Business Ethics: "I don't know how to tell you this."

In their book titled “Why Employees are afraid to speak”, Professors James Detert of the University of Virginia's Darden Graduate School of Business and Amy Edmondson of Harvard Business School, talk about how discussing ethics vis-a-vis business is a taboo in many business circles. They also explain how ethical dilemmas at work are a normal part of doing business, yet they may seem emotionally alarming to the employees facing the situation.

This book clearly articulates the point that ethical problems in business are uncomfortable topics. And that they require much courage on the part of the person facing the problem to openly discuss it with colleagues or business partners or to become a whistle-blower. This raises the question: how can a problem be solved if it is not openly discussed?

However uncomfortable, there is a place for these discussions. Most people in the workforce are employed by businesses. They are therefore directly impacted by business decisions, ethical or unethical. Students need to be trained at undergraduate and graduate level not only to recognize ethical problems, but also how to talk about their concerns. Although recent events have forced business schools to provide more ethics education, this does little to improve the the ethical understanding of the current workforce.

In his book titled “Blind Spots: Why We Fail to Do What's Right and What to Do about It”, Professor Max Bazerman of Harvard Business School and Professor Ann Tenbrunsel of the University of Notre Dame talk about how even good people tend to engage in ethically questionable activities due to a lack of proper education and training on how to approach ethics. While we all might think that we understand ethics and believe that we will act ethically, Bazerman and Tenbrunsel describe the unfortunate process of 'ethical fading,' whereby ethics are removed from a collective decision making process. The authors conclude that repeating the same education, training, and compliance cycle does not address the individual psychology of ethical dilemmas.

So, let us first define ethics and understand the sources of ethical values. Ethics is a study of what is right and wrong. While morals are personal in nature, when the same morals influence societies they are called ethics. The definition of right or wrong is not always clear, because the definition of right or wrong can change based on situations and circumstances. (If you think that you have an easy time deciding what the right thing to do is, I challenge you to read the classic 'trolley problem.')

There are 9 generally recognized sources of ethical values: family, friends, schools, rules, laws, personal experiences, social norms, religion, and culture. If you look at these sources, you will notice that none of them are related to business. And that’s where the problem lies. We are taught as a child what is right and wrong, but are we taught as adults, as managers, and as workers? As business leaders, are we to rely on society to impart ethical decision making ability onto our employees through osmosis? I don't know how about you, but I don't believe that we can assume our colleagues will just grow a moral compass automatically. Especially when we look at what passes for acceptable behavior in the world today.

The HBS-Working Knowledge article “How Ethical Can We Be?” concludes that managers consider ethical action to be subjective. If they consider ethical decisions to be influenced by personal feelings, tastes, and opinions then it is easy to dismiss the ethical concerns of employees and colleagues as, 'just your opinion.' This can also be heavily influenced by specific industry norms and business circumstances. So if you find yourself in an industry with an especially bad ethical reputation, and your colleagues believe that ethics are a matter of subjective opinion, good luck speaking up about that questionable situation. Overtime, companies and entire industries lose the talented people who don't know how, or are afraid to speak up. They take their 'opinions' elsewhere, and the organization is the lesser for it.

In specific cases, such as that of Goldman Sachs’ employees, it was found that official ethical practices were ignored in practice. In the investigation carried out by the SEC, they found that even though employees were provided a code of conduct, the rules were not reinforced. Employees did not work in their clients’ best interests. Compliance managers simply ignored their own rules. This statement from the investigation is indicative, "When asked “How do we know that we caught everything?” One transaction manager responded “we don’t.” Another transaction manager responded, “Depends on what you mean by everything? Because of the limited sampling . . . we don’t catch everything . . .” Goldman allowed approval without requiring any further due diligence. In other words, they had a code of conduct, standards, and rules, but it was all subjective. Here is a red flag for you: If you ask a college, "Is this ethical?" and the answer includes the word "depends," you might have a problem.

So, what can we do to make progress on creating and sustaining an ethical business atmosphere? Clearly, having a code, rules, even laws are not enough. One way to reduce the subjective element is to include behavioral testing in the hiring process. Tests that can filter out unethical people, or highlight individuals' motivating factors can help an organization identify candidates that align with the their stated ethical goals. Almost seventy years of research on ethics has provided for multiple tests that can be included in the hiring process. An example is the Caliper Test, which is increasingly being used across larger companies.

Beyond testing at the hiring stage, a person should also occasionally be given greater responsibilities or powers, usually in a safe setting. As the research done by Professor Jeffrey Pfeffer and others at Stanford has revealed, people tend to behave differently when given power. Some become better, while others become highly oppressive. Also, Professor Paul Piff of the UC Berkeley proved via role play that some people tend to become meaner as they gain more wealth or power. The above research shows that even during role plays, people either become better or worse and tend to take more ethical or unethical decisions, depending on their true character. Gradually changing an employee's responsibilities provides time to recognize these changes.

Finally, those found at fault should be given a chance and provided appropriate support and training. This is because good entrepreneurs and business leaders are hard to find and ethics like rules can be taught and enforced via training. Like Oscar Wilde said, “Every saint has a past, and every sinner has a future”. People come from different backgrounds and have different sets of values. As business leaders, employers and managers we should support employee development, both professionally and ethically.

If after all those filters, checks, and training, someone is still found at fault, then companies always have the option to let go of employees. Just as internal and external audits are expected within businesses to ensure that technically, financially, and legally things are in order, the same practice should be extended to ethics. Internal and external audits should be carried out to ensure ethical conduct. These can take the place of surveys, anonymous reviews, and more formal audits conducted by internal HR or external consultants.

While ethics sometimes become hard to define, the effort to discuss ethics bears a lot of fruits. Not all unethical practices exert an immediate or recognizable financial impact, but they do cause social, psychological, and branding conflicts. Sometimes the fallout will be years in the future when your clients and the general public become aware of what was really happening. Right now, we are all thinking a lot about business ethics because of scandals. But this is an issue that businesses must persistently address because ethical standards, and people change over time. Even if your organization is unscathed by the current bevy of disturbing allegations, don't consider yourself immune. Individuals in your organization are facing ethical dilemmas right now, they just don't know how to tell you.