Why Ethics is often Grey and not White: Business Ethics Challenges in a Global World

By David De Cremer

Numerous international scandals have created a sense that the moral fiber of our companies is poor. Below, David De Cremer considers why it is so difficult to make responsible leadership a part of contemporary corporate culture, and argues that as a collective we need to work on the management of responsibility in business. 

An increasing number of international business scandals such as those at AIG, Tyco, WorldCom, Enron, Siemens, Royal Dutch Shell, and Olympus have created a strong sense of awareness that the moral fiber of our companies is in a poor shape or may even be nonexistent. Ethically flawed leadership behavior as shown by the ex-CEO of Converse being arrested in Namibia, the CEO at United Healthcare being forced to step down, and Patricia Dunn of Hewlett Packard being charged in an ethics scandal are close to becoming the norm rather than the exception. The world-wide financial crisis clearly showed that the irresponsible behavior of managers and organisations inflicts pain on society and its members.

For example, financial institutions did not hesitate to allocate millions in bonuses to the very people who drove the banks and the country into a financial crisis, and banks like Goldman Sachs were mentioned several times involving cases of fraud and misrepresenting information. For example, according to a whistleblower’s firsthand account, Marc J. Goldstein and Goldman Sachs conspired in an alleged bribery scheme. The investment bank reportedly paid $250,000 in bribes to Mr. Marc J. Goldstein. So far, without consequences.  Cases like the United Kingdom parliamentary expenses scandal signal that the erosion of basic moral principles of right and wrong has reached a peak resulting in historically low levels of trust in our political leaders and legal institutions. The costs of these ethical escalations are widely shared and have a damaging effect on the reliability and profitability of many industries. The German company Siemens was involved in a string of high-profile bribery scandals and recently agreed to a record $1.6 billion settlement, and the oil company Royal Dutch Shell settled a fraud case in which they overstated resources for an amount of $150 million.

Responsibility and acting like an ethical decision-maker is a global challenge taking place at different levels in our societies which is why many companies are increasingly adopting more complex rules and regulation mechanisms.
All these examples clearly demonstrate that responsibility and acting like an ethical decision-maker is a truly global challenge taking place at different levels in our societies. For this reason, many companies across industries are increasingly adopting more complex rules and regulation mechanisms. The effects of such increased regulation and rule-following are not overwhelmingly positive, however. It has become increasingly clear that too many rules and regulations introduce a kind of ticking-the-box mentality where companies do not pursue moral paths because they want to but because they have to. An important consequence of such a mindset is that companies do not build their own moral fiber in which people develop their own moral judgments but rather foster business climates where responsibility is not taken because rules and regulations exist. Responsible business means that a critical mindset with respect to moral values is present that motivates corporate citizens at all levels to create a shared sense of responsibility. Unfortunately, even in the aftermath of so many ethical failures, it seems like too many good people (companies) still do bad things.

In this article, I will briefly outline two important themes to understand more clearly why it can be that responsible leadership is so difficult to make part of the contemporary corporate culture. The first theme will focus on why it may be that although individuals working in companies may have good intentions, more often than not they fall prey to their own biases leading them to adhere to social pressures rather than to their own values. These biases create psychological settings in which the ideal of ethics as a white zone will be turned into a grey zone. The second theme will focus on how the organisation controls available may actually undermine moral awareness.

Theme 1: Human biases and unethical behaviors

Whenever companies get involved in acts of fraud or corruption, fingers are quickly pointed at individuals rather than addressing what may have gone wrong with the corporate culture in place. For example, when the company GlaxoSmithKline was exposed to have paid considerable bribes to doctors and officials the company communicated that it was simply a few sales people who were responsible for these acts. Closer investigation by the appropriate authorities did, however, reveal that the internal culture and the explicit approval by the top people of these practices pushed the company into the direction of excessive bribery rather than simply the individual behavior of the sales force. So, if we want to train our people more in being motivated and confident to stick to clear moral values, we need to understand why they can leave their values behind so quickly when business deals need to be made. One important aspect that contributes to the fact that we easily drop our values from the business equation is the extent to which we are able to rationalize our ethically doubtful actions. Whenever an opportunity arises to justify questionable actions, we become less attuned to evaluate whether we are pushing the limits – or even crossing them – of how we do business.  Research indeed shows that lying about one’s performances is less of a problem when sufficient information is available to justify one’s actions – one piece of information often being the corporate culture and the habits that are endorsed throughout the company. If business transactions take place in situations where it is easy to imagine that others will do the same, people are more inclined to deceive and lie about their actions. After all, if the situation or culture allows for it, it is a not really a lie, meaning that people can maintain their positive image as an honest business man or woman.

Responsible business means that a critical mindset with respect to moral values is present that motivates corporate citizens at all levels to create a shared sense of responsibility.
This kind of self-justification strategy is related to a common human bias aimed at maintaining a positive self-view. Basically, justifying small and initial unethical actions is a survival strategy, used especially when one’s moral reputation is under threat by business deals that are not complying with one’s own moral values. The fact that we are able to make bad and unethical decisions but still think of ourselves as ethical thus indicates that we have a developed a strong internal system aimed at justifying unethical actions at any cost. People will particularly go through great lengths to protect their moral image by means of these justification processes when they suffer from sleeping shortage, experience both physical and emotional depletion, and when one’s social and/or economic status is under threat. For many among us, it is clear that all these concerns are very much part of our business culture. Indeed, business is a tough enterprise and many people regard the business profession as one that is closely associated with the notions of competition and greed. It is exactly this mind frame that business is an exhausting and competitive game that make that ethical sinkholes are very much a part of how we view and legitimize business practices. Such a culture obviously allows for justifications to take place that minimise the weight given to initial unethical transgressions. If little attention is paid to these initial transgressions it is no surprise that full-blown ethical transgressions can quickly emerge, up to the point that when one realises the magnitude of the escalation it is too often too late.

Theme 2: Organisational controls and moral awareness

For the survival of our business systems it is therefore necessary that managers are made aware of the psychology behind decisions taken in the context of moral dilemmas. We need to understand that we are not perfect rational beings and that we make moral mistakes and are apt to justify them. The first thing here is to come to grasp with this imperfect image of us humans and start working with it in developing the “responsible leaders” we need. Being aware of this challenge is the primary antecedent of behavioral change, but at the same time we also need to develop corporate cultures fostering the strengthening of people’s moral compass. This combination of being aware of ethical pitfalls and a supportive culture will facilitate the emergence of responsible leaders able to contribute to the Common good. I believe that the contemporary bad image of business, the lack of trust in the leaders – who often feel prisoners of “the ends justify the means” or “if it is legal it is OK” – can be changed if they learn how to navigate in the morally grey zone, and this thanks to their awareness of and reliance upon a strong moral compass and not only on the rules that are in place.

To train our people in being confident to stick to clear moral values, we need to understand why they can leave their values behind so quickly when business deals need to be made.
Specifically, when too many rules are used a ticking-the-box mentality arises to determine ethical limits. The result of such a mindset is that our initial and primary response will be to check only the existing laws and rules to see what is not acceptable. Our own moral compass and values will be taken out of the judgment process in such a way that we do not care whether our actions are legally acceptable but only focus on what is not legally acceptable. Included in such a mindset is thus the idea that if something would not be morally acceptable then the law should make this explicitly clear. If the law or corresponding rule does not signal any problems then everything goes in the mind of the people.

It is exactly at this point that most companies fail to facilitate the emergence of responsible leaders making use of their own moral compass. Indeed, in organisations, institutes and societies the most common response to ethical failures is to come up with more elaborated and complex control systems. We adhere strongly to the belief that if we reward the desirable behaviors and punish the undesirable ones, people will internalize the moral values that are needed to create a cooperative and responsible long-term perspective. Unfortunately, the sole reliance on control systems does not make salient the so much-needed moral compass on the long term.

In fact, one could even say that the use of rules and controls is a guide in the absence of judgments and if so it may not help much in correcting bad past behavior. Indeed, to prevent or remedy unethical decisions and behavior, we need to make sure our employees are able to work with and develop their own moral judgments. In other words, the ideal would be to create cultures where business people are able to judge whether we have crossed moral boundaries or not.

A very direct consequence of an abundance of control systems is that the more controls are available the less people will understand the reason behind the presence of these systems. When controls are dominating our corporate culture, people display an automatic tendency to feel less responsible for their actions and decisions. In their view, the control system is now responsible to regulate the moral culture of our business. As a result, people will recognize that there are grey zones but because of our lack of judgment – due to the presence of a control system – it is difficult to decide what to do. Under those circumstances, people will use their own self-interested motives as a guideline of their actions, unless the control system in place explicitly signals that another action should be taken. In all other circumstances, self-interest, and likely unethical behaviors, will be prevalent. For all of these reasons, it is of utmost importance that companies start building moral climates that raise awareness of the biases that make people justify irresponsible behaviors and neglect the interests of all the stakeholders involved. At the same time it is also important that an attitude is created towards rules and control systems that do not undermine our moral awareness. Rather it should strengthen people’s recognition that rules and control mechanisms are not there to remove our sense of responsibility but rather to emphasise that responsibility needs to be taken. In fact, it should be clearly communicated that control systems are present to remind us that escalations and transgressions happen more often than not and that as a collective we need to work on the prevention or management of it.

About the Author

David De Cremer is a Professor of Organisational Behavior at China Europe International Business School and a visiting Professor at London Business School. In 2009-2010 he was elected the most influential economist in the Netherlands. His consultancy and research interests are leadership, trust as a business asset, organisational justice and ethics practices. Email: ddecremer@ceibs.edu

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.