Leading the Herd

Jane Arnott – 28 May 2024
A major collision between two economic heavyweights found NZ headquartered Fonterra trumping globally recognised EY in the ethical leadership stakes.

Such a collision is unprecedented.

Fonterra is the 6th largest dairy company in the world and the largest in the Southern Hemisphere with some 20,000 employees.That’s small change however in relation to EY’s 400,000 employees, 700 offices and representation in over 150 countries. But, with an intensity that is almost off the corporate governance Richter scale, Fonterra issued a ban on EY staffers from entering Fonterra premises if they had been subject to past or present misconduct investigations.

The recent merge of Fonterra’s Australian and New Zealand businesses to create Fonterra Oceania means aftershocks will be felt throughout Australasia as the implied loss of trust and confidence in EY disclosures and transparency takes hold.In this, Fonterra’s ethical leadership stance matters. A lot.

It tells us that even one anonymous whistle-blower, as was the case, can trigger a response that could potentially change the nature and scope of business dealings on a trans tasman, if not much bigger, scale. Critically it informs everyone that Fonterra will uphold its code of ethics – no matter what.  We now know that Fonterra’s confidential reporting lines mean business. Information that is received will lead to an investigation. Importantly,  corrective action will be taken – no matter the size, status nor economic horsepower of those involved.This is not always the case.

In both New Zealand and Australia the Ethics at Work survey conducted by the Institute of Business Ethics, UK, uncovered that 27% of Australians  and 35% of New Zealanders who have been aware of misconduct at work decided not to speak up because they did not believe corrective active would be taken.Fonterra ‘s decisiveness has bucked any such disbelief. Such decisiveness can be traced to the following excerpt from the Fonterra Code of Business Conduct 2023.  Fonterra states:

Do what’s right
We act with care, empathy and respect and we hold ourselves and others to high standards.

Care, empathy and respect are central to all of Fonterra’s business and operational decisions. It is not hard to surmise that this is also aimed at ensuring their workplace is safe from ‘persons of interest’.

Further, Fonterra demonstrate their understanding of what makes employees remain silent through also providing and highlighting a confidential service operated by an independent firm. Excerpt from Fonterra Code of Business Conduct, November 2023 ‘ The Way we Work’.

The Way We Work Hotline
If you’re not comfortable reporting a concern to your manager, you can use The Way We Work Hotline. This is a confidential service operated for Fonterra by an independent firm. You don’t need to provide your name or contact details if you do not wish to.

You can find contact details for the Hotline, including a wide range of language options, on the back page of this booklet.

Turning to the EY Global Code of Conduct it is perhaps easy to see why the opportunity to prevent this unfortunate oversight was missed. The EY Global Code is brief, very brief considering it is a guide to help steer the behaviour of over 400,00 employees in multiple countries.

Descriptive explanations about behaviour are missed. No detail about the ethics hotline nor the types of sensitive issues that could be reported or referred are detailed. And, worst of all, is the implied reality that EY has not engaged any confidential, independent  professional reporting service. The contrast with Fonterra is vivid.

EY Global Code of Conduct
We behave according to the principles set out in the Code
We provide an ethics hotline for reporting sensitive ethical issues

EY could also have reflected on the valuable learnings and insights contained within their 2022 Global Integrity Report.
That report was salutory and could have served as a reminder to not just their clients and prospects about conduct risk and organisational health – but also themselves.
An article written at the time by EY Global Forensic and Integrity personnel made the point ‘senior management is often overconfident in the effectiveness of its corporate integrity programmes’.  No truer word was said.

The 2022 EY Global Integrity Report also revealed:
• That only a third (33%) of respondents say behaving with ethical standards is an important characteristic of integrity

• More than 50% of people surveyed said unethical behaviour was often tolerated when senior managers were involved

• Nearly 60% of workers who reported misconduct felt pressure not to report it

• More than 40% had not reported concerns despite it affecting them

All of these insights hold reasons for management and Boards of Directors everywhere  to be concerned.

They point to a new level of due diligence needed for third party providers and the benefit of questioning how they think they live up to their values. What measures are in place?

For example, are their speak up programmes well utilised and is there an external reporting option along with explanations and encouragement to use it?

The experience of Fonterra in finding themselves needing to  professionally address leadership and behavioural issues which were internal to their supplier would have been time consuming and unanticipated.

For EY  the ongoing negative and seismic reactions from other clients is substantive.  A veritable ring of fire that was always within their ambit to prevent.

.Jane Arnott, MNZM, is director of The Ethics Conversation and conducts ethics training for professional bodies and companies.
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