Enterprise Compliance Today

Citibank vs Berkshire Hathaway – The Power of Ethics in Governance

Posted by Greg Carroll on Tue, May 12, 2015 @ 01:27 PM

Maybe "Greed is Good" but with a 300% increase in Shareholder Value Berkshire Hathaway proves Ethics pays better!  But if Ethics pays, the traditional "zero tolerance" preach & penalize awareness training approach won't get you there, nuturing will.



corporate governance

Imagine being a junior manager at Berkshire Hathaway 10 years ago.  Just between 2014 and 2015 their Shareholder Value rose 300% from $116 billion to $350 billion.

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Most people drift into poor ethical decisions, not actively seek them.  As such it is predominantly a management issue more than a character failure.  With over 30 years exposure to people issues thru change management, and as a student of behaviour, I have seen time and time again the same interoffice relationships that were easy to predict the outcome. Zero tolerance and political correctness invariable inhibit ethical development thru proper analysis of negative ethical events and, more importantly, risk analysis and mitigation i.e. the opposite result to those the zealots advocating zero tolerance and political correctness seek.


Harassment – Zero Tolerance works as well as Probation

Let’s look at harassment (that’s harass’ment in Oz), one of the most emotive issues. Having seen a myriad of workplace relationships develop, there is a fine line between acceptable and unacceptable behaviour.  Contrary to the public perception of harassment, ignoring frivolous and spiteful cases, most involve the extension of relationships beyond the initial acceptable closeness. Flirting, friendship and admiration lead, mainly men, to misread signals and engage in unwanted attention. 

I believe the primary cause is the natural admiration of a junior for a mentoring senior.  Although commonly refuted in the latter part of the relationship, it tends to be prevalent in the early stages.  This raises the issue of adequate ethical training in those asked to provide mentoring services, whether as managers or experienced seniors.  A worker wouldn’t be let onto a building site without risk awareness induction but no such support is generally given in management environments.  Attitudes are developed over a period of time and need to be nurtured thru the use of practical case studies. 


Management need Ethics Mentoring

Again fighting the "zero tolerance" and political correctness brigade, anyone in Change Management will tell you awareness training needs to concentrate on the personal effects to those involved.  Financial, family, and peer ostracism need to be crystalized in the mind of young managers thru real world case studies.  The damage to company reputation, disruption to line of management, loss of expertise, and staff morale are major bottom risks to any business justifying a professional approach (and outlay) to the development of ethical practices.  On one hand we promote passion and close team work while on the other zealots are preaching "abuse of power" (although 50% of cases are peer-to-peer) and “do the right thing”.  These cliches acheive little and undermine executive obligations to identify risk and mitigate.  Just as with risk aversion vs opportunity, we need a balanced approach which is neither innate nor developed naturally.


Corruption “Counter-Culture”

Corruption and greed on the other hand tend to be institutionalised. Whether culturally or socially, the general method of attacking is thru preaching and penalty, again with a zealot perspective.  Look how effective that has been in the 3rd world and Wall Street.  The greatest threat is from books like “White face Black Heart” preaching cultural rights or “greed is good” film mantra which allow those practicing negative ethics to justify to themselves as a “counter-culture” thereby negating the zealots whole argument.  The Wolf of Wall Street is now on the lecture circuit. 


Focus on Shareholder Value not Revenue

Institutionalisation comes from poor management focusing Strategic Planning on a single objective: turnover.  More astute managers understand increasing Shareholder Value requires greater management capability in juggling all 7 strategic objectives to affect a return (see Apple vs Enron: How Good Corporate Governance Adds Shareholder Value).

Just as ludicrous as raising the drinking age from 18 to 21 to stop underage drinking, increasing penalties on existing crimes will not avert those who already don’t believe they will get caught.  Also publicly “shaming” those who openly brag of their exploits in bars and coffee shops will only promote their achievements.  It is a generational change issue where values need to be developed from early on in business.  The young crave recognition and the old their peers respect.  And not trivial tokenism but for major achievements. They need to be set major ethical goals and be well promoted when achieved.  It’s also good for company image and worth more than its weight in gold in building reputation. 


Citibank or Berkshire Hathaway

The much neglected “Commercial Sustainability” objective of Shareholder Value is ripe for developing sound ethical and business mores as the young guns of the organisation are the ones that will inherit the fruits of a developing company.  Imagine being a junior manager at Berkshire Hathaway 10 years ago.  Just between 2014 and 2015 its Shareholder Value rose 300% from $116 billion to $350 billion.  On the other hand Citibank, that stalwart of Wall Street culture, agreed to pay $7 billion to settle claims it misled investors and Citigroup’s return on average equity fell from 6.4% to 4.5% this year and ranked 90th overall in Forbes banking list.

Where would you prefer to work, Citibank or Berkshire Hathaway?



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Tags: corporate governance, shareholder value, ethics