Environmental Management Systems: what boards can learn from the Banking Royal Commission

In Australia, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has exposed remarkable failures in risk management, compliance and culture that have claimed the careers of a number of senior managers and directors and seen the threat of litigation. The underlying issues are not unique to the world of finance. Indeed the same issues often arise in the context of environmental management systems. We have prepared a checklist of key issues to consider when reviewing the effectiveness of your management systems.

At a glance 

  • Management systems are multifaceted systems in which people operate.
  • When systems fail, there is a tendency to focus on one thing; but this is often too simplistic.
  • Understanding the underlying reasons why systems fail requires, at least in part, an analysis of the prism of personal behaviours. This needs to be looked at from the point of view of individuals within the system not just from a centralised managerial perspective.
  • Dimensions such as leadership, organisational structures, resources, processes and procedures, training, assurance and communications are all relevant – it’s not just about technology and it’s not just about culture.

What causes the failure of management systems?

Organisations struggling with repeated incidents and near misses, might be tempted to think that the problem could be resolved if they focus on one thing, such as:

  • ‘zero tolerance’ compliance;
  • training or ‘coaching’; or
  • culture

Management systems, including environmental management systems (EMS), are multifaceted ‘human’ systems. One weakness may undermine the effectiveness of the whole system.

Failures often come down to human error. By thinking more deeply about why a person made a particular decision or failed to act in a particular way, more meaningful systemic issues may be identified.

Analysing personal behaviours

Boards and managers should consider whether their staff are willing and enabled to consistently make good decisions. This requires consideration of:

  • organisation structures and functions;
  • personal ethics;
  • resource allocation;
  • training and support.

Understanding what is a ‘good decision’

This is perhaps the most important question. The word ‘good’ carries ethical, financial, cultural and practical dimensions. For each organisation these may mean different things and have different weight. Clearly what is good in one context is not good in another.

A proper analysis requires the organisation to consider how it informs itself and its people about what a good decision is. Illogical and irrational decisions can often result from phenomena, such as:

  • ‘groupthink’ – where the desire for harmony or conformity in the group results in an irrational or dysfunctional decision-making outcome; and
  • ‘confirmation bias’ – where information is interpreted in a manner that tends to confirm our existing beliefs or hypothesis.

Beyond compliance and continuous improvement

In the 1990s the model for an EMS was often reduced to a diagram such as this:

EMS graphic 1

1 – Source: Operation of ISO 14001-based EMS is cyclical, and leads to continuous improvement of the environmental management.

However, ensuring an effective EMS is in place requires more than just compliance and continuous improvement, it requires effective:

  • leadership;
  • organisational structures;
  • ‘how to’ processes and procedures;
  • assurance; and
  • communication

At the risk of oversimplification, this can be represented as follows:

EMS graphic 2

For more information on this topic, please see the full version of this paper available online in the Maddocks Reading Room.

This is a summary of a paper by partner Patrick Ibbotson originally published on the Maddocks website.

 

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