Solving the ethics enigma

February 2019 | EXPERT BRIEFING | BOARDROOM INTELLIGENCE

financierworldwide.com

For any company, even an allegation, much less the truth, of unethical or criminal behaviour may result in millions of dollars in legal fees, fines and penalties, reduced market capitalisation and, potentially, criminal liability. For example, Volkswagen’s diesel scandal will cost the company close to $30bn by the time it is over.

It is incredible how frequently accomplished C-suite executives expose themselves and their companies to unethical situations. Is it a lack of judgment, the lure of wealth, believing they are above the law, or something else? Ethics can be an enigma for some people – something mysterious or puzzling. To solve this enigma, we must examine the six categories of personal characteristics and circumstances that constitute traps where most unethical decisions originate and fester.

Why are ethical lapses so common these days?

Unethical behaviour has gone on since the beginning of time. Today, we hear more about ethical lapses due to 24-hour news coverage and outlets starving for news, social media and explosions of information that are readily available to anyone with a smartphone. Furthermore, company stakeholders and consumers are no longer willing to give bad behaviour a free pass (no matter how vital that bad actor is to the organisation).

As an example of how ethics slips may affect revenue, Accenture’s recent ‘Bottom Line on Trust’ report describes how its Strategy Competitive Agility Index quantifies the impact of trust on a company’s bottom line. Accenture gives an example that a $30bn retail company experiencing a material drop in trust stands to lose $4bn in future revenue. “Accenture Strategy defines trust as a consistent experience of competence, integrity, honesty, transparency, commitment, purpose and familiarity.” This definition sounds like the ethical principles that all companies try to instil in their corporate culture. The downside of a revelation of an ethics breach is obvious.

As regulatory and criminal investigators are seeking the cause of misconduct, companies are increasingly required to give adequate time and resources to creating a corporate culture that places a premium on ethics awareness training. A robust ethics training programme can provide meaningful evidence that the organisation has an effective compliance programme and ethics are being communicated throughout the organisation from the top down. In some cases, ethics ‘training’ consists of nothing more than watching a short video or answering questions about the company’s code of conduct to prove that the individual has read it. Most ethics training programmes do not spend enough time educating their employees on the personal characteristics and circumstances leading to unethical behaviour.

What leads to people making bad ethical decisions?

Exaggerated ego. Everyone has an ego, and a well-balanced view of ourselves and the world around us is essential in our daily lives. A magnified view of one’s self can create the illusion of entitlement and invincibility. The balanced ego understands that it is different from others but is always comparing what it has to what others have. Our ego is how we define ourselves, regarding how much money we make, what we own, who we associate with, our possessions, our appearance and our personality traits. So, an exaggerated ego will seek an advantage over others to maintain the illusion of superiority. It is this seeking of an advantage over others that could lead to unethical decisions.

The ego also provides the rationalisation of our honesty and integrity, and when exaggerated, will not allow us to think of ourselves as being dishonest or lacking in integrity. In other words, the ego will not let us think of ourselves as capable of wrongdoing. In extreme cases, a false sense of self will lead to the darker side of human nature emerging, such as greed, a lack of empathy, manipulation, lack of remorse and bullying.

Temptation. There are two types of people susceptible to temptation. The first being those who have a natural desire to do things that are wrong. The opportunities of the moment lure the second group into bad choices. Either way, temptation exists when our gut tells us that the desired action is unwise, and we know that the opposing option would result in a higher good. The pull to take the lesser action could create unethical decisions.

Unprincipled people tend to attract others into a course of action, or scheme. Those that are skilful in manipulation will often prey on the other person’s desires to draw them in, or even bully a weaker person into their scheme.

Hijacked by outside pressures. The truth is that outside pressures often divert our abilities to make rational decisions, and we often underestimate the impact outside forces have on our choices. The number one external pressure that people face is financial, such as high personal debt, an extravagant standard of living or recent financial losses. Other outside forces can include employer, peer or family expectations or issues, such as divorce, extramarital affair or problems with children, as well as substance abuse and other addictions.

Integrity failures in the workplace or with the people around us. It is so easy to be sucked into the vortex of unethical behaviour when the people that you are working with are also unethical. There is a failure of leadership when executives fail to set the ethical bar high enough, or at all. In some recent high-profile cases, we have seen senior executives’ approval or participation in unethical or illegal behaviour. Integrity failures also exist when the corporate culture approves getting things done, regardless of how, or when there are immense pressures from management, investors and regulators to ‘make the numbers work’ or pass product tests. These conditions can exist because of lax accountability or sloppy internal controls.

Consequences not considered. It is amazing how very bright business people can make decisions without giving any consideration to the effects of those actions when it comes to an ethical or illegal situation. These are the same types of people that will analyse a deal to death, but when it comes to deciding on an ethical matter, they will not consider all of the consequences. This is sad, because the impact of making a wrong decision is devastating on their family, career and finances.

Why are the considerations of risk ignored? Some people do not pay any attention to risk versus reward in these situations because they are acting out of instinct, environment, ego and outside pressures.

The more the victims are distant or abstract, the higher the probability that a person will not consider the consequences of their actions. Also, many unethical or illegal acts could be socially acceptable – a low level, but typical example of this is speeding.

In our highly regulated world today, what is unethical may also be considered illegal and could result in a criminal conviction. Therefore, the cost of defending oneself against criminal allegations does not get considered.

Stinking thinking. The final trap is ‘stinking thinking’, which is the ‘kissing cousin’ of the ego because our ego guides our thoughts and our rationalisations. ‘Magical thinking’ often arises when people do things that are in grey areas to survive or to salvage what has been built. Many believe, when in complex or dire circumstances, that the end of their financial woes is merely ‘just one deal away’. That is precisely the place where drastic compromises seem to be an acceptable risk versus reward. But they are not.

People have the tendency to justify their actions, good or bad. This tendency to justify is another form of ‘stinking thinking’. Examples of ‘stinking thinking’ include statements such as, ‘I will never get caught’, ‘There is no downside’ and ‘No one will get hurt’.

The key to solving the ethics enigma is using the acronym for the above identified traps; E.T.H.I.C.S. The awareness of these six traps gives the employees the tools to avoid most unethical decisions.

J. Kevin Foster is chief executive at Business Ethics Advisors, LLC. He can be contacted on +1 (770) 715 2095 or by email: kevin@johnkevinfoster.com.

J. Kevin Foster

Business Ethics Advisors, LLC