Middle managers may turn to unethical behavior to face unrealistic expectations

Science Daily
Originally published October 5, 2017

While unethical behavior in organizations is often portrayed as flowing down from top management, or creeping up from low-level positions, a team of researchers suggest that middle management also can play a key role in promoting wide-spread unethical behavior among their subordinates.

In a study of a large telecommunications company, researchers found that middle managers used a range of tactics to inflate their subordinates' performance and deceive top management, according to Linda Treviño, distinguished professor of organizational behavior and ethics, Smeal College of Business, Penn State. The managers may have been motivated to engage in this behavior because leadership instituted performance targets that were unrealizable, she added.

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Middle managers also used a range of tactics to coerce their subordinates to keep up the ruse, including rewards for unethical behavior and public shaming for those who were reluctant to engage in the unethical tactics.

"Interestingly, what we didn't see is managers speaking up, we didn't see them pushing back against the unrealistic goals," said Treviño. "We know a lot about what we refer to as 'voice' in an organization and people are fearful and they tend to keep quiet for the most part."

The article is here.

The target article is here.

Holding People Responsible for Ethical Violations: The Surprising Benefits of Accusing Others

Jessica A. Kennedy and Maurice E. Schweitzer
Wharton Behavioral Lab

Abstract

Individuals who accuse others of unethical behavior can derive significant benefits.  Compared to individuals who do not make accusations, accusers engender greater trust and are perceived to have higher ethical standards. In Study 1, accusations increased trust in the accuser and lowered trust in the target. In Study 2, we find that accusations elevate trust in the accuser by boosting perceptions of the accuser’s ethical standards. In Study 3, we find that accusations boosted both attitudinal and behavioral trust in the accuser, decreased trust in the target, and promoted relationship conflict within the group. In Study 4, we examine the moderating role of moral hypocrisy. Compared to individuals who did not make an accusation, individuals who made an accusation were trusted more if they had acted ethically but not if they had acted unethically. Taken together, we find that accusations have significant interpersonal consequences. In addition to harming accused targets, accusations can substantially benefit accusers.

Here is part of the Discussion:

It is possible, however, that even as accusations promote group conflict, accusations could benefit organizations by enforcing norms and promoting ethical behavior. To ensure ethical conduct, organizations must set an ethical tone (Mayer et al., 2013). To do so, organizations need to encourage detection and punishment of unethical behavior. Punishment of norm violators has been conceptualized as an altruistic behavior (Fehr & Gachter, 2000). Our findings challenge this conceptualization. Rather than reflecting altruism, accusers may derive substantial personal benefits from punishing norm violators. The trust benefits of making an accusation provide a reason for even the most self-interested actors to intervene when they perceive unethical activity. That is, even when self-interest is the norm (e.g., Pillutla & Chen, 1999), individuals have trust incentives to openly oppose unethical behavior.

The research is here.

How Much Do A Company's Ethics Matter In The Modern Professional Climate?

Larry Alton
Forbes
Originally posted September 12, 2017

More than ever, a company’s success depends on the talent it’s able to attract, but attracting the best talent is about more than just offering the best salary—or even the best benefits. Companies may have a lucrative offer for a prospective candidate, and a culture where they’ll feel at home, but how do corporate ethics stack up against those of its competition?

This may not seem like the most important question to ask when you’re trying to hire someone for a position—especially one that might not be directly affected by the actions of your corporation as a whole—but the modern workplace is changing, as are American professionals’ values, and if you want to keep up, you need to know just how significant those ethical values are.

What Qualifies as “Ethics”?

What do I mean by “ethics”? This is a broad category, and subjective in nature, but generally, I’m referring to these areas:

• Fraud and manipulation. This should be obvious, but ethical companies don’t engage in shady or manipulative financial practices, such as fraud, bribery, or insider trading. The problem here is that individual actions are often associated with the company as a whole, so any individual within your company who behaves in an unethical way could compromise the reputation of your company. Setting strict no-tolerance policies and taking proper disciplinary action can mitigate these effects.

The article is here.

The next big corporate trend? Actually having ethics.

Patrick Quinlan
Recode.net
Originally published July 20, 2017

Here is an excerpt:

Slowly, brands are waking up to the fact that strong ethics and core values are no longer a “nice to have,” but a necessity. Failure to take responsibility in times of crisis can take an irreparable toll on the trust companies have worked so hard to build with employees, partners and customers. So many brands are still getting it wrong, and the consequences are real — public boycotting, massive fines, fired CEOs and falling stock prices.

This shift is what I call ethical transformation — the application of ethics and values across all aspects of business and society. It’s as impactful and critical as digital transformation, the other megatrend of the last 20 years. You can’t have one without the other. The internet stripped away barriers between consumers and brands, meaning that transparency and attention to ethics and values is at an all-time high. Brands have to get on board, now. Consider some oft-cited casualties of the digital transformation: Blockbuster, Kodak and Sears. That same fate awaits companies that can’t or won’t prioritize ethics and values.

This is a good thing. Ethical transformation pushes us into a better future, one built on genuinely ethical companies. But it’s not easy. In fact, it’s pretty hard. And it takes time. For decades, most of the business world focused on what not to do or how not to get fined. (In a word: Compliance.) Every so often, ethics and its even murkier brother “values” got a little love as an afterthought. Brands that did focus on values and ethics were considered exceptions to the rule — the USAAs and Toms shoes of the world. No longer.

The article is here.

Chief executives who lack ethics should be more afraid of public opinion than ever

Emma Koehn
Smart Company
Originally posted June 16, 2017

The age of the internet has made it near impossible for companies to hide when someone in their organisation makes a major blunder, and the research indicates the world is now tougher on bosses who stuff up than ever before.

PriceWaterhouseCoopers partners Kristin Rivera and Per Ola-Karlsson suggest in Harvard Business Review this week that the numbers don’t lie: more chief executives are being fired for “ethical blunders” than ever before, with scrutiny from both customers and shareholders accelerating.

The pair examine the numbers from PwC’s most recent global chief executive success study, which suggests the number of company heads who were dismissed for ethical lapses increased from 3.9% in the four years preceding 2012 to 5.3% at the end of 2016.

“Firstly, the public has become more suspicious, more critical and less forgiving of corporate misbehaviour,” Rivera and Karlsson say.

“Second, governance and regulation in many countries has become both more proactive and more punitive.”

The article is here.

More CEOs Are Getting Fired After an Ethical Lapse, Study Finds

Vanessa Fuhrmans
The Wall Street Journal
Originally posted May 14, 2017

Ethical breaches are causing more chief executives to lose their jobs. The upside? Researchers say the rising numbers don’t point to more corporate misbehavior: It’s that CEOs are being held to a higher level of accountability.

Among the myriad reasons corporate bosses leave their jobs, firings have been on the decline. In a study of CEO exits at the world’s 2,500 largest public companies, researchers at PricewaterhouseCoopers LLP’s strategy consulting arm, called Strategy&, found 20% of CEO exits in the past five years were forced, down from 31% of CEO exits in the previous five years.

But CEO ousters due to ethical lapses—either their own improper conduct, or their employees’—are climbing. Such forced exits rose to 5.3% of CEO departures in the 2012-to-2016 period, up from 3.9% during the previous five years.

The article is here.

Improving Ethical Culture by Measuring Stakeholder Trust

Phillip Nichols and Patricia Dowden
Compliance and Ethics Blog
Originally posted April 10, 2017

Here is an excerpt:

People who study how individuals behave in organizations find that norms are far more powerful than formal rules, even formal rules that are backed up by legal sanctions.[ii] Thus, a norm that guides people to not steal is going to be more effective than a formal rule that prohibits stealing. Therein lies the benefit to a business firm. A strong ethical culture will be far more effective than formal rules (although of course there is still a need for formal rules).

When the “ethical culture” component of a business firm’s overall culture is strong – when norms and other things guide people in that firm to make sound ethical and social decisions – the firm benefits in two ways: it enhances the positive and controls the negative. In terms of enhancing the positive,  a strong ethical culture increases the amount of loyalty and commitment that people associated with a business firm have towards that firm. A strong ethical culture also contributes to higher levels of job satisfaction. People who are loyal and committed to a business firm are more likely to make “sacrifices” for that firm, meaning they are more likely to do things like working late or on weekends in order to get a project done, or help another department when that department needs extra help. People who are loyal and committed to a firm are more likely to defend that firm against accusers, and to stand by the firm in times of crisis. Workers who have high levels of job satisfaction are more likely to stay with a firm, and are more likely to refer customers to that firm and to recruit others to work for that firm.

The blog post is here.

Citigroup Has an On-call Ethicist to Help It Solve Moral Issues

Alana Abramson
Fortune Magazine
Originally posted March 17, 2017

It turns out that Citigroup has an on-call ethicist to handle issues around the intersection of banking, finance, and morality.

The bank has worked with Princeton University Professor David Miller for the past three years, according to the Wall Street Journal. His role includes providing advice to top executives and reviewing topics and projects they have concerns about.

Miller was brought on, according to the Journal, by Citigroup CEO Michael Corbat, who felt the role was necessary after learning about employees' hesitations to voice concerns about wrongdoings, and public perceptions of banks.

The article is here.

Make business ethics a cumulative science

Jonathan Haidt & Linda Trevino
Nature - Human Behavior


Business ethics research is not currently a cumulative science, but it must become one. The benefits to humanity from research that helps firms improve their ethics could be enormous, especially if that research also shows that strong ethics improves the effectiveness of companies.

Imagine a world in which medical researchers did experiments on rats, but never on people. Furthermore, suppose that doctors ignored the rat literature entirely. Instead, they talked to each other and swapped tips, based on their own clinical experience. In such a world medicine would not be the cumulative science that we know today.

That fanciful clinical world is the world of business ethics research. University researchers do experiments, mostly on students who come into the lab for pay or course credit. Experiments are run carefully, social and cognitive processes are elucidated, and articles get published in academic journals. But business leaders do not read these journals, and rarely even read about the studies second-hand. Instead, when they think and talk about ethics, they rely on their own experience, and the experience of their friends. CEOs share their insights on ethical leadership. Ethics and compliance officers meet at conferences to swap ‘best practices’ that haven't been research-tested. There are fads, but there is no clear progress.

The article is here.

The Elements of Guile - Harper's Magazine

The Harper's information is here.

Whatever happened to the DeepMind AI ethics board Google promised?

Alex Hurn
The Guardian
Originally posted January 26, 2017

Three years ago, artificial intelligence research firm DeepMind was acquired by Google for a reported £400m. As part of the acquisition, Google agreed to set up an ethics and safety board to ensure that its AI technology is not abused.

The existence of the ethics board wasn’t confirmed at the time of the acquisition announcement, and the public only became aware of it through a leak to industry news site The Information. But in the years since, senior members of DeepMind have publicly confirmed the board’s existence, arguing that it is one of the ways that the company is trying to “lead the way” on ethical issues in AI.

But in all that time DeepMind has consistently refused to say who is on the board, what it discusses, or publicly confirm whether or not it has even officially met. The Guardian has asked DeepMind and Google multiple times since the acquisition on 26 January 2014 for transparency around the board, and received just one answer on the record.

The article is here.

The Psychology of White-Collar Criminals

Eugene Soltes
The Atlantic
Originally posted December 14, 2016

Here is an excerpt:

Usually, a gut feeling that something will be harmful is enough of a deterrence. But when the harm is distant or abstract, this internal alarm doesn’t always go off. This absence of intuition about the harm creates a particular challenge for executives. Today, managerial decisions impact ever-greater numbers of people and the distance between executives and the people their decisions affect continues to grow. In fact, many of the people most harmed or helped by executives’ decisions are those they will never identify or meet. In this less intimate world, age-old intuitions are not always well suited to sense the kinds of potential harms that people can cause in the business world.

Reflecting on these limits to human intuition, I came to a conclusion that I found humbling. Most people like to think that they have the right values to make it through difficult times without falling prey to the same failures as the convicted executives I got to know. But those who believe they would face the same situations with their current values and viewpoints tend to underestimate the influence of the pressures, cultures, and norms that surround executive decision making. Perhaps a little humility is in order, given that people seem to have some difficulty predicting how they’d act in that environment. “What we all think is, ‘When the big moral challenge comes, I will rise to the occasion,’ [but] there’s not actually that many of us that will actually rise to the occasion,” as one former CFO put it. “I didn’t realize I would be a felon.”

The article is here.

Why Ethical People Make Unethical Choices

By Ron Carucci
Harvard Business Review
Originally posted December 16, 2016

Most companies have ethics and compliance policies that get reviewed and signed annually by all employees. “Employees are charged with conducting their business affairs in accordance with the highest ethical standards,” reads one such example. “Moral as well as legal obligations will be fulfilled in a manner which will reflect pride on the Company’s name.” Of course, that policy comes directly from Enron.  Clearly it takes more than a compliance policy or Values Statement to sustain a truly ethical workplace.

Corporate ethical failures have become painfully common, and they aren’t cheap.  In the last decade, billions of dollars have been paid in fines by companies charged with ethical breaches. The most recent National Business Ethics Survey indicates progress as leaders make concerted efforts to pay holistic attention to their organization’s systems. But despite progress, 41% of workers reported seeing ethical misconduct in the previous 12 months, and 10% felt organizational pressure to compromise ethical standards. Wells Fargo’s recent debacle cost them $185 million in fines because 5300 employees opened up more than a million fraudulent accounts.  When all is said and done, we’ll likely learn that the choices of those employees resulted from deeply systemic issues.

The article is here.

Why moral companies do immoral things

Michael Skapinker
Financial Times
Originally published November 23, 2016

Here is an excerpt:

But I wondered about the “better than average” research cited above. Could the illusion of moral superiority apply to organisations as well as individuals? And could companies believe they were so superior morally that the occasional lapse into immorality did not matter much? The Royal Holloway researchers said they had recently conducted experiments examining just these issues and were preparing to publish the results. They had found that political groups with a sense of moral superiority felt justified in behaving aggressively towards opponents. In experiments, this meant denying them a monetary benefit.

“It isn’t difficult to imagine a similar scenario arising in a competitive organisational context. To the extent that employees may perceive their organisation to be morally superior to other organisations, they might feel licensed to ‘cut corners’ or behave somewhat unethically — for example, to give their organisation a competitive edge.

“These behaviours may be perceived as justified … or even ethical, insofar as they promote the goals of their morally superior organisation,” they told me.

The article is here.

Do It Well and Do It Right: The Impact of Service Climate and Ethical Climate on Business Performance and theBoundary Conditions

Jiang, K., Hu, J., Hong, Y., Liao, H., & Liu, S.
Journal of Applied Psychology. Advance online publication.

Abstract

Prior research has demonstrated that service climate can enhance unit performance by guiding employees’ service behavior to satisfy customers. Extending this literature, we identified ethical climate toward customers as another indispensable organizational climate in service contexts and examined how and when service climate operates in conjunction with ethical climate to enhance business performance of service units. Based on data collected in 2 phases over 6 months from multiple sources of 196 movie theaters, we found that service climate and ethical climate had disparate impacts on business performance, operationalized as an index of customer attendance rate and operating income per labor hour, by enhancing service behavior and reducing unethical behavior, respectively. Furthermore, we found that service behavior and unethical behavior interacted to affect business performance, in such a way that service behavior was more positively related to business performance when unethical behavior was low than when it was high. This interactive effect between service and unethical behaviors was further strengthened by high market turbulence and competitive intensity. These findings provide new insight into theoretical development of service management and offer practical implications about how to maximize business performance of service units by managing organizational climates and employee behaviors synergistically.

The article is here.

Deutsche Bank's $10-Billion Scandal

By Ed Caesar
The New Yorker
Originally published August 29, 2016

Here is an excerpt:

Scandals have proliferated at Deutsche Bank. Since 2008, it has paid more than nine billion dollars in fines and settlements for such improprieties as conspiring to manipulate the price of gold and silver, defrauding mortgage companies, and violating U.S. sanctions by trading in Iran, Syria, Libya, Myanmar, and Sudan. Last year, Deutsche Bank was ordered to pay regulators in the U.S. and the U.K. two and a half billion dollars, and to dismiss seven employees, for its role in manipulating the London Interbank Offered Rate, or libor, which is the interest rate banks charge one another. The Financial Conduct Authority, in Britain, chastised Deutsche Bank not only for its manipulation of libor but also for its subsequent lack of candor. “Deutsche Bank’s failings were compounded by them repeatedly misleading us,” Georgina Philippou, of the F.C.A., declared. “The bank took far too long to produce vital documents and it moved far too slowly to fix relevant systems.”

The article is here.

Keep a List of Unethical Things You’ll Never Do

Mark Chussil
Harvard Business Review
Originally posted May 30, 2016

Here is an excerpt:

In a recent class we talked about less-than-virtu­ous actions we’ve seen in business. Fraudulent ac­counting that wiped out jobs and investors. Efficient operations that inflict misery on food animals. Shortcuts and cover-ups that cost people their lives. It’s easy to create a long list and it’s hard not to be depressed by it.

I asked my students: who, among you, aspires to take such actions? They were appalled, of course. Then I mentioned that the real-life people who actually took those actions were once just like them. They were young; they were eager; they wanted to do fine things. And yet.

The room was very quiet.

The article is here.

Morality in business: Oxymoron?

By Elfren S. Cruz
The Philippine Star
Updated May 26, 2016

Here is an excerpt:

Today, the Filipino businessman like  business leaders around the world, are confronted with moral questions that cannot be decided simply on the basis of what is “good for the company.” There is the issue of the minimum wage vs. the living wage that institutions like the Catholic Church have been advocating for more than a century. Then there is the issue of contractualization and the continuing practice of hiring “casuals” who will be laid off after a few months work and then rehired again to avoid giving them regular status.

Tax evasion and money laundering through tax havens in places like the British Virgin Islands are now considered as an integral part of doing business. And when transparency about financial transactions and bank accounts are demanded, businessmen object on the basis of the “right to privacy.”

The article is here.

Taking Ethics Seriously: By Setting Up Board Committees?

Dina Medland
Forbes.com
Originally published March 9, 2016

Here is an excerpt:

However, the report does not recommend that all companies should form a committee. “While the need for more detailed oversight may favor the creation of a committee, there is a risk of the board’s own responsibilities being diluted  – and of unnecessary overlap with other committees. What remains critical is that boards address the issues of ethics and values in the context of their approach to risk oversight, even when they do not have a committee”, it says.

One could argue that the creation of a committee in a boardroom is in fact a death knell to a broader discussion of the issue of company culture – which surely includes creating attitudes to corporate values, sustainability and realistic profit targets from an ethical base implicit in the business plan.

The article is here.

Will Your Ethics Hold Up Under Pressure?

Ron Carucci
Forbes
Originally published FEB 3, 2016

Here is an excerpt:

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.

The article is here.