High CEO Salaries ‘Unethical’ But Charity Ethics ‘Strongly Positive’

The latest Governance Institute of Australia Ethics Index shows a continuing gap between Australians’ expectations and perceptions of ethical behaviour in many sectors including the charity sector, with executive pay proving especially troublesome for some.

The index showed that 77 per cent of Australians believed a CEO salary of $3 million a year (or 50 times the average Australian’s yearly income) was unethical, 55 per cent believed an annual CEO pay packet of $660,000 was unethical but most believed a $300,000 salary package was ethical.

The report also found Australians were unhappy with the ethical standards of large corporations and their CEOs, particularly in banking and finance, as well as parliamentarians, unions and large sections of the media.

In contrast charities, health and education professionals, and the ABC were perceived to have much higher ethical standards.

Sectors in which workers were perceived as less likely to be motivated by wealth, power or fame were seen as more ethical (health, education, charities and not-for-profit organisations and some professional associations), while those in government, banking, finance, insurance, large corporations and the media – particularly social media – were ranked lower.

The index found that superannuation funds were perceived as having much higher ethical standards than other financial organisations.

“There is a pattern in how Australians view ethical behaviour. They rank people they have the most personal contact with – GPs, pharmacists and the nearest local hospital – as the most ethical while those more distant are perceived as less ethical,” Governance Institute chief executive Steven Burrell said.

The survey of more than 1000 people found that while Australian society, overall, was seen as ‘somewhat ethical’ (with an index rating of 39), large corporations, the banking finance and insurance sector, every level of government and political representatives all had significantly negative ratings on ethics.

“As was the case last year, perceptions of ethical standards in the health and education sectors, charities and small business were strongly positive,” Burrell said.

“Australians continue to rate chief executives and directors as the most important ‘gatekeepers’ influencing ethics in organisations. Board chairs and senior management are also seen as important drivers of ethical conduct, showing that these roles are perceived to wield considerable influence over this aspect of corporate culture.”

The index found that laws, regulations and financial penalties were seen to influence ethical behaviour, but were not considered as important a factor as the ‘tone from the top’ set by directors and C-suite executives.

Overall, corporate leaders did not rate well. The index found that company secretaries, directors of Australian companies and chief financial officers rated as more ethical than unethical, while board chairs, foreign company directors, chief executives and senior executives were all seen as unethical on balance.

“The role of leadership in promoting ethical conduct in the business sector is viewed as important by 56 per cent of Australians, and these leaders are seen to have the key role in influencing ethical behaviour, yet neither they nor their organisations are perceived to be very ethical,” Burrell said.

The survey found that professional and business associations, including the Governance Institute of Australia, Australian Medical Association, Farmers’ Federation of Australia, Engineers Australia and Chartered Accountants Australia and New Zealand were considered strongly ethical. However, some others rated poorly, with the Real Estate Institute of Australia receiving negative ratings.

The survey also showed that a sizeable majority of respondents agreed that boards should act in response to poor personal behaviour by CEOs and senior executives. Over half (56 per cent) favoured intervention in all ethical situations while a further 35 per cent favoured intervention when the personal behaviour had a direct impact on the business.

“This issue could become a potential minefield for boards and the C-suite,” Burrell said.

The survey asked respondents about their own experience with “personal ethical dilemmas”.  Not only were personal, family and relationship matters described as considerably more difficult to assess than financial matters, when it came to personal ethical matters, 31 per cent indicated that in hindsight they would now change their original decision.

Whistleblowing was seen as among the “top five elements ensuring ethical conduct” in society, ranking equally with “a strong legal framework” and ahead of “strong, inquisitive media and oversight by regulators”.

Protection for whistleblowers was considered very important, yet Australians are not convinced they are treated ethically.

In terms of media platforms, the ABC had the highest scores by far, while Twitter and Facebook have the lowest scores.  LinkedIn, however, was seen as very ethical.

“The index makes it very clear that societal, not environmental, issues pose the greatest ethical dilemmas for Australians. Decisions about immigration, euthanasia and terrorism all rate as more ethically challenging than those relating to climate change, the environment and renewable energy,” Burrell said.