When pressure to perform can lead to cutting ethical corners

 

When it comes to public esteem for standards of honesty in different occupations, British and US surveys invariably show that businessmen end up at or near the bottom of the pile. We hardly need a survey to tell us that confidence in the integrity of Irish business is at a nadir.

Primarily this has to do with the expedient way certain firms react to pressure. If they become the subject of public scepticism, as has happened in Ireland, the reputation of the entire business establishment suffers. For instance, banks, once deemed bastions of rectitude, are now regarded with distrust.

But what encourages unethical behaviour in companies and why are some more likely to stray from the path of integrity?

Competition and the demand for economic performance are major contributory factors. Such pressure starts at the highest level, under the rubric of "shareholder value" especially in publicly quoted companies. Financial markets often penalise companies which report an indifferent quarter, reacting out of all proportion to short-term blips instead of concentrating on long-term soundness.

Company leaders know negative comments can wipe out a large proportion of a firm's value overnight. Moreover, these leaders are vulnerable to dismissal once the downward slide begins. Generally, moral virtue is unlikely to propel anyone on to the covers of famous business magazines. But making lots of money is a certain way to become a hero. What ego could resist? Thus, public acclaim directs energy toward winning at any cost. Yet, paradoxically there is a sense of outrage when gains are uncovered as somewhat ill-gotten.

The pressure to perform and the fear of failure transmit themselves throughout an organisation, formally and informally. Many companies have visible means of displaying who is performing and who is not. In this atmosphere rewards and punishments are more than monetary. Staff might find it hard to resist doing almost anything to be seen as "winners".

So they might be tempted to behave unethically through fear and greed. For example, bank managers who have fallen short of their monthly income targets may remedy this by overcharging interest to oblivious customers. Or, salesmen who have failed to make their targets may book phantom orders hoping that real orders will materialise. An extreme example of this culture was seen in the win-or-be-damned ethos that drove Nick Leeson and ultimately led to the collapse of Barings Bank.

In some cases, it is more than lax control systems or failures in risk management that cause unethical behaviour. Rather, it is the prevailing value system that puts economic success before everything. In this culture, the term "business ethics" is derided as an oxymoron. When Dennis Levine, convicted of insider trading in the 1980s in the US, was asked to define the opposite of "wrong", his response was "poor".

A principal cause of unethical cultures in organisations is a lack of moral leadership, exemplified by leaders who engage in such behaviour. What signals do they send to subordinates trying to ascertain the criteria for career success in the organisation?

Even when leaders are not explicitly unethical, they may have no clear cut principles of integrity. In this vacuum, expedient behaviour often prevails. For example, the leadership of British Airways did not explicitly exhort its staff to engage in "dirty tricks" against Virgin Airlines. But its emphasis on Virgin as a competitor that needed to be seen off suggested employees could have a go at Virgin without constraints, or a code of integrity that might have precluded dishonourable behaviour.

Jay Conger, a professor of organisational behaviour at McGill University in Montreal, has written about the "dark side of leadership", describing immoral leaders who damage their organisations. Typically, their visions for their organisations emerge entirely from personal needs. Such leaders restrict or distort negative information. They control subordinates by creating "in group/out group" rivalries and use bullying and demeaning tactics as weapons against those who disagree with them. In short, "survival of the fittest" is the dominant modus operandi.

In companies with strong ethical cultures behaviour that violates basic principles of truth and fairness is almost instinctively avoided. Such principles come before profit or shareholder interests.

Of course, an espoused high-minded value system is only authentic if people are not punished for making principled choices even when the bottom line is adversely affected. Conversely, some firms mouth lofty ethical slogans while turning a blind eye to short-term expediencies.

When organisations have no moral core or sense of values, choices are made on self-serving or economic grounds. Factors which facilitate such a moral vacuum are sometimes found in large diversified companies and imposing a unitary set of values is difficult. In diversified companies, head office usually does not know enough about the subsidiary businesses to get involved in their strategic management, so they practice a "handsoff" management style. The only interference from head office is to demand economic results.

When diversification is compounded by international expansion, cultural control on integrity is even harder to maintain, particularly when doing business in countries with different sets of values and business norms. It can be tempting in these circumstances to resort to moral relativism - "when in Rome, do as the Romans".

Doing business internationally often means interacting with the political system in some way. But moral lapses when business and politicians mix are not confined to international trade, as we know all too well in Ireland. Again, high stakes and greed come to the fore. In a small country, "cosy" relationships can get out of hand and come to dominate whatever formal control or governance systems are in place. But ultimately, no control systems will withstand choices made by powerful individuals bereft of moral principle.

Dr Eleanor O'Higgins is a lecturer in strategic management and business ethics at UCD Graduate Business School.