Ethical Leadership vs Ethical Blindness

Knowing the difference between leadership and ethical leadership has never been more critical. Leadership is egocentric while ethical leadership puts others at the forefront.

Ethical leaders design cultures where it’s easy for people to do the right thing. They recognise they have a duty of care to the business for its continued survival. They also realise that they have a responsibility to the broader group of stakeholders. Leaders must ensure that these stakeholders do not suffer because of the way the company pursues success.

The Source of Unethical Behaviour

 

Recent scandals highlight the systemic source of much unethical behaviour. These scandals are due to the ethical errors of leaders. In particular, their failure to notice and take action when they get an inkling of unethical practices. If leaders had taken action, the cheating enabled at Wells Fargo and Volkswagen would not have happened. They don’t act because changing ‘business as usual’ may get in the way of achieving targets and business goals.

An ethical study by Professor Guido Palazzo had some interesting insights. It found that widespread unethical conduct emerges because employees are often unaware of what is shaping their choices. Influences are usually psychological, sociological, and organisational. Workplaces can narrow the information available to employees which then changes their behaviour choices. Or they may be pressured to follow the behaviour seen as acceptable by their peers. That’s what happened in libor banking scandals – the culture normalised cheating.

Culture is not neutral. It shapes conduct and motivates or saps employee efforts. Cultural norms often override personal values in the workplace. This is especially true in contexts where it is unsafe to voice concerns.

Motivated Blindness

 

‘Motivated Blindness’ refers to when people overlook the negatives when it suits them. It happens all the time in business. The book Blind Spots: Why We Fail to Do What’s Right and What to Do About It, Bazerman, M.H. & Tenbrunsel, A.E. talks about this in-depth.

Motivated blindness may prevail where leaders don’t recognise the ethical risks they have created. These are often the result of short term incentives and targets. Command and control cultures contribute as well, inhibiting organisational learning.

Ethical blindness can also result from the lack of diversity around the executive tables. Management tolerates poor behaviour from high performers, and this promotes conduct risk as well. Stories often champion results and overlook how people achieve them.

Unethical conduct in business happens because the environment tolerates it. As early as 2002, there was evidence that Wells Fargo could not meet their sales targets without gaming the system. So, for the next 14 years until the final media scandal, many of the employees were aware that the culture was unaligned with the stated values. They just went along to get along.

How Companies Can Do Better

 

It’s time for leaders to better design their company contexts. They must do so to avoid being blindsided to its ethical risks. How can they start? It begins by leveraging new insights provided by the behaviour sciences. For more on this read our article for Strategic Finance on behavioural ethics.

Other key recommendations include:

  • Make your CEO the culture champion. They need to recognise culture as a strategic asset that needs to be in sync with the needs of the time.
  • CEOs ensure they encourage alternative opinions and perspectives to offset being blindsided by group-think.
  • Make executive teams accountable for bringing company values to life in their areas.
  • Have zero tolerance for general managers who send competing messages about acceptable behaviour. That is both in the way they behave and the conduct they reward.
  • Recognise middle managers as people leaders. Upskill them to personify stated organisational values.
  • Leverage insights from behavioural sciences to design the desired culture. Use behavioural economics insights to forewarn all levels of staff against known risks. Skill everyone to speak up.
  • Redesign performance management systems to align with stated values.
  • Build an internal story to engage and motivate employees around a shared purpose. Support this initiative with a communications plan. Translate it into multiple sub-stories relevant to each level of employees. Share this story with contractors, business partners, and suppliers to safeguard brand integrity.
  • To gain insight into how you can strengthen the culture, run annual ethical surveys. The insights you attain can make the workplace a place where employees feel safe and do their best work.

Ethical leaders know that managing organisational culture is more than just repeating a set of company values. Instead, it’s about how you put these into action. Leaders must commit to linking their decisions to these values. It involves building and rewarding the right attitudes, disciplines, and behaviours. It’s about selecting leaders who have the appropriate set of skills. Leaders must be able to design contexts that empower direct reports to maintain ethical ambitions.

Ethical leadership begins by focusing in on the needs of those you are leading. It promotes cooperation between leaders at the top and managers in the middle. When they work together, this ensures they speak with one voice and act as one team. Together, they can make it easier for their direct reports to do the right thing.

Please fill out the form below to get in touch regarding your organisation's needs and we will get back to you as soon as possible. You can also call us on 0430 889 850 or email us directly at admin@values.com.au.

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    A business case for embracing ethical leadership

    Boards and CEO lead an organisational culture that they help to create, whether intentionally or not. Corporate scandals show how organisational cultures can encourage employees to act without integrity. Learning from the mistakes of the past should be the goal. To do this, companies will need to find out how and why business leaders tolerate unethical behaviour. These habits can even flourish in companies. This is shown by Toshiba’s failure, WellsFargo, the Australian banking scandals and Volkwagen’s too.

    To date, it seems that leaders have left it to their compliance departments to manage culture. However, the real motive behind this is often reducing risk to the bottom line. Leaving it up to others to address the culture is a narrow and avoidant style of active culture management. It causes employees and middle managers to lack the skills needed to manage ethical risks and tensions. These issues arise from the many conflicts of interest that go unmanaged in organisations.

    Other factors such as time pressures prevent people from using the systems in place that promote good behaviour. Budget and cashflow pressures can prevent open and honest accounting procedures and duty of care to customers. The lack of job security can make employees hesitant to raise their concerns. All of these are typical workplace challenges that codes of conduct do not address. Leaders are often not willing to discuss these issues either.

    Organisational cultures do not develop on their own. Company leaders are the ones who form and uphold the culture. These leaders could be those who recognise the financial value of a ‘good’ culture. Or the culture can emerge from the behaviours of upper management, for better or for worse.

    Organisational ethical foundations need to be built using research insights into how employees behave. Building a better culture often begins by taking away barriers. These include finding out why employees are unwilling to come forward with issues. Businesses also need to discover why middle management hesitates to manage ethical risks. Compliance teams are reluctant to provide feedback on investigations, which is also an issue. Instead, sharing the learning from ethical failures would be far more useful.

    When allowed to go unreported, poor management practices create doubt about whether leaders are committed to ethical behaviour. They ensure that people don’t learn from their mistakes, as they have consultants come in to clean up the mess.

    The biggest barrier to organisational learning is the employees’ perceptions of organisational justice target=”_blank”. Leaders and managers may talk about the importance of ethics and integrity but what employees hear are examples of fairness, or the lack of it. Research shows us that employee opinions of overall fairness in the workplace strongly relate to the rate of misconduct. The more fairness, the less misconduct there is. The link between the perception of fairness and the willingness to report dishonest behaviour is apparent.

    By building a sturdy ethical foundation and training middle and lower management on how to respond to issues raised, companies can increase the confidence of employees in their managers’ integrity. Leaders must also learn to recognise and prevent retaliation, so that staff are comfortable coming forward. Such actions build organisational cultures that help protect against damage to the reputation and profits of the brand. They build ethical resilience and pride in employees who know that they work for a company that values much more than short term results at any cost.

    Addressing ethics in business involves leaders creating a new organisational context. In this setting, employees are aware of the ethical risks in their industry. They have the skills to speak up and cooperate with management to ensure that an ethical and respectful culture is maintained.

    There’s a strong business case for embracing ethical leadership. Research shows a direct relationship between ethical behaviour, employee well-being and long-term success. Leading brands such as Unilever, 3M, Ikea, Aldi, Patagonia, Avon, and Starbucks show us the power of investing in skill development. No matter where you are in the world, this can accelerate the success of your business.

    Please fill out the form below to get in touch regarding your organisation's needs and we will get back to you as soon as possible. You can also call us on 0430 889 850 or email us directly at admin@values.com.au.

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      How to Develop a Code of Ethics for Your Workplace

      The process of developing a code of ethics can determine its success. Many codes today are simply PR statements. Authentic ones appreciate the specific contexts and ethical challenges of the company. They also acknowledge the stakeholders and employee engagement needed to win support. Consultation and collaboration in its design will ensure its relevance. Relevance is the key to user engagement. Critical steps include:

      1. Consultation – Discussions with staff members and critical stakeholders is crucial. These sessions lay the foundation for engagement with the final content. Workshop the draft content to enable stakeholders to feel it speaks to the issues that concern them. That way, hopefully, they will be happy to commit to the final version of the code.

      2.  Relevance –  Effective codes speak to the day to day ethical challenges managers and employees face. These will vary depending on their roles within the business. Invite staff to identify challenges or conduct an ethics audit to pinpoint issues. Incorporating these into the code will ensure its authenticity and relevance for the different groups within the company.

      3.  Content – A typical code might include:

      • An inspirational message from the CEO about the benefits of ethical behaviour.
      • A clear definition of business ethics and the reasons why they are critical to business success.
      • An explanation of the company’s core principles and values. Also, include specific workplace behaviours that will demonstrate these.
      • Examples of typical ethical challenges and how the code can clarify the right action to take.
      • Identification of key stakeholders and reciprocal obligations.
      • Handy checklists of enablers and barriers to engagement with the code’s intent.
      • A ladder of escalation on how to raise issues and the key people who can help.
      • The protections awarded to employees who speak up.

      4.  Language – Choice of voice or tone can help users to engage with your message or turn them off to it. Choose inclusive, inspirational language to deliver clarity and win employee engagement. Avoid legal language and prescribed responses to hypothetical challenges. Real life is often more complicated, so these become irrelevant.

      5. Embedding – Cross-check code content with existing business protocols to ensure consistency. If there is a lack of consistency, seek to streamline policies. Face-to-face training and an engaging communications plan need to accompany the roll-out. All leaders need to publicly demonstrate how they link their critical decisions to the code’s intent. This linking will reassure your workforce of the code’s authenticity.

      6. Role modelling – Develop metrics to hold all leaders to account to role model the code’s values. Build this into performance reviews.

      7.  Maintenance – Companies must frequently review and update their codes. That is the only way they can take account of new technologies and the related changing societal values.

      Remember, it’s what leaders do and talk about rather than the code that determines ethical behaviour. Have regular conversations reminding people about the code. Also, give out monthly awards to employees who demonstrate their values. Together, these actions send a strong message that ethical behaviour matters.

       

      Please fill out the form below to get in touch regarding your organisation's needs and we will get back to you as soon as possible. You can also call us on 0430 889 850 or email us directly at admin@values.com.au.

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        Virtues-based business ethics will make companies more sustainable

        New generations are looking for a more balanced purpose for business. They want one that seeks to profit by enhancing societal well-being. At the same time, the range of external stakeholders is increasingly diverse. These people are asking for more social accountability from listed companies. Leading this movement are investors and their demands for ESG accountabilities. This shift suggests that adopting virtues-based business ethics will make companies more sustainable. Plus, it provides executives with engaging new ways of mitigating conduct risk.

        Ethics at the Personal Level

        Those seeking to build more ethical business cultures must work both through people and systems. Virtue ethics asks each of us to clarify our ethical ambitions. It leverages off our identities as ethical people. It enlists everyone’s commitment to building and safeguarding ethical standards. At the personal level, virtuous conduct involves responding to what might seem competing interests, such as:

        • an ethical orientation vs pragmatism
        • shareholder vs customer interests
        • balancing short and long-term goals
        • duty of care vs target or goal-setting
        • fairness vs opportunistic or exploitative practices
        • self-interest vs company interests
        • truthfulness vs PR spin
        • responsible for company assets but also a risk-taker
        • respect for others vs achieving goals
        • sustainable business growth vs unsustainable growth

        How to Build More Ethical Organisations

        At a higher level, the critical steps in building virtues into systems involve:

        • Identifying how the existing culture promotes personal gain rather than working together. This focus on personal reward is the systemic cause of conduct risk. Developing plans to dismantle existing cultural barriers.
        • Recognising our human needs to feel safe at work. This involves building systems to enable more inclusive and collective orientations to emerge.
        • Measuring the existing trust gap between where you are and your trust goal. Then define the path you can use to close the gap.
        • Insisting that all leaders develop personal action plans to promote desired virtues. Embed these in day-to-day actions.
        • Use regular ethical culture reviews to learn what’s not working. Track progress, provide feedback, and feed into personal performance appraisals to make people accountable.

        Sustainable enterprises depend on virtues similar to those related to individuals flourishing. Such traits include being self-aware, honest, fair, trustworthy, and dependable. These same virtues underpin employee and customer loyalty and build social capital and brand value. Honesty, for example, is a core virtue. It enables positive relationships between staff and businesses. It also facilitates trust between companies and their customers.

        Leadership relies on the virtues of trust and integrity. Being a productive team member means being dependable and cooperative. At the manager level, you should expect to see the virtues of fairness and empathy.

        A company embarking on a journey to embed virtues will accelerate the building of trust. It will create a shared language in which a renewed culture based on personal behaviour change can emerge. This strategy leverages our identities as ethical people and responds to our need to be our best selves.

        Please fill out the form below to get in touch regarding your organisation's needs and we will get back to you as soon as possible. You can also call us on 0430 889 850 or email us directly at admin@values.com.au.

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          Covid brings out the pro-social in us

          The Covid-19 pandemic has brought some appalling consequences on the world. One unexpected impact has been the reappraisal and revaluing of the importance of the social world. Stephen Brookfield called them ‘disruptions’ and said that all real critical thinking comes from such disruptions. As a nation, as a society, as individuals, people have been forced to think beyond the economic. They are slowly beginning to recognise that it is not self-interest that makes for social progress. Instead, it is a higher calling of which everyone is capable. The sacrifices emergency workers make daily who respond to this higher calling are a poignant reminder. Protecting human life and reducing harm has become the most critical accountability of leaders.

          Responses to the Covid-19 Pandemic

           

          Civil society has never shone more brightly. Inspiring, spontaneous grass-root actions such as the national #virtual kindness movement have begun. Neighbourhoods of people sung from balconies and streets, clapping to thank emergency workers. For nations stuck indoors, social media has become the outlet to show support for each other. Singers and artists reach out to their fans and perform requests from their lounge rooms. A flurry of innovative home videos and podcasts are released daily. These highlight the creativity of ordinary folk and a universal need to feel connected to humankind. This spontaneous global movement demonstrates society’s social interdependence. It proves the reliance people have on each other to feel safe, sane, and hopeful. The need for belonging and for social inclusion is the zeitgeist of the moment. It is fellow citizens, and not the marketplace, that gives us purpose, inspires us to loftier ideals, and makes living worthwhile.

          Learnings in the Workplace from Covid-19

           

          What is also now in stark relief is that social natures, needs and desires, are too often silenced in workplaces. People have succumbed to the prevailing political culture of ‘economic self-interest’.

          Science suggests that people act cooperatively or prosocially because they are social by nature. Prosocial behaviours are those actions intended to help other people. They are characterised by a concern for the rights, feelings, and welfare of other people. Associated actions include sharing, helping, and volunteering. These are the very behaviours that dominate the Covid-19 social world. As social beings, humans are motivated by altruism, empathy, and a sense of purpose. At least as much as they are by extrinsic rewards.

          Behaviour science shows that the way societies behave is a consequence of how they are designed. Society can choose to learn from Covid-19 and redesign culture to serve social needs better. At the individual level, the crisis is challenging everyone to rethink their sense of self, values, and priorities. People are reconsidering their technological skills and employability. There is a need for ongoing development to meet the demands of a new normal.

          Rethinking How Our Society is Designed

           

          Rethinking at a societal level requires the sort of leaders who can call on the higher nature of humans to enable everyone to flourish. One that can tap into prosocial dispositions. One who can gain the commitment to sharing the economic pain that will inevitably follow this crisis. Such cooperation is possible. ‘JobKeeper’ was the result of such collaboration. Society must encourage similar partnerships between political parties.

          Covid-19 has given the world the chance to hit the pause button on daily routines and underlying assumptions. Employees are embracing remote working. The world has also seen that micro-management is pointless and a barrier to excellent work. Many employees are flourishing amidst the chance to be self-directed. This change is challenging managers to rethink assumptions about employee capabilities.

          Australia needs to recognise, as so many Nordic countries have already done, that the marketplace is a social invention. It, too, can be better designed to distribute rewards and recognition to benefit the common good. Instead of self-interest being the driving force, cooperation can underlie the design of all our systems. Aspirations for the common good rather than small government need to be debated more broadly. This discussion can enable a more inclusive society to emerge. There is no invisible hand that guides the marketplace. It is a social fiction that needs to be re-tuned to our social needs.

          Building a better society post-Covid-19 requires drawing on scientific insights. Leaders should consider how best humans flourish. Then they can purposely design the economy to serve society’s collective needs better. All Australia needs to do is seize the moment!

          Please fill out the form below to get in touch regarding your organisation's needs and we will get back to you as soon as possible. You can also call us on 0430 889 850 or email us directly at admin@values.com.au.

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            Working from home presents opportunities to redefine trust

            The degree of micromanagement in most Australian workplaces suffocates relationships of trust. Working from home (WFH) – ‘the new normal’ – presents an opportunity to redefine trust. It is an opportunity to reconsider and establish trust between managers and employees. This trust begins when leaders move away from the current tick box of ethics initiatives. Their enablers; consultants, HR managers, lawyers, and risk managers must facilitate this. This approach didn’t work in the past, and it will not work in the future. The loudest message in any company is what leaders do.

            Questions Ethical Leaders Ask Themselves

             

            Ethical leaders begin by asking themselves some essential ethical questions. Here are some good ones to start with:

            • Am I impacting positively or negatively on the people I lead?
            • Are my decisions personally motivated or based on what’s right for the business?
            • Am I aware of my prejudices and bias undermining my integrity?
            • Have I invested time in getting to know the strengths of each employee, so I can help them be their best at work?
            • Do I encourage my people to learn from mistakes, or do I punish them?
            • Do I have the interpersonal skills to manage group dynamics and nurture group harmony?

            Ethical accountability is not easy, but answering these questions will put you on the right path.

            What Needs to Change

             

            The old comfortable management paradigm of command and control is no longer suitable in a Covid-19 world. Ignoring the social and psychological factors impacting employees is no longer acceptable. Consumers and public opinion won’t stand for it.

            Transactional or conventional management uses command and control management styles. These feature risk and reward as key motivators and don’t appeal to the social nature of people.

            Transformational managers adopt a more equal approach. They focus on empowering employees and tapping into social needs and psychological motivations. It shifts the manager’s focus from employee output to encouraging inputs that will enable them to thrive. This shift enhances the ability of staff to deliver desired results.

            Why Companies Fail To Eliminate Conduct Risk

             

            Many companies seem to be unable to eliminate conduct risk. This failure is due to leaders’ unwillingness to recognise patterns of unethical behaviour in workplaces. They are reluctant to hear issues of concern. Inside most companies, these revolve around the absence of procedural justice. This reluctance reduces employee engagement which research shows us correlates with employee perceptions of fairness. It impedes resilience which, science again tells us, is linked to engagement. It hinders innovation as employees are reluctant to expose themselves to trial and failure.

            How To Build A Better Workplace Culture

             

            When you understand that companies are a collection of social relationships, you start to see them in a different light. You can appreciate the importance of nurturing shared perceptions, attitudes and decision-making models. These cultural changes act as a prelude to shared behaviour standards.

            To date, businesses have paid scant attention to the relationship between employee thinking and organisational culture. This interdependence is shaping the social dynamics that play out at work, enabling conduct risk to thrive.

            To change thinking, prevailing mindsets need to come to light. To change context, bring to surface the informal practices that become the institutional roadblocks to trust. Chief amongst these is the absence of authentic leadership commitment to a culture where it is okay to speak up. Such a commitment can enable the business to learn from root cause analysis of where and when its systems are failing.

            Trust emerges when people feel safe. How can this be achieved? Staff must experience consistency between what the organisation says it values and how managers treat them. It’s the hallmark of an ethical culture. Without trust, WFH becomes a logistical challenge. Employee well-being becomes a luxury managers continue to believe they cannot afford.

            At this moment, it is time to step up to ethical leadership and beyond leadership as usual.

            Now is the time to ensure you have the right managers in place to realise the human potential dormant in your company. Ethical skills are complex, and would-be leaders need to invest time in crafting these skills. Now is the time to allocate that time.

            None of us is perfect, that’s for sure. However, you can hone the skills necessary to catch ourselves sliding into unethical patterns of managing. Acquiring ethical leadership skills will enable your organisation to emerge stronger from this crisis. You will have the inbuilt resilience to address the inevitable challenges our post-COVID-19 world will bring.

            Please fill out the form below to get in touch regarding your organisation's needs and we will get back to you as soon as possible. You can also call us on 0430 889 850 or email us directly at admin@values.com.au.

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