Unethical behaviour seriously affects work environments in banks. Formal internal control hardly prevents unethical behaviour as human behaviour is influenced by multiple factors. Several issues like trust, leadership, and job security can influence ethical behaviour and factors such as authority, conformity, and peer pressure also stimulate such behaviour.
Target pressure, time pressure, financial pressure (both on the personal as well as the organisational level) and operating in a very competitive environment are likely to influence unethical behaviour. To encourage ethical behaviour, a bank should engage sufficient time and resources to look at behavioural factors that influence employees' behaviour in the organisation.
Attention to these factors contributes to a better understanding of fraud and unethical behaviour and can help create more effective and efficient internal control systems and compliance management.
There is no doubt that sometimes aggressive banking causes unethical behaviours. It is crucial for the bank management to get the insight of the factors that influence ethical behaviour in the banks in a bid to adopt right approach for improving ethical culture.
Employees have to know and understand every new rule or control that is to be introduced in a bank or that has to be implemented; and at the same time, a banker must understand clearly, what is 'accepted ethical behaviour' and what is not. Code of conduct must be a clear, consistent, and motivating. It should be a basic set of written general rules. A properly implemented code gives employees clarity, motivation and also helps remove their doubts and dilemmas over many issues. It has been observed that despite having code of conducts, many banks fail to communicate those to their employees properly.
Active training and communication help clarifying the right behaviour. Communicating and training employees about the right behaviour help setting the right examples in an organisation. Of course, this should be done after establishing internal controls properly. Codes can be communicated through letters or emails, separate websites on ethics and compliance, and in-house magazines.
If signs of possible misconduct are not taken into cognizance and acted upon, a bank runs the risk that further incidents might occur. Suspicions of misconduct should, first and foremost, be dealt with by direct line managers. However, this is not always enough to address the issue. Employees may hesitate to raise certain issues, particularly if these are of a structural nature or if it relates to their immediate superiors.
In large organisations, establishment of a safety net is important in this respect. Small banks sometimes struggle to set up a formal reporting procedure for employees to voice concerns on possible misconduct. Usually a 24/7 whistle-blowing hotline doesn't work for a small company because of the scale. For small organisations there are more effective and cost-efficient solutions. Every bank should have a proper reporting procedure on possible misconduct for an important behavioural reason.
Promoting ethical practices require positive and negative incentives. In a corruption-ridden system, an attempt to curb corruption will come up against entrenched work culture and can achieve only modest success to start with. But with prolonged vigilance and threat of punishment, the behaviour patterns may start to change. Exemplary punishment may discourage internal perpetrators in getting involved in criminal and unethical activities. It is important to react adequately to misconduct as a prevention strategy.
Ensuring transparency has no alternative. Establishing transparency through structures and processes is a crucial strategy to foster an ethical organisational climate, which is really important to regain customer confidence. Corporate values need to be connected with measurable indicators. Existing literature also confirms a link between employee engagement and the creation of an ethical climate. The studies explained that friendly and engaging corporate culture, which resulted in a family atmosphere, a dedicated department should organise informal staff gatherings on a regular basis. Research has shown that employee engagement increases with positive peer relationships and a favourable working environment. Top management's essential role in creating an ethical environment confirms insights gained from existing literature.
Role models facilitate the acquisition of ethical behaviour and ethical leadership encourages subordinates. The way ethical leadership flows from the top to bottom is a new area of research and needs further investigation. Addressing corporate governance challenges is the key for drawing true benefits. Bank leadership must ensure arrangement for uninterrupted vigilance with respect to customers by having sufficient knowledge about them to detect transactions that is likely to be associated with financial crime. Developing ethical corporate culture and offering due motivation to the employees are amongst the keys to address financial crimes.
Dr. Shah Md Ahsan Habib is Professor and Director (Training) of Bangladesh Institute of Bank Management (BIBM).
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