Business Ethics

The tumultuous events that unfolded last weekend, should make every Business Leader reflect on the importance of Business Ethics. Leading our business organisations with the highest standards of business ethics should not only be a goal written on paper, but should be an integral part of the culture of the organisations we lead. This means that any temporary gain a business organisation may benefit from by not adhering to highest standards of business ethics should be something frowned upon, rather than lauded. So how can we build strong ethical cultures in our organisations?

Research shows that creating an ethical culture requires thinking about ethics not simply as a belief problem but also as a design problem. There are at least four critical features that need to be addressed when designing an ethical culture.

Explicit values: Strategies and practices should be anchored to clearly stated principles that can be widely shared within the organization. A well-crafted mission statement can help achieve this, as long as it is used correctly. Leaders can refer to it to guide the creation of any new strategy or initiative and note its connection to the company’s principles when addressing employees, thus reinforcing the broader ethical system.

Thoughts during judgment: Most people have less difficulty knowing what’s right or wrong than they do keeping ethical considerations top of mind when making decisions. Behaviour tends to be guided by what comes to mind immediately before engaging in an action, and those thoughts can be meaningfully affected by context. Should someone remind you that favouring a friend necessarily hurts the chances of people you don’t happen to know, you might think twice about whether your efforts to prefer and assist your friend are appropriate. Hence we must make sure to have the appropriate structures and incentives to guide and remind people about the ethical standards they are to adhere to.

Incentives: It is a boringly true that aligning rewards with ethical outcomes is an obvious solution to many ethical problems. That may sound simple (just pay people for acting ethically), but money goes only so far, and incentive programs must provide a variety of rewards to be effective. Along with earning an income, employees care about doing meaningful work, making a positive impact, and being respected or appreciated for their efforts. In addition to aligning financial incentives with desired outcomes, ethical cultures provide explicit opportunities to benefit others and reward people who do so with recognition, praise, and validation. If, for instance, your employees are making people’s lives meaningfully better in some way, pointing that out will encourage future ethical behavior. It may even improve performance, because the reward is aligned with ethical motivation. This approach to incentives may have ancillary HR benefits. People tend to underestimate both how positive they will feel about connecting with others in a prosocial way and the positive impact their behaviour will have on others. Companies that use prosocial incentives are likely to produce happier, more satisfied, and more loyal employees. An ethical culture not only does good; it also feels good.

Cultural norms: Most leaders intuitively recognise the importance of “tone at the top” for setting ethical standards in an organisation. Easily overlooked is “tone in the middle,” which may actually be a more significant driver of employees’ behavior. Good leaders produce good followers; but if employees in the middle of the organisation are surrounded by coworkers who are lying, cheating or stealing, they will most likely do the same, regardless of what their bosses say. So-called descriptive norms—how peers actually behave—tend to exert the most social influence.

So who can we bring all this in practice?

Hiring: First impressions are inordinately powerful. For many employees, an organisation’s values were revealed during the hiring process. Although interviews are typically treated as opportunities for identifying the best candidate, they also begin the acculturation process. Highlighting values in the interview reveals their importance to the organisation.

Evaluation: Ethics can also be woven into the design of performance evaluations to highlight their importance to an organisation as well as to reward and encourage good behaviour.

Compensation: Aligning financial incentives with ethical outcomes may sound easy in principle, but it is tricky in practice. This is where a mission statement can help. Leaders can reward ethical actions by showing employees the positive impact of their work on others and recognising their actions in presentations and publications. They can also create opportunities within the organisation to behave ethically toward colleagues.

No company will ever be perfect, because no human being is perfect. Real people are not purely good or purely evil but are capable of doing both good and evil. Organisations should aim to design a system that makes being good as easy as possible. That means attending carefully to the contexts people are actually in, making ethical principles foundational in strategies and policies, keeping ethics top of mind, rewarding ethical behaviour through a variety of incentives and encouraging ethical norms in day-to-day practices. Doing so will never turn an organisation full of humans into a host of angels, but it can help them be as ethical as they are capable of being.

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