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Ethical Environment Audits Reduce Corporate Risk

The National Post has reported that a judge in a murder trial was seen dining and drinking with the lead prosecution lawyer on the day the verdict was handed down (Blatchford, 2017).  They were celebrating the guilty verdict over drinks and dinner.

It’s clear that this is considered unethical behavior for both the judge and the lawyer, so why would they indulge in this behavior?   Are they unethical and immoral people, or were they provoked to make an unethical decision?  In this case they were longtime friends.  Working on the same case together likely created conflict between their friendship and professional ethics.

A Harvard Business Review article, Why Ethical People Make Unethical Choices, (Carucci, 2016) identifies five ways that organizations provoke normally ethical people into making bad ethical decisions.

  • The organization’s culture makes it hard for people to freely speak up.
  • There is excessive pressure to reach unrealistic performance targets.
  • Conflicting goals create a sense of unfairness leading to rationalization and compromise.
  • Leaders are not setting a positive example.
  • Ethics is an “add-on” addressed only periodically rather than being infused into every business decision.

Often inadvertently, these organizations create an environment where their people are enticed or forced to make unethical decisions.  Many times, organizations make decisions around remuneration, competition, marketing, governance, or promotion that unintentionally place an ethical burden on their employees, clients, and contractors.   Gradually, and almost imperceptibly, minor ethical breaches become normalized in the organization.  Over time a culture of accepting minor breaches slowly creates a tolerance for greater and greater unethical behavior.

Examples are easy to find.  It is doubtful that SNC Lavalin intended to make bribery of government officials appear to be “standard operating procedure”.  It is not likely that Wells Fargo planned to have employees create more than one million fraudulent accounts.  It can be argued that, at least initially, these organizations made reasoned business decisions that had unintended ethical consequences.

Most day-to-day and strategic corporate decisions are made with little thought to their impact on the organization’s ethical decision-making environment.  The decision itself may be highly ethical, but still create the risk that people will be enticed or coerced into an ethical breach.

To combat this, organizations need to perform a corporate ethical environment audit.  The purpose of the audit is not to identify unethical behavior but to identify corporate risk in the culture, governance and work environment that may lead to ethical breaches.

While all situations are unique, an Ethical Environment Audit looks at several areas that are indicators of risk.

  • Awareness – are employees aware of the importance of ethical behavior, how to respond if an ethical breach is observed and how to solve ethical dilemmas?
  • Messaging – is management explicitly or implicitly sending signals that unethical behavior is expected or will be overlooked in certain situations? Are conflicting goals being created that lead to unethical behavior?  Is the consideration of ethics part of everyday decision-making?
  • Corporate Culture – does the culture of the organization promote risky behavior that leads individuals to push the limits to succeed? Does the culture make it psychologically safe or unsafe for people to identify questionable ethical behavior?
  • Industry Culture – does the industry accept unethical behavior as a normal way of doing business?
  • Enforcement – does the organization enforce ethical behavior, inconsistently apply rules, or look the other direction? Where is the actual line between acceptable and unacceptable behavior? Is it matched by balanced enforcement?
  • Governance – do governance structures exist to support and enhance ethical behavior?
  • Leading by Example – what standard are leaders applying to their actions and decisions?

The combination of these and other criteria defines an Ethical Risk Profile for the organization.  Knowing and understanding the implications of ethical risk in an organization provides critical insights that allow actions to be taken before a scandal becomes front-page news.  Ethical breaches can be disruptive to the organization, expensive to address and damaging to personal and corporate reputations.  An Ethical Environment Audit provides actionable information that can be used to manage the organization’s Ethical Risk Profile.

Tyra’s Ethical Environment Audit provides the background that management needs to understand how ethical and unethical decisions are being driven in the organization.  It puts into focus the way people are making decisions in the organization and provides an understanding of how that impacts the ability to make ethical decisions.  It provides the data needed to evaluate the strengths and weaknesses in the organization relative to ethical decision making.  For more information visit us at tyrastrategies.com or contact us at This email address is being protected from spambots. You need JavaScript enabled to view it..

References

Blatchford, C. (2017, December 13). Christie Blatchford: Friendship between judge and prosecutor casts shadow over murder conviction. Retrieved from National Post: http://nationalpost.com/opinion/christie-blatchford-friendship-between-judge-and-prosecutor-casts-cloud-over-murder-conviction

Carucci, R. (2016, December 16). Why Ethical People Make Unethical Choices. Retrieved from Harvard Business Review: https://hbr.org/2016/12/why-ethical-people-make-unethical-choices