Written by Mervyn Malamed | PUBLISHED IN “THE CORPORATE REPORT” by MERVYN KING (Chairman of the King Committee on Corporate Governance in South Africa)
Not the Classic Ombud
The Organisational Ombud [“OO”] is neither an adjudicator nor an advocate for any person or group, but rather for fairness, and the holistic wellbeing of the organisation and its stakeholders.
Public response to corporate episodes of the past decade [Enron, Lehman Brothers, BP etc.] resulted in worldwide actions like the Occupy movement, increased shareholder activism and a flood of social media rage.
Governments’ reactions manifested that anger through austere legislation in many countries, the most unsmiling of which has been the “whistle-blowers” and hotlines provisions that make it easy to anonymously expose fraud and easy to receive bounties – also anonymously.
That’s worrying for dishonest employees and appropriate for those with nothing to fear – personally!
But what about the impact of misconduct on the organisation itself; its leadership and its stakeholders?
“Catching” someone, it could be argued, is in fact sub-optimal corporate governance; sub-optimal because, all too frequently, the wrongdoing involved has a lengthy history that can’t be sorted out quickly and efficiently.
Late intervention generates costs that can’t easily be measured or contained.
Examples are negative publicity, litigation, boycotts, falling share prices, brand damage or difficulties in attracting talent.
PricewaterhouseCoopers’ Global Economic Crime Survey 1 reveals that “there has been a significant increase in the percentage of cases in which South African organisations have informed law enforcement…”
Juxtapose that against data from the same survey revealing that in South Africa:
- Asset misappropriation is the most common offence followed by procurement [particularly vendor selection], then bribery/corruption, and HR fraud [involving payroll taxes, payroll expenses, entitlements, employee benefits and fictitious employees]. The last of the “big five” is financial statement fraud.
- Senior managers are now the main perpetrators of economic crimes committed by insiders.
These top five offences are typically carried out over long periods.
Is it possible that offenders are being publicly exposed by leadership because the scams are too far gone? Is it possible that late stage “fall guy” thinking flies in the face of early stage management of misconduct?
A further consideration in this context [also from the PWC Survey2] is that a considerable portion of South African organisations do not have formal fraud risk management programmes in place, even though they are recognised as the most effective of fraud detection mechanisms.
Best knowledge of the innards of an organisation is held by its workforce.
Employees are understandably reluctant to jeopardise their own jobs, advancement and reputations in the interest of the “greater good”. Retaliation is a real threat and openness with anyone in the workforce is always perceived to be high risk. Welcoming offices with open doors, highly respected managers and private discussions are valuable, but there remains a threshold below which management can’t access.
The Deloitte Millennial Survey3 [January 2014] indicates that Y’ers are already making their mark in leadership and technology, and that by 2025 they’ll constitute three quarters of the workforce globally. Hard to ignore if talent is important!
Among this cohort, the report identifies a clear shift away from “money as top priority” to a far more balanced and responsible corporate citizenry.
So, with that paradigm, it seems reasonable that a willingness to work towards a better charter is imminent. However, bringing about change in the workplace remains risky.
Getting right down to the deepest concerns of employees is a prerequisite to effective corporate governance.
That must attend to the interests of all stakeholders and therefore has to concentrate on:
- employees’ overall health [not only physical];
- surfacing and effective management of conflict based on interests;
- empowerment of employees to take responsibility for a better workplace;
- early warning systems that lead to pro-activity and prevention of contraventions;
- providing safe space to employees.
Most employers have methods that deal with these. Many of those methods and elements of those methods are sound and should be maintained even for late stage intervention.[Late stage intervention is better than no intervention].
Genuine safe space must complement what is practiced formally.
This is where the Organisational Ombud comes in.
Ombuds come in a variety of flavours. In South Africa [and in many countries] an Ombud refers to a resource available to the public in disputes with industry members [like banking or insurance] for resolution, often by adjudication. This is the Classic Ombud.
Another type is the Advocate Ombud who advocates on behalf of an interest group, such as patients in long-term care facilities.
The Organisational Ombud [“OO”] is neither an adjudicator nor an advocate for any person or group, but rather for fairness, and the holistic well-being of the organisation and its stakeholders.
He/she works with employees to explore and assist in determining options to help resolve conflicts and deal with problematic issues. That information is aggregated [to protect confidentiality], and brought to the attention of management as systemic matters that might need change, or proactive, and even real time solutions.
“The organisational ombudsman is an odd duck – perhaps the only professional manager within an organisation whose role does not include ‘representing’ the organisation. The ombudsman is meant to be independent while being a part of the organisation.(Indeed, the OO’s effectiveness derives in significant ways from being an insider.) The OO shares with others a commitment to the mission and values of the organisation the OO serves, yet the OO’s loyalty to the organisation has to be subservient to principles of fairness and impartiality.”
The OO often helps individuals confront others informally, and when necessary, through formal channels; or assist by building awareness among appropriate decision-makers while maintaining strict anonymity of the source/s.
An OO has best access to unfiltered information.
This is by virtue of firm adherence to a strict Code of Ethics containing inviolable Standards of Practice pledged to as a member of the International Ombudsman Association5.
Because of that, the quality of data provided to management is almost always superior to that from any other source.
THERE ARE FOUR STANDARDS OF PRACTICE:
1. Independence from all other organisational entities and parties with vested interests – including management. This means reporting directly to the Board. He/she holds no other position that might compromise independence, or the sole discretion needed over whether, or how to act regarding an individual’s concern/s. The OO is not an agent of the organisation nor does he/she receive notice on behalf of the organisation. He/she also does not create, modify or enforce policy.
2. Neutrality. The OO remains unaligned and does not advocate for any one party, but for the organisation itself, in a way that is fair and objective.
3. Confidentiality is sacrosanct and information is privileged. The only exception is when there is imminent danger of serious harm. The OO will not testify in any formal process within the organisation and will resist doing so outside – even if permission is given to do so. Records and notes that might enable identification of an individual are destroyed.
4. Informality. The Organisational Ombud listens, provides off-the-record suggestions for constructive resolution of issues and when appropri-ate, may look in to procedural irregularities or systemic obstacles. Although the OO may suggest formal routes, he/she does not get involved in any part of that, including investigations.
- Organisational Ombud’s Offices are still rare
They have started to grow in numbers – possibly in response to “corporate embarrassment”, or as a reflection of a groundswell of demand for a more equitable, responsible and ecologically sound set of corporate values.
Some of the companies with experience in the field, most of which have successful and mature systems in place, include:
- A.T. Kearney Canada
- Alliance Bernstein United States
- American Express United States
- Apollo Education Group Inc. United States
- Asian Development Bank United States
- Baker Hughes United States
- Chevron Corporation United States
- Citigroup United States
- DeVry Education Group United States
- Eaton Corporation United States
- Guidea Japan
- Halliburton United States
- Jedco, Inc. United States
- KBR, Inc. United States
- Lenovo United States
- Mars Inc. United States
- McKinsey & Company, Inc. France
- McKinsey & Company, Inc. Republic of Korea
- McKinsey & Company, Inc. United States
- National Bank of Greece
- Nigerian Airspace Management Agency Nigeria
- Pfizer, Inc. United States
- Royal Bank of Canada
- Sandia National Laboratories United States
- SAP AG Germany
- Scotiabank Canada
- Scotiabank Financial Group Mexico
- Shell Canada, Ltd Canada
- Shell Oil Company – Ombuds Services United States
- The Coca-Cola Company United States
- The Sherwood-Group, Inc. United States
- United Technologies Corporation United Kingdom
ORGANISATIONAL OMBUD’S OFFICES ARE SOMETIMES DISCUSSED IN TWO GENERAL CATEGORIES.
1. Systems established or revamped under duress or out of fear as a result of events like:
- The 2003 demise of NASA’s space shuttle “Columbia”
- The BP oil spill in the Gulf of Mexico;7
- Coca-Cola’s settlement of a record breaking race discrimination class action lawsuit8 as part of which Coke was required to set up an Organisational Ombud’s Office;
- Or just rebranding to change perception of the corporation as being evil or villainous.
Many of these systems are alive and well despite the motivations for their existence. Coca-Cola for example has won “countless awards for its corporate governance model; successes the company’s general counsel attributed to the (Ombuds) program9”, and NASA10 has a particularly robust Ombuds system that permeates many of their divisions.
Motivations are seemingly less important than intent.
Intent is manifested by the level of commitment to the system. Systems fail when fundamentals are lacking. For example:
- Conditional support from the CEO;
- Weak buy-in across the board/no “critical mass”;
- Poor needs assessment/poor systems design;11
- Lack of internal marketing or awareness building;
- Watering down the four Standards of Practice [resulting in a lack of confidence and trust by employees];
- Cultural un-readiness;
- Placing the OO within HR.
2. Systems established authentically in the interest of organisational sustainability, employee well-being, productivity and good corporate governance are well respected and provide the organisation with a higher quality pool of talent than they would otherwise have.
When examining those motivations, it becomes obvious that they link directly to productivity, performance, lower costs related to un-managed or mismanaged conflict, better decision-making, motivation, lower absenteeism, lower staff turnover, increased “presenteeism” and more.
In short, benchmark OO Systems provide a significant return on investment.12
Good corporate governance can not only be through checks and balances. The core of good corporate governance is organisational wellbeing and a culture of transparency.
Would South Africa’s corporate stakeholders benefit from Organisational Ombud Systems?
Consensus means that people comprehend the final decision, have committed themselves to executing the chosen course of action, feel a sense of collective ownership about the plan, and are willing to cooperate with others during the implementation effort ~ Michael Roberto, Professor at Bryant University and Author