No executive wants to wake up
and find themselves on the cover of theWall
Street Journal, exposed in some widespread breach of ethics. TheVolkswagen debacle is
every leader’s worst nightmare. Waiting to see if your organization’s ethical
fabric is as bullet proof as you hope isn’t a great strategy, argues JonathanHaidt. He is a professor of Business at NYU, theNew York Times bestselling
author of landmark book The Righteous Mind, and founder of Ethical Systems,
a research-based non-profit dedicated to helping strengthen the ethical
backbone of the business community. Over two engaging interviews, he shared his
insights and hopes for helping organizations realize greater ethical strength
by taking a systemic approach to cultural, structural, strategic and procedural
system design. For him, this is more than a field of study. It’s a cause. He
says,
Business is the engine of
growth for all of humanity. The spread of markets and modern business practices
is the reason why extreme poverty rates are plummeting around the world —
falling into single digits this year for the first time in human history. Helping businesses to perform just a little better, just a little more
ethically, is arguably the most important project humanity can undertake. It
would increase the pie and divide
it more equitably.
Haidt isn’t naïve about taking
on such an endeavor. In the face of the last decade’s outrageous corporate
behavior, 2015 holding some of the most scandalous,
convincing corporations to embrace the importance of ethics isn’t a slam dunk.
“The business world is heavily devoted to compliance, not ethics. Legislature
has mandated it so compliance has become the lowest common denominator.
Everyone knows that compliance is a check the box exercise for external
accountability, but it’s not strong for ethics.” My own research bears out the challenge. Since
2008’s financial collapse, distrusting followers have raised the bar that much
higher on executive integrity. Leaders are
distrusted until proven trustworthy.
In an ironic appeal to
self-interest, for which Haidt readily acknowledges the paradox, he says there
are four important reasons “ethics pays.” First, there is the cost of
reputation, which most analysts and experts acknowledge links closely to share
price performance. Second, ethical organizations have lower costs of capital,
as evidenced by Deutsche Bank’s commitment to focus on
clients with higher ethical standards. Third, the white-hot war for talent,
both recruiting and retaining top talent, takes a painful hit with an ethical
scandal. Conversely, the best talent wants to associate with the best reputed
companies. And finally, the astronomical cost of cleaning up an ethical mess
can soar into the billions after shareholder losses, lawsuits, fines, and PR
costs are added up. Still those aren’t the real reasons to focus on this,
claims Haidt. The longer-term benefits to a world with greater ethical
substance far outweigh the costs of cutting corners for short-term gains.
Sadly, unethical choices have paid well for too many executives.
Looking at organizations holistically increases the ability to see the
breeding ground for ethical failures. “If you simply
look at balance sheets, public reporting, Sarbanes-Oxley compliance, and other
regulatory metrics, you cannot truly see the ethical fabric of the
organization. Ethical failures start microcosmically in more insidious ways
than outright greedy corruption.” You have to look deeper into the
organization’s operational processes and culture to uncover the petri dishes
where ethical failures grow.
There are two
areas executives must continually monitor to detect potential ethical failure
early. The organization’s “hardware,” or its systems and processes, is where
you can detect what Haidt refers to as “proceduraljustice.” The basic perception of fairness in the design of an
organization is vital to shaping ethical employee behavior. If employees
perceive that the way resources are allocated, rewards are distributed, and
priorities are set is fair, “it motivates employees to work collaboratively for
the long-term good of the organization and its members. Such a long-term
collaborative focus tends to produce ethical behavior.” Our experience as
organization designers is consistent. The moment planning and budgeting processes
appear capricious, conflicts between departments are
arbitrated unfairly,decision rights are
secretly distributed in conflict with stated values, or rewards are distributed
politically, employees feel entitled to indulge in self-interest. And once that
toxin is set in motion, the stage is set for ethical breaches.
The second place
leaders must monitor is the organization’s “software,” or culture, and in
particular the degree of trust evident among employees. “Within organizations,
the central driver of value creation is the division of labor. When people can trust that others are doing their part, not
taking for themselves, it’s a more fun environment in which to work and people don’t feel a need to ‘take.’ When people perceive
generalized trust, there are high levels of performance.” Conversely, if people
feel exploited, that their efforts don’t matter, or worse, matter less than
peers’, they withdraw trust. They suspect others will take advantage of them,
and therefore must self-protect. The result is often reducing effort to the
lowest common denominator. Employees conclude, “Why should I exert more effort
than she does. We get paid the same. If I work harder, I’ll end up doing her
job for her.” In an environment where people perceive costs being passed on
unfairly, whether it’s employees unfairly passing on work to others, or the
organization passing on unfair costs to customers and suppliers, trust becomes
impaired. And self-protection generated by distrust breeds ethical failure.
Creating
sustainable change will require ongoing intervention and education at three
levels. At the public policy and regulatory levels, as well as at the
enterprise and team level of organizations, and within the individual behaviors
of leaders. But Haidt in his team are determined to prevail in changing the
stature of business ethics. “We will make success easier for well-meaning
business leaders who know that in the long run, ethics pays. It is they who
will change the world.”
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