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ETHICS
Why Ethical People Make Unethical Choices by Ron Carucci
DECEMBER 16, 2016
Most companies have ethics and compliance policies that get reviewed and signed
annually by all employees. “Employees are charged with conducting their business
affairs in accordance with the highest ethical standards,” reads one such example.
“Moral as well as legal obligations will be fulfilled in a manner which will reflect pride
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on the Company’s name.” Of course, that policy comes directly from Enron. Clearly it
takes more than a compliance policy or Values Statement to sustain a truly ethical
workplace.
Corporate ethical failures have become painfully common, and they aren’t cheap. In
the last decade, billions of dollars have been paid in fines by companies charged with
ethical breaches. The most recent National Business Ethics Survey indicates progress
as leaders make concerted efforts to pay holistic attention to their organization’s
systems. But despite progress, 41% of workers reported seeing ethical misconduct in
the previous 12 months, and 10% felt organizational pressure to compromise ethical
standards. Wells Fargo’s recent debacle cost them $185 million in fines because 5300
employees opened up more than a million fraudulent accounts. When all is said and
done, we’ll likely learn that the choices of those employees resulted from deeply
systemic issues.
YOU AND YOUR TEAM SERIES
Creating an Ethical Workplace
When You Feel Pressured to Do the Wrong Thing at Work by Joseph L. Badaracco
When Tough Performance Goals Lead to Cheating by Colm Healy and Karen Niven
Keep a List of Unethical Things You’ll Never Do
Despite good intentions, organizations set
themselves up for ethical catastrophes by
creating environments in which people
feel forced to make choices they could
never have imagined. Former Federal
Prosecutor Serina Vash says, “When I first
began prosecuting corruption, I expected
to walk into rooms and find the vilest
people. I was shocked to find ordinarily
good people I could well have had coffee
with that morning. And they were still
good people who’d made terrible choices.”
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by Mark Chussil Here are five ways organizations
needlessly provoke good people to make
unethical choices.
It is psychologically unsafe to speak up. Despite saying things like, “I have an open
door policy,” some leadership actions may inhibit the courage needed to raise ethical
concerns. Creating a culture in which people freely speak up is vital to ensuring
people don’t collude with, or incite, misconduct. Elizabeth Morrison of New York
University, in Encouraging a Speak Up Culture, says “You have to confront the two
fundamental challenges preventing employees from speaking up. The first is the
natural feeling of futility — feeling like speaking up isn’t worth the effort or that on
one wants to hear it. The second is the natural fear that speaking up will lead to
retribution or harsh reactions.” A manager’s reactions to an employee’s concerns sets
the tone for whether or not people will raise future issues. If a leader reacts with even
the slightest bit of annoyance, they are signaling they don’t really want to hear
concerns.
There is excessive pressure to reach unrealistic performance targets. Significant
research from Harvard Business School suggests unfettered goal setting can
encourage people to make compromising choices in order to reach targets, especially
if those targets seem unrealistic. Leaders may be inviting people to cheat in two ways.
They will cut corners on the way they reach a goal, or they will lie when reporting how
much of the goal they actually achieved. Says Lisa Ordonez, Vice Dean and professor
at the University of Arizona, “Goals have a strong effect of causing tunnel vision,
narrowly focusing people at the expense of seeing much else around them, including
the potential consequences of compromised choices made to reach goals.” Once
people sense the risk of failure, they go into “loss prevention” mode, fearing the loss
of job, status, or at-risk incentives. The Veterans Administration learned this lesson
the hard way when trying to address the 115-day wait time in their Phoenix hospital.
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They set a new goal of reducing the wait to 14 days, which resulted in an alleged 24-
day wait. But employees said they felt compelled to manipulate performance records
to give the appearance of meeting these goals. As many as 40 veterans died waiting
for care at the Phoenix center, some more than a year. Organizations must ensure
people have the resources, timelines, skill and support they need to achieve targets
they are given, especially ambitious stretch goals.
Conflicting goals provoke a sense of unfairness. And once a sense of injustice is
provoked, the stage is set for compromise. Maureen Ambrose, Mark Seabright, and
Marshall Schminke’s research on organizational injustice clearly shows a direct
correlation between employees’ sense of fairness and their conscious choice to
sabotage the organization. Consider one organization I worked with whose pursuit of
growth created conflicting goals. The head of Supply Chain was given a $3.5 million
capital investment to overhaul a plant to triple its production. Some of that funding
came from the 25% budget cut in marketing in the same division. At the same time,
Sales divided its quota territories to raise topline performance. The intensity of
resentment in the salesforce at having to drive revenues with smaller territories was
compounded by having fewer marketing dollars to sell more product. The conflicting
goals created excess product capacity that was bottlenecked getting to market. Two
years later, the organization was indicted for channel stuffing.
Ethical behavior is not part of routine conversation. Too many leaders assume that
talking about ethics is something you do when there’s been a scandal, or as part of an
organization’s compliance program. Everyone gets their annual “ethics flu shot” in
the mandatory review of the compliance policy, and all is well for another year. Nick
Eply, professor at the University of Chicago, in Four Myths about Morality and
Business, says, “It’s a myth to think ‘Everyone is different and everything is relative.’
You actually have to teach people the relative value of principles relative to choices.”
Leaders have to infuse everyday activities with ethical considerations and design
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policies and norms that keep ethics top of mind. Jonathan Haidt, Professor of
Business Ethics at NYU and founder of Ethical Systems, says, “It’s important to talk
about the positive examples of ethical behavior, not just the bad ones. Focusing on
the positive reasons you are in business, and reinforcing the good things people do
strengthens ethical choices as ‘the norm’ of the organization.”
A positive example isn’t being set. Leaders must accept they are held to higher
standards than others. They must be extra vigilant about not just their intentions, but
how it is others might interpret their behavior. While they can’t control every
possible misinterpretation, leaders who know their people well make careful choices
in how they react to stressful situations, confront poor performance, how politic they
are in the face of controversy, and how receptive they are to bad news. Above all,
even in what might be considered the smallest “white lie,” ethical leaders are careful
not to signal that hypocrisy is ok. As an example, a leader may casually review an
employee’s presentation and provide feedback like, “I think we need to take these
two slides out — that data is inflammatory and we don’t want to derail the ultimate
outcome which is to convince the budget committee to give us the resources we
want.” While the leader might presume he has acted in the best interest of the group
— going to bat for resources they need- the person building the presentation has just
been told, “We can’t tell the entire truth because it could prevent us from getting
what we want.” Leaders must put themselves in the shoes of those they lead to see
what unintended messages they may be sending.
Organizations who don’t want to find themselves on a front-page scandal must
scrutinize their actions to far greater degrees than they may have realized. In an age
of corporate mistrust, creating ethical workplaces takes more than compliance
programs. It requires ongoing intensified effort to make the highest ethical standards
the norm, and ruthless intolerance of anything less.
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Ron Carucci is co-founder and managing partner at Navalent, working with CEOs and executives pursuing transformational change for their organizations, leaders, and industries. He is the best-selling
author of eight books, including the recent Amazon #1 Rising to Power. Connect with him on Twitter
at @RonCarucci.
This article is about ETHICS
F O L L O W T H I S T O P I C
Related Topics: R I S K M A N A G E M E N T | L E A D E R S H I P
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P O S T
4 COMMENTS
Mark Mankin a day ago
I would like to see a graph that plots the ratio of CEO pay to the average employee against the
number of fines or other legal actions against the company per billion in revenue, maybe with a split
by industry and or number of employees. I would seek to prove a hypothesis that a high disparity in
pay is in its own right unethical, it at least is often internalized by the rank and file that the
executives are unethical. I also surmise that the impact on the organizations overall integrity would
make very little distinction between the two.
R E P L Y 2 0
J O I N T H E C O N V E R S A T I O N
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