Scott: I couldn’t agree more. And nowhere is this more evident than in corporate America. We see ethics at play all the time, with Bernie Madoff and his Ponzi scheme, the Enron scandal, Exxon, BP, and many, many more examples. Ethical behavior can make or break a company. Diane: Sure, I remember people passing up Exxon stations after the Valdez accident several years ago; same with the BP oil spill. Boycotts against companies happen all the time if they forget they have to be good corporate citizens, in addition to turning a profit.
Scott: I think the issue here, in a discussion of ethics though, is what determines ethical and unethical behavior. Can we give people any kind of a framework that might help to easily determine what is seen as correct behavior and what needs changing in a corporate setting? Diane: Of course! And while none of these ideas are foolproof, in general, they cover the majority of signs or problems to look out for and be aware of. You have to look at the individual employee’s stage of moral development, their individual characteristics, the structure of the company, the company culture and then look at how big the issue itself really is.
Scott: Well, I’m interested in a few concepts that I’ve never really heard of before. Talk to us a little about “the stages of moral development.”
Diane: Gladly. There are three levels inherent in moral development. You have the pre-conventional level, which deals with consequences from the outside dictating moral behavior… Scott: So, an example might be my grandfather, who always talked about the nuns who taught at his Catholic school breaking out the rulers. That would be pre-conventional, right? Diane: Exactly. It’s all about how outside punishment or reward affects the choices people make between what is right and what is wrong.
Scott: So, if that’s pre-conventional, I’m betting that the second level is conventional, then. People just living up to the standards of society – what other people believe for the most part is right and wrong. Diane: That is it exactly, and that leads to the third level, which is the principled level. This is beyond responding to an outside stimulus or to our own notions of what others believe is right and wrong. At the principled level, people now look inside themselves and make a determination removed from all those other factors affecting what they believe is right or wrong behavior. Scott: Well, that does make a lot of sense. So then, what are the individual characteristics that can have an influence on moral behavior?
Diane: Values and personality are the two things that govern these individual characteristics. A person’s individual values begin developing during childhood and continue to develop through experiences, discussions with other people and interactions with family, friends, teachers, religious figures, and others. A person’s value system is very broad and includes many different areas. Personality deals more with two specific ideas, that of ego strength and locus of control.
Scott: Sure, ego strength influences a person’s convictions. If you have a high degree of ego strength, then moral convictions will be easier to hold. “Locus of control” isn’t a concept I’m too familiar with though.
Diane: A person’s locus of control has to do with fate. Some people believe they have a lot of control in their lives, while others believe that things are left to the wind. Those who have an internal locus of control believe they are in control, while those who have an external locus are more apt to believe that things will happen to them because of fate or luck or mere happenstance. Scott: So I know we’ve talked before about how a company is structured; whether or not it is centralized or decentralized. That plays a significant role as well, correct? Diane: It does, very much so. The more hands touch something, the less likely it is that any strict controls put in place will stick. The less people you have managing a process, the more tightly the controls can be monitored. This of course would be inaccurate if you had, say, one person managing everything who was inherently unethical. Then there would be nobody to call them to account.
The structure of a company is a significant factor in the ethical behavior put into practice. Scott: The ethical behavior of individuals is fascinating and all, but what about the ethical behavior of organizational culture? Some companies encourage transparency and ethical behavior at all times. They have realized that openness and honesty are good for the bottom line in the long run and ensure a strong core brand. Other companies may not overtly tell people to act unethically, but have individual “bad actors” inside the corporation who might encourage people to do things they shouldn’t. Diane: Exactly. And we all know examples of this. We hear about chemical companies dumping dangerous waste that contaminates ground water, about cigarette companies lying about how dangerous and addictive their product is, or about banks and the “robo-signing” scandal during the last recession.
All of these activities, while not necessarily condoned by everyone across the enterprise, were OK’d by certain people within the corporation and seriously damaged the brands involved. Scott: And of course, this is where issue intensity is important, because while we don’t like to admit it, some unethical behaviors are worse or more impactful than others. While all unethical behavior should be avoided, dumping toxic chemicals into water that could kill thousands of people could arguably be seen as worse than, say, an employee who is skimming a few dollars here and there from a company. Both are bad, wrong, and can cause harm, but the characteristics that determine issue intensity show us that there are indeed levels of unethical behavior, and they can determine the likelihood of this kind of behavior occurring in the future.
Diane: And these characteristics – greatness of harm, consensus of wrong, probability of harm, immediacy of consequences, proximity to the victim, and concentration of effect – all play a role in determining when and why something unethical might occur. The less these factors play a role, the more likely for fraud or other unethical behavior to occur. If the victim isn’t seen, if the consequences are far in the future, or if the behavior only affects one person, the possibility for unethical behavior is likely to see a jump.
Scott: And to talk more about this, we’d like to welcome to the show Scott Hyder, attorney at law. Diane: Hello Scott – welcome to our show. Let me ask you, how does ethics play a part with respect to certain professions that require licensing to do business? Scott Hyder: Well, it’s incredibly important particularly in very regulated businesses such as businesses where you need a license. I’m an attorney and so every attorney has to follow a certain set of ethics guidelines regardless of the state that you’re in. Every state has passed very detailed ethical rules that are approved by the state’s Supreme Court and it’s not a matter of if, or a matter of choice, or just a matter of morals when following the ethical rules. It’s a matter about whether your license will be revoked if you don’t and many times you’re violating ethical rules unintentionally; it’s usually NOT an intentional thing.
It goes anywhere from disclosing client confidences to wrongful accounting practices, even if they are innocent mistakes. So, we really have to be careful as lawyers because if we don’t comply with these rules, all it takes is one client’s bar complaint to open up the flood gates. A client could complain about poor service from a lawyer, file a complaint with the state bar who regulates all lawyers but, by the end of the day, even if the client’s complaint about the service of the lawyer is frivolous, the attorney could be sanctioned for other unrelated things that become apparent as a result of the investigation.
It’s very common, for example, for a complaint to be filed but ultimate charges are implemented that have to do with wrongful accounting practices, competence issues and if that kind of thing happens, your license can be suspended and if it’s very egregious, it can be revoked. Scott: Very interesting discussion, Scott, thank you so much for all your time. Diane: And thank you all of you listening. We’ve appreciated your time and hope that you’ve gained a great deal from this content.
Scott: Until next time!