Views on improving the integrity of global capital markets
13 February 2018

What Is Next for Keppel Corporation in the Aftermath of the Bribery Scandal?

I heard rumors about a “Singapore government company” being involved in the Petrobas bribery scandal when I was in San Paolo in April 2016 visiting CFA Society Brazil. Hence, I was not surprised when news broke on 23 December 2017 about the US$422 million fine related to corrupt payments in Brazil. What shocked me most was the amount, and it is already a discount! In my opinion, poor ethics is the reason for the scandal and its aftermath.

Because many people have already commented on what happened, my focus will be on what Keppel can do to instill an ethical mindset among its employees going forward.

Values and Environment

Let me start with what drives behavior. At the core, there are two things.

The first is our values, which are what define you as a person. Such attributes as honesty, integrity, fairness, and transparency are some examples. When your actions are inconsistent with your values, the result is internal conflict. Such feelings as guilt, uneasiness, and worry are good indicators that something is not right.

The second is our environment. The most famous example of this driver is the Milgram experiment. In 1960, social scientist Stanley Milgram wanted to understand the extent of individuals’ behavior, even if it went against their values. Using electric shocks as the method, subjects of the experiments did as they were told despite finding it uncomfortable to inflict pain on the individual (who was acting according to the intensity of the shocks).

My experience in the world of finance is that the environment dominates our values most of the time where behavior is concerned. I suspect this is also the case in business corporations. Many financial organizations globally now have departments that address conduct and culture. The goal is to improve conduct (rekindling our values) and reduce poor culture (addressing the effects of the environment). Perhaps Keppel could consider instituting a similar setup.

We Need to ACT

In their media release on 23 December 2017, it is heartening to see such words as “effective compliance controls,” “rigorous anti-corruption training,” and “robust compliance and governance regimes.” Although these are important as a visible sign of earning back trust, overdoing them generally creates fear and immobilizes people from doing good business.

Invariably, over time, employees will follow the letter and not the spirit of these responses. The concept of ethics falls prey to policies and procedures rather than being an integral value in the organization.

New approaches to try to internalize ethics are being used that could impact long-term behavior in employees. Let me share one approach that is focused on improving conduct, which uses the acronym “ACT.”

A = Awareness

I have found that annual ethics training for compliance purposes has limited effect in creating an ethical conscience. Often, participants only do the training because it is required. To be more impactful, shortening the time between and increasing the frequency of ethics training is suggested. At CFA Institute, we provide weekly ethics vignettes to our members through our Member App. These cases have four options available for members to choose from, and we encourage them to discuss the reason for their choice in a “Conversations” section of the App. The purpose is not to get the right answer, but through the community interacting with each other, become more aware of the ethical dilemmas that we all face. At the end of the week, we provide an analysis of the case on how it applies to our Code of Ethics and Standards of Practice. I would recommend doing something similar using the various real-life cases the company has experienced as the content.

C = Communicate

Traditional ethics training stops at “what is the right thing to do?” In my view, ending there falls short of educating people on how to take action. Professor Mary Gentile, from the University of Virginia, has created a pedagogy around this concept. In her academically acclaimed book “Giving Voice to Values,” she asks and answers a different question—that is, once you know what the right thing to do is, how do you get it done effectively. People trained in this approach use rehearsals, peer coaching, and pre-scripting as ways to move toward taking action. Her method is used successfully in a number of companies, such as Unilever and Lockheed Martin, for their ethics training needs. This approach is particularly effective during in-person training sessions. I would suggest an exploration of this approach.

T = Thinking (and Reflecting)

This component is important for internalizing ethical behavior. One way of doing this is to use the social science of restorative practice, which is a new field of study that has its roots in restorative justice. Some benefits of proactively internalizing ethical behavior are that it helps in building healthy communities and increases social capital. For example, the training could use the various scenarios from the Statement of Facts about the case that were released by the Department of Justice in the United States. Using a conference script template, trainees would then be divided to play two roles: The offender and the victim.

In this roleplaying, those playing the offender are asked questions like the following:

  • “What happened?”
  • “What were you thinking about at the time?”
  • “Who has been affected?”

Those playing the victim are asked these questions:

  • “What did you think when you realized what happened?”
  • “What impact has the incident had on you and others?”
  • “What do you think needs to happen to make things right?”.

Often the responses are not as expected. A key benefit of going through this exercise is that it puts empathy at the center and brings out some unique perspectives from the individuals playing the roles. More information about this approach can be found on the website of the International Institute of Restorative Practice website.

Trustworthy First, Not Rebuilding Trust

The CEO of Keppel is quoted saying, “We must now win back the trust our stakeholders have placed in us….” But I would suggest going back to the basics of being trustworthy first. According to Professor Onora O’Niell, a British philosopher at Cambridge University who recently won the Berggruen prize of US$1 million for her work on trust, being trustworthy requires three attributes: competency, honesty, and reliability. She says focusing on the call to rebuild trust “gets things backward.” Trust is the outcome of being trustworthy.

Role of the Board

At the apex of every publicly listed company is the board of directors. They play the fundamental role as agents between owners and management. They also set the tone for how the organization conducts its business. As fiduciaries for shareholders, it is not only important that the company does well, but that it does things right. Looking at the Governance Framework of Keppel, I would suggest two things. First, commission a cultural audit to understand how the unethical behavior could have gone on for so long undetected. To gain further insight, the audit committee should consider the effects of the environment on behavior. Second, always add a dose of skepticism when considering whether contracts are won because of ability or by some other means for which business units must provide evidence, which is something for the risk committee to consider.

As a shareholder, I am saddened by this episode. However, as a Singaporean, I am confident in the resilience of my country’s people and optimistic that, in time, Keppel will come out of this situation stronger.

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Photo Credit: ©Getty Images/marekuliasz

About the Author(s)
Tony Tan, DBA, CFA

Tony Tan, DBA, CFA, is co-head of the CFA Institute Ethics, Standards, and Professional Conduct division. He is particularly responsible for ethics education offerings and the professional standards of CFA Institute. He is also a member of CFA Society Singapore.

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