I recently attended the Ethisphere 2011
Global Ethics Summit. At this event, the host Ethisphere announced its
annual ranking of this country's most ethical corporations. Interestingly in an
effort to correlate ethical behavior and good business news, Ethisphere
reported that these companies averaged earnings which exceeded the S&P
average over the past three years. From this position, Ethisphere urged that
good ethics is good business because companies which engage in good ethical
practices have better earnings than those which do not operate in such an
However, just as Ethisphere and other organizations
strive to have companies understand that good ethical practices are in
actuality good business practices, other people and organizations are studying
how ethical lapses can occur. In an article in the April edition of the Harvard Business Review, entitled, "Ethical Breakdowns"
Bazerman and Ann
Tenbrunsel explored the question of why good people allow bad things to
happen is the business setting. They begin their article by noting that they
believe "the vast majority of managers mean to run ethical organizations"
and while there are some "out and out crooks," the majority of ethical lapses
in companies occur because of either the blinders of leadership or that
business leadership may "unknowingly encourage" unethical behavior in their
The authors focus on five barriers to conducting in
business in an ethical manner. They provide an analysis of each barrier and
suggest possible remedy each of the barriers. While the authors note that
compliance policies and procedures to implement business ethics are important,
they feel that even the best intentioned [compliance] program will fail if it
does not take into account biases which can blind management and employees to
1. Ill Conceived Goals.
The authors define this barrier as a goal or incentive to
promote change or a behavior that encourages a negative one. They cite to the
example of the Ford Pinto where the Ford Motor Company discovered in
pre-production crash tests the "potential danger of ruptured fuel tanks." Ford
then engaged in a thorough and exhaustive cost-benefit analysis on the costs of
lawsuits from a defective product and "determined that it would be cheaper to
pay off lawsuits than to make repairs." The authors end by noting that "a host
of psychological and organizational factors diverted the Ford executives
attention from the ethical dimensions of the problem..."
As a remedy the authors suggest that business leaders
must understand the incentive systems which their company has in place and the
effect that it has on the workforce. They suggest "brainstorming unintended
consequences when devising goals and incentives." Management should also
consider alternative goals may be important to the reward.
2. Motivated Blindness
The authors understand that people most often see what
they want to see. But they suggest that this is something further, the
companies will overlook unethical behavior when it is their interest to do so.
They cite to the example of the failures of the credit rating agencies which
contributed to the economic downturn. These credit rating agencies provided AAA
credit ratings to "collateralized mortgage securities of demonstrably low
quality" and the authors believe this helped drive the crisis in the housing
market. The motivated blindness came from the fact that the credit rating
agencies were paid by the same companies that they rated so that they "made
their profits by staying in the good graces of the companies that they rate."
These conflicts of interest can be quite powerful, even
if a company or an individual employee is aware of them. The authors suggest
that a company "root out conflicts of interest" because awareness of them may
not be enough to protest a company from such ethical lapses. Executives should
look to "remove them from an organization entirely, looking particularly at the
existing incentive systems."
3. Indirect Blindness
Unfortunately a company will often overlook unethical
behavior in other companies. This is the classic situation where a company with
strong ethical values employees an agent or other third party representatives
whose conduct may not meet a company's ethical standard. In this barrier the
authors cite to the example of the drug company Merck which sold two cancer
drugs to the company Ovation. Soon after the sale, Ovation raised the prices on
the two cancer drugs by "about 1000%" while Merck actually kept producing the
two drugs. The authors assume that Merck sold the two drugs to Ovation so that
Ovation could raise the price and not Merck.
The authors decry this outsourcing of unethical "dirty
work". Even if Merck did not know that Ovation would increase the price so
dramatically the authors believe that any amount of due diligence on Ovation
would have revealed that "it had a history or buying and raising the prices on
small-market drugs..." Any company which has such a business representative
should understand whom it is doing business with and that it cannot outsource
unethical behavior or assign a task which might invite unethical behavior.
4. The Slippery Slope
Every law student is taught how to argue down the
slippery slope. You start at Point A and pretty soon you have come to the end
of western civilization as we know it. However the authors turn this phrase, so
that they define it that companies often fail to "notice the gradual erosion"
of ethical standards. Under this barrier the authors cite to the example of
company auditors who find minor violations by their client company over several
years and which by the final year the has become a large violation or error. As
the outside auditors overlooked it all along, they might well overlook it when
it becomes a violation.
As a remedy for this barrier, the authors maintain that
vigilance is necessary. Managers should be on the look-out for even
trivial-seeming infractions but the real key is to address them immediately and
not let them drag out. Additionally, there should be some type of inquiry to
determine if a change in behavior has occurred.
5. Overvaluing Outcomes
The authors' final barrier is that they believe that many
companies will "reward results rather than high-quality decisions." This can
lead to companies rewarding unethical decisions because such decisions have a
good outcome. But, as the authors note, this can be "a recipe for disaster over
the long term." The authors believe that companies will judge their employees actions
on whether any harm may follow from an action, rather than focus on the
ethicality of the decision or action.
The authors believe this final barrier can be overcome by
having the possible outcomes of any decision or action analyzed for both good
and bad ethical implications. Focusing on the process of decision making is
much more important than simply accepting the outcome. Companies should examine
behaviors which "drive good outcomes, and reward quality decisions, not just
The authors conclude by noting that companies should not
simply employ "surveillance and sanctioning systems" but train leaders to avoid
the types of biases which can lead to the barriers listed in this article. The
end by noting that each employee should be trained to ask the following
question, "What ethical implications might arise from this decision?" And
this advice may be the most important take-away from the article.
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© Thomas R. Fox, 2011
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