Australia’s CEOs and other executives routinely go against values stipulated in their own code of conduct and company value statements, driven by pay structures which reward short-term financial performance over the management of non-financial risk, a new study finds.

In a newly published paper entitled “CEOs Say One Thing and Do Another,” former Actuaries Institute President Barry Rafe says boards need to espouse values that are realistic, can be put into practice, and be monitored by directors.

Board engagement in espoused values is not sufficient to “prevent organisational misbehaviour,” he says.

Directors need to design remuneration systems that penalise senior executives for practising values that do not align with the organisation’s values.

Mr Rafe says there is “a disconnect” between organisation values and routine actions taken by the CEOs and the senior executive team, driven by the CEO and executive team’s focus on “maximising profit within the bounds of the law”.

“There appears to be a paradox between ethical expectations and legal restriction,” Mr Rafe, who is a Fellow of the Australian Institute of Company Directors, said. “Simply complying with the law does not necessarily mean executives’ action is right for customers.”

The stated values set by the Board “need to be more than just for ‘branding’ and ‘marketing’ purposes, they need to set the tone for how decisions are made”, the paper states.

“Executives need to be rewarded for making decisions in line with espoused values.”

Mr Rafe urges Australia’s senior executives and actuaries to assess their own behaviours to see whether there is a gap between their espoused values and their “values in use.”

Any discrepancies should be raised with the board, especially where the board relies directly on reports from the actuary.

“For those actuaries involved in product design or pricing, the new Design and Distribution Obligations legislation specifically requires that organisations have a principles-based approach to designing and distributing products. These principles will need to reflect the espoused values of the organisation,” Mr Rafe says.

See the full report here.