training was also put in place on
anti-corruption for employees.
Overall, the scandal cost Siemens 2.5 bn Euros, as
well as the costs of an exhaustive analysis of its financial
transactions, bail payments for indicted executives and fees of around
63 m Euros to outside advisers. The firm was also barred from dealing
with certain clients. The cost to employees of two long years of shame
under intense and hostile public scrutiny, especially in Germany, is
harder to calculate.
2. WHY STANDARDS ARE IMPORTANT
Professional bodies, trade associations and
businesses attach a lot of importance and weight to setting standards
that their members or employees are required to meet. This makes
absolute sense, if we take a profession, there will be many thousands of
individual professionals often working in in many different countries;
common sets of standards are essential to ensure consistency in how the
profession acts and the safeguards that are implicit and explicit for
the protection of clients and the public.
For professionals it is important to outline exactly
what we mean by standards. It is really a package of standards that we
are talking about, this includes:
The first set clearly have to be met in order to gain
entry to the profession, the second two are about ‘what you have to do’
in order to comply with being a professional, however, the final set
requires a different question to be asked. The question is not ‘what
must I do’ but ‘what is the right thing to do’. When considering this
package as a whole, it is very powerful and acts to safeguard against
professionals complying with the letter of the standards and moves the
actions and behaviours into complying with the spirit of the standard.
Or to put it another way, professionals need to be
able to meet each of the standards at the same time, the standards are
not there to be ‘cherry picked’ at particular times or situations.
Professionals can’t follow some of the standards and not others. Indeed
the strength of the package of standards is just that; they must be met
as a whole. There is no point being the most technically brilliant
professional within your profession if you act in an unethical way,
similarly, there is no point being the most ethical professional within
your profession if you are not technically competent. Either way they
are a risk to your client, the public and the profession as a whole.
The other important component in all of this is
regulation or quality assurance of the standards. Clearly it is not
enough just to have standards in place, what are the checks and balances
that sit behind those standards, how do you show that professionals live
up to those standards, that clients and the public are protected when
things go wrong and standards are not met.
3. ETHICAL STANDARDS
One of the key things about ethical standards is that
they set the right tone as it where, with regard to the right way to
behave, irrespective of external circumstances or factors such as
commercial pressure, boom or good times, times of austerity or
collective culpability – ‘it is ok everyone else is doing it’. As well
as having regulation behind ethical standards to help encourage
professionals to act ethically; it is also essential that there is
supporting information in place to help professionals maintain the
ethical standards and are supported in an appropriate way if they need
to raise concerns, speak up or even whistle blow. Many professional
bodies have provided conceptual frameworks for this purpose, for
example, the conceptual framework at the Royal Institution of Chartered
Surveyors (RICS) can be found at:
www.rics.org/ethics. This conceptual framework includes definitions
around the ethical standards, examples of the kinds of behaviours or
actions that would help to demonstrate meeting the standards, questions
that individual members could ask themselves, specific guidance around
issues like conflicts of interest and speaking up, a decision tree, case
studies and there is a confidential helpline that members can use.
Ethical standards at RICS are regarded as so central
to what RICS members are about and stand for that RICS’ International
Governing Council made it a requirement on all practicing members to
keep up to date on the ethical standards on an on-going basis,
essentially on a rolling three year cycle. RICS has provided all members
with access to a free e-learning course around ethics and the ethical
standards which has been translated into nine languages, as an option to
meet this requirement. Again providing this information and using these
approaches can help to embed the ethical standards with members.
4. INTERNATIONAL ETHICAL STANDARDS
So ethical standards play a key part in the whole
standards and behavior debate and encouraging many professional bodies
and trade associations have ethical standards and to a greater or lesser
extent supporting information for their members.
This is interesting when it comes to consider the
idea that RICS and other organisations are jointly looking at in terms
of building international standards across land, property and
construction, in particular, the work on valuation and property
measurement. International standards on valuation have existed for some
time and a number of organisations have signed up to those standards
through the International Valuation Standards Council. The property
measurement coalition of organisations came together last year at an
initial meeting held at the World Bank in Washington. At that meeting
the coalition signed a declaration to agree to develop international
property measurement standards and to sign up to those standards on
behalf of their organisations and their members.
This approach is incredibly powerful – a coalition of
organisations, representing many tens of thousands of members globally –
all agreeing a shared set of standards. This not only helps to raise
standards and enhance client and public protection but also provides
consistency in approach that is good for business. A consistent method
of valuing property globally coupled with a consistent method of
measuring properties globally can only be a good thing.
Work is now underway to begin to bring together a
coalition to look at building international standards on ethics. This is
an important piece of the jigsaw and again obtaining the agreement of a
range of organisations to sign up to and embed ethical standards is very
powerful. So valuations are undertaken in an appropriate way and
properties are measured in an appropriate way and with international
standards on ethics all professionals will do the work in an ethical
way.
In many ways, ethical standards lend themselves well
to being developed as high level or principles based standards for the
purposes of international standards. Indeed, this has already been put
in place for the world of accountancy. Through the International
Federation of Accountants (IFAC) and the International Ethics Standards
Board for Accountants (IESBA), high level international ethical
standards have been set for accountants globally. These standards have
gone through a whole consultation exercise globally with interested
stakeholders from business, governments and of course accountancy
professional bodies and trade associations. The accountancy professional
bodies and regulators follow the standards and require their members to
do so as well. So the precedent has already been set in one profession
globally.
There is a great opportunity here to do the same
across land, property and construction. However, there is potentially an
even greater prize that can be achieved. Ethical standards are not
technical in nature and can potentially work across a whole range of
professions or be applicable to a whole range of professionals, not just
in land, property and construction but much wider, such as engineers,
architects, builders, others involved in the business transactions of
land, for example, lawyers, accountants, financial institutions,
financiers and company secretaries to name a few. So whilst the initial
focus of the coalition work on ethics will be ethical standards for
professionals working in land, property and construction; the possible
next stage of that work may be towards building international ethical
standards that can be applicable across a whole range of professions.
Think how powerful that would be if you had whole professions signing up
to one set of ethical standards globally. This would help to bring
consistency and high standards, especially when backed up by regulation
or quality assurance, to business, clients, the public and other
stakeholders globally.
5. ETHICAL REGULATION
The importance of quality assurance or regulation has
already been mentioned in this paper. It is worth exploring the tenants
of what ‘good regulation’ or ‘ethical regulation’ looks like. Regulation
evolves and can change in focus at different times. For example, good
regulation in the past has been focused around ‘lighter touch
regulation’ (in an attempt to place appropriate burdens and costs on
business), and there have been calls for more effective regulation (in
light of concerns about failures in regulation, for example, in the
financial sector).
To be effective and ethical regulators need to not
only meet the principles of better regulation but also go further. The
principles of better regulation are:
-
proportionate – regulation being introduced where
its aims are clear and focus is on the problem or risk
identification;
-
targeted – regulators should focus their resource
according to an assessment of the risks;
-
transparent – regulators should be open though
taking account of legal requirements around data protection etc;
-
be accountable – regulators should be prepared to
justify their decisions and be open to public scrutiny;
-
be consistent – a lack of consistency will lead
to a lack of trust in the regulator.
However, as Sir Christopher Kelly in his Standards
matter – A review of best practice in promoting good behavior in public
life’ highlights there are other considerations that also need to be
looked at, for example:report ‘
-
pay attention to public opinion – to help judge
what standards of behavior are appropriate. However, regulators will
need to be prepared to go against public opinion where that is
justified but explaining why;
-
communicate – with those that they regulating but
also the general public and other stakeholders about the standards
they are promoting and why they are important;
-
be willing to use their discretion – to refuse to
investigate trivial matters;
-
achieve clarity about what falls within their
responsibility – and what does not;
-
have a range of appropriate and timely sanctions
at their disposal – an effective disciplinary toolkit; and
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be robustly independent – of those they regulate.
So, as well as the importance of standards and the
interplay between entry, technical, regulatory and ethical standards the
other fundamental aspect is the quality assurance or regulation against
those standards. This combination goes to the heart of protecting
clients and the public but also has major benefits for the professionals
and other stakeholders as well. Helping to raise standards, improve
behaviours and knowledge of professionals can only be a good thing.
6. EMBEDDING INTERNATIONAL ET5HICAL STANDARDS
Whilst the idea of trying to embed ethical standards
across a range of organisations within land, property and construction
and also across other professions may seem like a mammoth task, in
reality, it is no different to say the RICS introducing and embedding
ethical standards amongst its members – yes there are challenges but the
building blocks to help meet those challenges are the same. For example,
providing the conceptual framework, including information defining the
standards, examples of the behaviours that will go to demonstrate the
standards, further information around the main ethical issues
professionals will come across, for example, conflicts of interest,
speaking up or whistle blowing, promoting trust in the profession,
acting in the best interest of your client but also the wider public
advantage, decision trees, case studies and help lines. A key element is
placing a requirement on professionals to keep up to date on ethics as
part of their CPD obligations. The final piece in the puzzle is the
checks and balances of regulation to ensure that the standards are
followed.
7. THE BUSINESS CASE FOR ETHICS
Clearly, behaving ethically goes to the heart of what
being a professional is about and so acting ethically is the right thing
to do irrespective of whether it is good for business or not. However,
there is good news – it may go without having to be said but acting
ethically is good for business. There is hard data to show this link as
well. For example, the work undertaken by the Institute of Business
Ethics (IBE) – Does Business Ethics Pay? – Ethics and financial
performance, and Does Business Ethics Pay? - Revisited – the value of
ethics training.
In the initial research the IBE looked at a group of
companies quoted in the FTSE 350 index at 31 December 2001. In broad
terms the research showed that:
-
there is a strong positive association between
having a code of ethics, addressing non-financial risk effectively
and being amongst Britain’s most admired companies;
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19 of the 24 companies that have consistently
been in Management Today’s previous tables of Britain’s Most Admired
Companies have codes of ethics; and
-
between 1997 and 2001, there was strong
indicative evidence that large UK companies with codes of ethics
produced an above average performance when measured against a
similar group without codes. Those companies with codes out
performed those without codes in three of the four measures of
financial performance used in the study – Market Value Added (MVA),
Economic Value Added (EVA) and Price/Earnings Ratio. The fourth
measure – Return on Capital Employed indicator showed less
difference between the two samples.
The IBE update report – Does Business Ethics Pay? –
Revisited looked again at companies in the UK within the FTSE 350 and
used accounting ratios to reflect actual historic performance (Return on
Capital Employed and return on Assets), and market measures to reflect
market perceptions of the companies and are more forward looking (Total
return and Market Value Added). The updated research also looked at how
companies performed and split the research into companies that merely
reveal their ethical codes – Corporate Revealed Ethics (CRE) and
companies who embed their ethical policies into their organisations -
Corporate Applied Ethics (CAE). The results, in broad terms, showed
that:
-
companies with CRE underperformed when compared
to those with CAE for all of the financial performance measures
used; and
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there is a more positive relationship between
training in business ethics (applied ethics) and financial
performance compared to having no training.
Interestingly, the researchers in the Revisited
research look at 80 listed previous related studies looking at the
impact and relationship of ethics and corporate social responsibility
measures on financial results. The results were that:
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38 studies showed a positive relationship;
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18 studies showed no significant relationship;
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7 studies showed a negative relationship; and
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17 studies showed a mixed relationship.
8. CONCLUSION
Acting ethically should be part and parcel of being a
professional – a defining characteristic – a key component in the
package of standards that professionals should meet. Professionals
should act ethically because it is the right thing to do. Professional
bodies, trade associations and other organisations such as business
attach a lot of importance to having in place ethical standards that
their members or employees follow. We have discussed the importance of
not just setting ethical standards but also embedding those standards
into what members or employees do on a day to day basis. Conceptual
frameworks, helplines, training and regulation can all help to embed
ethical standards.
The good news is that acting ethically, doing
business ethically, is actually good for business in lots of ways.
Acting ethically helps to build the reputation of individuals, firms,
professions; it attracts people to want to work for ethical organisation
or become a member of a profession that is seen as having high ethical
standards, it improves employee and member retention; and, of course,
research has shown that it is good for the financial performance of
companies and organisations.
It is also good for client and public protection -
the expectation or assurance that professionals will act ethically. This
is enhanced with matters like training and regulation – or applied
ethics as opposed to revealed ethics. There is a good opportunity here
to bring together professional bodies, trade associations and other
organisations to look at having consistency in terms of ethical
standards globally; to sign up to those standards and help embed them
for the benefit of their members but also clients, the general public
and other stakeholders. The question is how far can this go? Certainly
the aim should be to work this across land, property and construction
but what about across a much broader range of professions.
BIOGRAPHICAL NOTES
Gary Strong is a Chartered Surveyor, Chartered
Arbitrator, Chartered Loss Adjuster and Chartered Building Engineer. He
has worked in central government, private practice and now is Director
of Practice Standards for the RICS. During his career of 30+ years he
has come across many ethical dilemmas in how professionals operate in
many countries around the world, and has a particular interest in the
topic. He is setting up a Commission 1 Working Group to lead a review of
the FIG Ethical Standards, ensuring that these tie in with any
international standards in ethics that will be developed.
David Pilling is a Barrister by training and
has worked as a civil servant on policies relating to employment and
education. This included writing reports on school security, the future
role and training of educational psychologists, working on legislation
on better regulation and special educational needs. David has also
worked for the General Medical Council with the fitness to practice
committees and also on the initial policy thinking around revalidation
for doctors in the UK. Since 2005 David has worked for the RICS in the
Regulation Department. During this time David has overseen RICS become
approved by HM Treasury as a Designated Professional Body for general
insurance mediation work; putting in place an ombudsman service to
resolve consumer complaints against RICS regulated firms, and more
recently consulting, developing and putting in place global ethical
standards for RICS members along with the supporting conceptual
framework.
CONTACTS
Mr Gary Strong
Royal Institution of Chartered Surveyors
Parliament Square
London
United Kingdom
Tel. +44 (0)20 7695 1522
Email: gstrong@rics.org
Web site: www.rics.org/knowledge
Mr David Pilling
Royal Institution of Chartered Surveyors
Parliament Square
London
United Kingdom
Tel. +44 (0)20 7695 1548
Email: dpilling@rics.org
Web site:
www.rics.org/regulation
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