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Why Ethical People In Ethical Organizations Make Unethical Decisions

Most people believe that they make ethical decisions and act ethically.  Most organizations believe that they hire ethical employees and conduct their operations in a legal and ethical manner.   Yet every day there are new announcements of major ethical breaches in well-respected organizations.

Are these just random uncontrollable events or is it the case that the organization unwittingly created an operational environment where ethical breaches are a logical and likely outcome?

 There is a pressure and reward for risk-taking, for finding new ways of doing things.  New ways that often bend the rules or find clever tricks to stay just within the rules while reaping extra benefits. We call it, “meeting the letter of the law, but not the intent”, “skirting the rules” or sometimes “flying close to the sun”.

Tax legislation is a good example.  Tax rules are created with the intent of achieving certain outcomes.  Before the ink is even dry, tax lawyers begin working diligently to find the loopholes that will allow for tax avoidance, but not tax evasion.  Tax avoidance is recognized as a worthy, legal and honest undertaking while tax evasion is illegal and unethical.  Unfortunately, the line between avoidance and evasion is broad and gray giving tax lawyers a wide playing field to minimize the tax burden on their clients. 

The problem before us is that there is no universally agreed on definition of what constitutes unethical behavior.  While, at the extremes, people with a common cultural upbringing can often agree on whether a behavior is ethical or unethical, there is often a broad gray zone in the middle that is open to interpretation.  Within that zone, each individual and each organization will draw a different but defendable line between ethical and unethical behavior.

In the context of an organization, the first challenge is that individuals may have different expectations relating to the scope of ethical decision making.  People in the organization will have different tolerances for making decisions that are close to the line.  A person who is risk tolerant and willing to push the envelope will have options that would be considered inappropriate or untenable to a more cautious person.  This can create intra and intergroup stresses as people with different ethical standards make decisions and take actions.  If personal standards are not aligned with corporate decisions and actions, team and corporate engagement may suffer.

Unethical or marginal behavior often pays and depending on the specific incentives it may pay big.  People who are comfortable with risk-taking relative to an organization’s, profession’s, and society’s ethical guidelines are often able to perform at a higher level and achieve more and larger desired outcomes.  If they do not accidentally or purposely cross the line and get caught, people that “push the envelope” tend to have greater success meeting corporate goals and greater recognition as high-achievers.

This has an impact on an organization’s ethical conduct.  In theory, if an organization’s ethical standards are well defined and well established, the line between ethical and unethical behavior will be bright and easy to evaluate.  Unfortunately, in most organizations, ethical lines are vague and ethical enforcement is erratic.  This means that individuals and groups will have the incentive to push the boundaries to maximize success.  Over time, behavior that was previously considered close to the line becomes normalized.  The line is slowly moved as more people in the organization accept the new behavior as a standard and then push beyond it.

While this may initially seem like an overreaching statement, every organization is always under unremitting pressure to act unethically.  Employee’s and the corporation’s desire to be successful create this pressure.  Different organizations working in different industries feel and respond to this pressure in different ways.  A company with a very aggressive management team and working in a highly competitive industry will face significant pressure to act unethically.  But, even a traditional utility working in a highly regulated environment will be at risk from individual employees pushing boundaries to succeed and advance in the organization.  

For many organizations, the pressure is subtle but unremitting.  It shows up at the sales meeting where individual comments are made that "we need to do everything we can to win this".  It shows up in project meetings where there is pressure to "cut-corners" to stay on-time and on budget.  It shows up when an employee spreads gossip about a peer who is in competition for the same promotion.  Each small action moves the bar a bit.  Over time the standard of normalized behavior can move substantially without anyone noticing.  What would have raised eyebrows six months or a year ago is now normal standard practice.  New, less ethical behavior, is now accepted and rationalized. 

“Everyone’s doing it.”  “It may be questionable, but we need to do it if we want to succeed, and anyway, it's not illegal.”  “It may be illegal here, but everyone does it there and if we aren’t prepared to play by their rules then we might as well go home.”  Each time the bar resets one notch lower.

Government and public agencies may have different drivers, but they are not immune from this effect.  There is always a conflict between behaving politically and behaving in a non-partisan manner.  There is always uncertainty around public interest and the interests of individuals working in the government sphere.  The ethical boundaries of government are especially broad and gray.

If this force is always present in public and private organizations, how do we combat it and maintain an organization’s ethical standards and practices?

 First, we need to recognize that this is a “long-game”.  We cannot succeed by handing a new employee our “Code of Conduct” document and then ignoring ethical considerations in all day-to-day and strategic decision making.  Ethical consideration needs to be built into everything the organization does.

There are seven critical factors that affect the pressure to act unethically.  They are:

  • personal integrity
  • group dynamics
  • social integrity and culture
  • corporate culture
  • governance structures
  • regulations
  • laws

Every company maintains a somewhat delicate and often unmoderated balance between these factors and the pressure to push boundaries to succeed.  Set the bar too high and the company risks losing capital, clients, employees, and momentum as other groups outcompete and outmaneuver.  Set the bar too low and risk the distractions that come from fighting legal and reputational battles.  The balance needs to be recognized, measured, and sometimes adjusted to avoid negative ethical issues that can have large costs and subject the organization to reputational damage.

With a corporate need to maintain an ethical balance in the organization, it is critical to manage the alignment of these factors.  For private organizations, corporate culture and governance principles need to be aligned with industry culture and society’s cultural norms.  For public organizations, the working culture needs to be aligned with the principles of good governance, stakeholder group cultural expectations and society’s cultural norms.  People need to be hired based on their fit with the corporate or working culture.  Beyond that, governance structures must reflect and align with internal cultural expectations and of course the regulatory and legal framework.

All of this together forms an ethical environment that controls the ethical standards applied to decisions made and executed by the organization. 

While it doesn't have to become all-encompassing, any company that doesn't recognize and manage this environment is substantially increasing its corporate risk. One would likely be shocked and expect action to be taken when an employee makes blatantly unethical decisions and acts in an unethical manner.  Similarly, one should be surprised and shocked by a management team that ignores monitoring, measuring and possibly moderating the ethical environment of the organization to manage ethical risk. 

Tyra’s new Ethical Decision-Making workshop provides the background to understand how ethical and unethical decisions are made.  It puts into focus the way people make decisions in the real world and provides an understanding of how that impacts the ability to make ethical decisions.  It then works with participants to use that knowledge to evaluate strengths and weaknesses, leading to an action plan for improving the ethical environment of the organization.