— By Dave DeSouza
Business ethics is a complex topic because there are as many definitions of ethics and ethical leadership as there are business managers in the world. Ethics is not a stand alone concept, either. It’s closely tied to organizational goals, internal and external working relationships, and leadership. Though it would seem that morals and character would define how someone makes decisions in the workplace, it’s just not that simple. When people’s compensation and job security are dependent on reaching goals and achieving outcomes, the ‘right’ decision may not always be absolutely clear.
It’s popular today for organizations to develop and publish core values that accompany the mission statement. The core values are touted as the controlling organizational principles that must be adhered to if the business is going to fulfill its mission in the right way. The core values serve as the foundation for the goals, and define the character of the organization. Leaders are expected to commit to the core values and to always act in a way that supports and enforces them within the organization.
It sounds quite nice and logical, but maintaining an ethical culture is not always simple. If it were, there would not be one scandal after another plaguing a variety of global corporations. Recent ethics violations include wiretapping, fraudulent advertising, insider trading, inappropriate relationships with coworkers, purposely misstated financial statements and violations of client trust, to name just a few. Many of these ethics violations begin small or innocuously, but seem to take on a life of their own until someone gets caught. An accountant may embezzle a few thousand dollars and get away with it, so he or she begins to take more, until hiding the theft becomes impossible. A manager may exert pressure on a manufacturing department head to lie on the quality control report in order to meet quality goals, but, eventually, customers are seriously injured as the result of the product’s poor quality.
The current business and legal environment is such that top executives, including the CEO and president, are expected to take full responsibility for all serious ethical violations, no matter how far down the line they occur. For example, the chairman and founder of Best Buy was forced out after it was discovered he did not report that the company’s CEO was having a personal relationship with a subordinate. The relationship violated the code of ethics. It’s not always CEO’s and board chairpersons committing the ethics violations. It may be managers, supervisors or employees. The question is: Why do people succumb to ethics violations?
Setting Goals that Send the Wrong Message
It may seem odd at first glance, but goals may influence ethical behavior within the organization. An organization is tasked with the responsibility of returning value to investors or shareholders. As a result, there is ever-increasing pressure to make profits, and that is mostly done by increasing sales or lowering expenses. There is a good reason why cases of corruption increase during time of economic difficulty. It’s more difficult to reach goals so there is pressure to cheat.
Setting unreasonable goals may make people feel as if they have no other choice but to lie. For example, unreasonable goals tied to staff compensation may create situations where ethical dilemmas are presented. A typical situation is when sales quotas are established that encourage sales people to aggressively sell products to customers even if they don’t need those products. Insurance is an industry often accused of this practice.
The financial companies investing in risky mortgage-backed securities were attempting to reach unreasonable financial goals. Many analysts and economists believe that the 2008 recession was triggered by unethical bank investing. Making it worse was the revelation that the worthlessness of billions of dollars of mortgages was the result of loans made to people who could not afford them. ‘Robosigning’ of mortgage documents by underwriters added yet another unethical layer to the process. Robosigning is the practice of a bank employee signing thousands of documents and affidavits without verifying the information contained in the document or affidavit. Basically, all of the ethics violations could be attributed to a desire to reach profit goals.
The robosigning employees at the mortgage underwriting companies were instructed to sign the documents by managers. One of the employees interviewed said that he needed his job and was only following instructions. Upon further questioning, he admitted that he suspected what he was doing was wrong.
When staff employees witness managers and executives acting unethically, it doesn’t matter what core values are on paper. The message is clear: it’s okay to cheat. This can also affect the business externally, too. Conflicts of interest are not limited to relationships between staff. They can occur between staff and customers or staff and vendors. Overcharging customers, mishandling or stealing client funds, fraudulent marketing and publishing fraudulent information of any kind are common third party ethics violations that have been reported.
Ethical Leadership
An ethical organization is formed from the top down. It doesn’t start with laws and regulations. A corporate culture of honesty and responsible behavior must begin internally with government oversight serving as a guide for legal operations and leadership setting the values culture. Leadership must be committed to ethics and follow the code of values closely as a matter of practice.
In other words, leaders must practice and preach ethics. Executives and managers will have to be diligent to avoid ever getting on the slippery slope. Management practices need to be ethically consistent and ethics must pervade all decisions and choices. It should not matter who is involved in any business situation, either. The manager may be dealing with a board member, CEO, subordinate, supplier, customer, auditor or government official, and in every instance, ethical principles need to provide the foundation for communication and exchange.
Leadership can develop an ethical culture in several ways. The culture of ethics needs to be regularly communicated by executives to staff, which gives the message credibility. The message should be sent regularly through meetings, workshops, emails and other communication forms to reinforce the commitment. The message is that ethical behavior is expected in all dealings with customers and vendors, and that the company will succeed by providing value to shareholders and customers and not by cheating.
It’s also important for management to establish appropriate systems for the reporting and follow-up of reports of ethics violations. Workers need to feel comfortable that there won’t be retaliation for being honest. There have been many cases where whistleblowers were punished for telling the truth, and punishment can take many forms – no promotion, no bonus, assigned the worst jobs, work responsibilities are reduced, excluded from teams and meetings, or forced out of the company. All reports of ethics violations should be fairly investigated, and the employee protected from retribution.
Boards of Trustees are also taking a more active role in promoting organizational ethics. They used to rubber stamp whatever the CEO wanted to do or how the CEO acted. They are now holding them more accountable for the ethical principles embraced by the organization and how well they are followed in practice. What businesses are discovering is that they can improve performance by creating a reputable, socially responsible and ethical brand. People want to do business with companies they trust.