Danger due to: ethics

John Dalla Costa, the renowned business ethics writer and consultant teaches with us at the Schulich School of Business. He's also an occasional blogger at his site www.ceo-ethics.com. We love the piece he's just posted on the dangers of thinking that because you're doing ethics, you're going to be more ethical. With his permission, we're reposting it here since its a conversation we agree that needs to happen.

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Are ethicists more ethical than their peers in other disciplines? It’s an interesting question. A recent study published in the journal Metaphilosophy provides a limited data point, but the news, at least if you’re an ethicist like me, is not good. Comparing how university professors engage students, the researchers found no difference between ethics professors and other faculty. Even though the ethics experts set an ideal, and acknowledged that not following through on that standard was morally wrong, in action, the experts in ethics were indistinguishable from fellow academics.

Are you surprised? I’m not. But I am distressed.

I’m not surprised, because if ethics were truly relevant, or if we really understood them to be effective, we’d be invoking them with much more frequency and rigor. Canada is knee-deep is scandals, with Senators whitewashing expense reports, the Prime Minister’s Chief of Staff paying for the white paint, and the Mayor of Toronto careening from one violation of the public trust to another. Ethics are AWOL, and no one seems to be missing them.

The same is true in business. Ethics have become IKEA-like contraptions for compliance. All the imagination and enquiry have been purposefully engineered away, so that all ethics and compliance officers need to do is follow the illustrated instructions, and assemble the pre-cut pieces.

Before Lehman Brothers and Bear Stearns imploded in 2008, I managed to download the codes for ethics and conduct from their respective websites. It turns out that they were derived from a boilerplate, following numerically identical categories, and using mostly similar jargon, with only one or two cosmetic flourishes reflecting idiosyncrasies of corporate history. It would inconceivable for these global finance behemoths (or their peers) to use Quicken to do their taxes. But that’s basically what they did for their ethics – adopting a four-page template, in the name of the Board of Directors, to set the terms and scope for their ethicality. Not surprisingly, both companies got full return on their investment.

There is a good reason why we’ve talked so little about corporate ethics since the financial crisis: most corporations had already subscribed to compliance projects pre-2007, and nothing has changed since.

I’m distressed because ethics-without-ethicality repeats the diminishment of restraint and responsibility, which led to previous market failures and economic crises.

As bad as were the deceptions perpetrated by Enron, it was much worse that these accounting lies were intentionally papered-over by its auditor, Arthur Anderson. Similarly, as irresponsible as were mortgage tactics and securitizations floated by the banks in the run up to the financial crisis, it was much worse that the ratings agencies, like Standard and Poor’s, assigned Triple AAA credit value to derivates that their own in-house experts considered junk-grade. When sentinels sell-out, when they simultaneously over-estimate their virtue and under-deliver on the promise they are entrusted to uphold, bad things happen to everyone.

In his book, Confronting Vulnerability, Jonathan Schofer reminds us that moral laws and ethical rules need continuous replenishment. His point is that, while established as bulwarks against human vulnerability and exploitation, ethics are themselves vulnerable and exploitable. We fall-back on ethics as if on auto-pilot, with such doctrinaire rigidity that we cease using any critical thinking as we apply them in life’s complex ambiguities. Or, perhaps worse, we take them for granted until they become easy take-over targets for other ambitions or motivations. Principles share with practitioners the fragility of our human finitude. The most unethical thing is often denying our personal limitations for seeing what is right, and deciding what is true.

We don’t know if this research confirms that ethicists too have ceased being reliable sentinels. But it is the question that should distress and challenge us – ethicists and non-ethicists alike.

John Dalla Costa

www.ceo-ethics.com

Photo by blind dayze. Reproduced under Creative Commons licence

Four reasons why we're so hard on our leaders' ethical lapses

The list of prominent leaders being turfed out of office for ethics violations seems to be growing at an exponential rate. Here in Canada, Toronto mayor Rob Ford's ouster this week for breaking conflict of interest rules is no less than the third Canadian city major to bite the dust this month due to questions of integrity (the others, Gerald Tremblay of Montreal and Gilles Vaillancourt of Laval both resigned without admitting any guilt in face of corruption investigations).

 In the last month we've also seen the Director of the CIA in the US, David Patreus resign due to an admission of "extremely poor judgement" in conducting an extramarital affair. The same week, the incoming CEO of the multinational defense company Lockheed Martin resigned over "a close personal relationship" with a subordinate. Even Hurricane Sandy took its toll with the resignation of the CEO of the Long Island Power Authority after thousands of its customers were left without electricity. And over in the UK, the Director General of the BBC resigned this month due to the organization's botched child abuse investigations.

But its not just a sudden blip. Earlier in the year, Bob Diamond, the CEO of Barclays Bank, resigned in the wake of the Libor scandal, adding to a CEO head count that already included the CEO of Yahoo (falsified CV), Best Buy (inappropriate relationship with a subordinate), Nomura (insider trading), Restoration Hardware (relationship with a subordinate), Stryker (extramarital affair with subordinate), and Lotus cars (expenses irregularities). And just to stoke the fires even more, the former CEO of SNC Lavalin who resigned in March (corruption scandal), has just been arrested on fraud charges.

Depending on how you look at it, these various resignations, firings, and now arrests could be seen as a sign that leaders' ethical standards are tumbling fast .... or that our standards are tightening and that tolerance for any kind of ethical violations is shrinking. Regardless, it is always a big decision to terminate the boss, especially given the huge costs involved in terms of severance packages, the loss of valued experience, skills, and continuity - and in the context of public officials, the costs of going through another expensive election. To give a sense of what we're talking about here: Mayor Ford's removal may force a new by-election which will cost the city, and therefore Toronto taxpayers, some $7m. The termination of HP CEO Mark Hurd in 2010 for minor financial irregularities cost the firm a huge $37m pay-off, saw the share price tumble by 9%, and led to a period of significant decline for the firm after Hurd's successors failed to match his winning formula.

So why do we do it, especially when the "crimes" don't always seem to be that big: a fabricated qualification here, a few thousand in dodgy expenses there, a little bit of infidelity with a colleague when you should be home with the family. Are these really worth the trouble and expense of ousting the most important person in the organization? Here's four reasons why they might be.

1. Leaders are the chief ethics officers.
Leaders are ultimately responsible for the success or otherwise of their organizations. And that goes for ethics too. Leaders need to be the guardians of the organization's ethics. So if things go wrong, the logic goes, it is the leader that should be held accountable, regardless even of whether they knew what was going on further down their organization. And if its the leader who's actually breaking the rules, then they are putting their organization at risk ... of scandal, of fines, or of ethical culture problems further down the line.

2. Leaders set the tone.
You can't build an ethical culture if the boss breaks the rules with impunity. Many will argue that termination is too strong for relatively minor indiscretions, but they often overlook the knock-on effect of being seen to be too lenient. Employees throughout the organization can get the message that ethics isn't really taken too seriously and that although you may get your wrist slapped, the rewards in terms of bending the rules may outweigh the costs. Termination makes that risk-reward calculation crystal clear.

3. Leaders personify problems
Many ethics problems, especially when they break into the public domain, get associated with the organization's leader who becomes the public face of the scandal - and often the target of approbation. So any strategy for dealing with the problem has to tackle the issue of the leader. That's why organizations sometimes fire their leaders in the face of ethics scandals - its an attempt to demonstrate that the problem has been dealt with. The reality is rarely so simple, but the optics matter.

4. Leaders already have disproportionate power
Even minor indiscretions can gain a greater significance when its the boss who is involved. We all make mistakes from time to time, but when the leader crosses the ethical line, the stakes are immediately raised because he or she is already in a position of such power. Fiddling the expenses or having an affair with a subordinate are not just breaking the rules; when its the boss whose doing it, its an abuse of power - or even worse, its sending a message that leaders are above the rules that govern everyone else.

Of course, individual cases will also bring up unique reasons specific to that case, but the message here is simple. Terminating the leader may not make sense economically, and it may not even solve the problem ... but it still can make sense if you're looking to build a truly ethical organization.

Image by cali.org. Reproduced under Creative Commons Licence.

Ringing the changes at France Telecom?

Crane and Matten have both been spending time in different parts of Europe this week, and the big business ethics story of the moment here is the fall-out around the France Telecom suicides. The company has experienced some 24 suicides among its employees in the last 20 months, leading to a very public denouncement of the company's increasingly aggressive human resources policies. Many of the suicides have been accompanied by complaints or even suicide notes by the victims about extreme pressure at work, and the anxiety brought on by forced relocation, demanding targets, and insensitive management practices.

This week saw the announcement that the company's no.2, Louis-Pierre Wenes, has stepped down in response to the worsening crisis, as reported here by the BBC. Wenes had been responsible for pushing through the harsh cost cutting measures at the firm and had been widely regarded as a key architect of the new management practices at the firm, as well as the 22000 lay-offs that have befallen France Telecom employees since 2006. The company had earlier announced a moratorium on its controversial job reassignment policy.

The starkness of the personal tradegies involved is pretty much unavoidable. What can a company say when its employees are terminating themselves in the most extreme way and laying the blame directly on the work culture? Probably the worst way to handle it of course is to deny the problem and just hope it goes away, which is pretty much the strategy that France Telecom appears to have adopted before this week. Suicide is hardly an early warning signal that something is amiss in the human resource area. The company clearly should have dealt with the issues long before they bubbled up into this kind of crisis. Whatever the numbers of suicides - even if it was only a handful - there must have been a whole host of other indicators - absenteeism, poor performance, harassment etc, - that should have been picked up months if not years ago. To say, as Paul Betts does in the Financial Times, that the company simply "mishandled" the crisis, and that the government was in effect to blame for forcing the changes on the company seems woefully inadequate as an analysis of a seriously flawed ethical culture prevailing in the firm and the very real executive accountability that the firm's leaders will have to acknowledge.

Muddying the waters somewhat is the debate that has arisen around the typical suicide rate among any large number of people. Earlier suggestions by the FT that the per capita rate of suicides at France Telecom was no more than the national average seem somewhat disingenious when what we are talking about here is not simply whether this is a statistically significant number of suicides but whether the suicides have arisen from a common cause. We're not seeing anyone saying that in fact France Telecom was really a happy and friendly place to be, or that it was a successful nurturing culture that made people feel rewarded and respected. Employee suicides are just one extreme manifestation of a toxic culture - they naturally become the media story but they're not the beginning and the end of the story by any means.

Of course, all this is easy to see in hindsight ... though clearly the unions involved have been warning of problems at the company for some time - warnings that in the main have gone unheeded. You'd have thought that such a company would have been on top of the basics such as having an ethics hotline. What could be more natural for a telecoms company? As for companies watching the crisis unfold at France Telecom, they may well be sighing in relief that its not them caught in the maelstorm. The smarter ones though will be thinking its probably about time to check on the employee satisfaction ratings. The even better-prepared ones won't even need to check because they'll have been tracking them all along. There is no excuse for waiting until even one employee cracks under the pressure and takes their own life. Twenty-four is beyond any boundaries of acceptability. Whatever the stats on 'normal' rates.


Photo by Leo Reynolds. Reproduced under creative commons license