Why do the banks, and so many others, continue to get publicly scrutinised for unacceptable behaviour? Why do they fail to satisfy the demands of the stakeholder economy and continue to get it wrong? Is it because they confuse ethics with morality?

The Definition of Morals and Ethics

 

Morals are about how you define for yourself what is right and wrong in a personal realm. Time and time again, ‘good’ people doing ‘bad’ things still believe themselves to be good people. It’s simply no longer good enough. You are what you do, not what you think. Actions are what people judge you on, not your intentions but your behaviour.

Business ethics defines how the company holds firm to a set of principles that are above the law and beyond the minimum. Statements of business ethics should be clearly understood and reinforced through how performance is measured. Ethics is the cultural vein that carries the lifeblood of the organisation. If you prioritise this, you ensure not that you get it right but that you don’t get it wrong.

Where Many Get It Wrong

 

Sadly, for many businesses, ethics continues to be a grey area and a discretionary investment. Typically, companies assume that most people want to do the right thing. However, behaviour science shows us that this is not where leaders should be starting. The science suggests that most people are not as ethical as they think they are. They will find themselves compromising their values in certain contexts, or under specific pressures. They may even be unaware of this slippage.

Often, people operate on auto-pilot and simply go on what has gone before. They copy their peers to fit in and take short cuts because they assume they know what the context requires. This belief flies in the face of the obvious – that the world is continually changing. Most people are powerless to shape the contexts in which they find themselves. At work, people convince themselves that the end justifies the means. They do what the company needs them to do to make the figures. The customer can come first if that doesn’t get in the way of making targets and employees think that it’ll all work out in the long run.

Leaders who continue to rely on the idea of a moral compass may suffer from ‘bounded ethicality’. They fail to adopt a broader range of tools that would help them identify and manage the ethical issues in their business contexts.

How Behavioural Science Can Help

 

Clearly, what is needed is a paradigm shift away from the moral philosopher’s focus on individual character. Businesses must move towards an understanding of the science of behaviour. This science offers the premise that all people are all emotional beings. People respond in irrational ways to the company contexts in which they find themselves.

Business ethics are essentially about the integrity of the company. Risk management needs to be re-classified as doing business ethically. This shift in focus protects the business by building a healthy culture that can risk-proof the enterprise. This new type of accountability shifts the focus away from individual character strengths or weakness. Instead, a spotlight is placed on the actions leaders take to design the culture.

Global regulators, including APRA, are sending a strong warning message to boards. They want to highlight that behaviour in the workplace is a systemic source of financial, social, and environmental risk. Regulators expect boards to purposely manage the types of behaviour they promote.

Create an Excellent Culture to Manage Risk

 

A consistent culture underpins business success. To see this in action, you can look to leading brands such as GE, 3M, Patagonia, Avon, or Starbucks. They prove that it is essential to skill employees to respond to the contextual pressures they will face. Leaders play a significant role by not tolerating poor role modelling from the top.

No matter which country they are in, the culture is the same. The leader’s role is to create a context where employees are forewarned about contextual pressures. That way, they can better respond to these in ways that do not comprise ethical standards.

Australia’s current cultural perspective of ethics as up to the individual sets business standards too low. This attitude keeps board focus on compliance rather than addressing ethical risks.

Cultural and behavioural change is not an easy task. Leaders must empower people to think, feel, and act in a way that builds a culture of integrity and respect. To get there, they must offer regular training, performance management, and communicate well. Enabling systems and processes and targeted engagement can also work wonders.

It’s time to abandon reliance on moral compasses. No longer can companies hide behind the notion of grey area. Employees know what ethical behaviour looks like, customers know it, regulators know it. Social scientists have known it for over 100 years.

It’s time to sacrifice some finance people from the board and replace them with social scientists. Then maybe leaders will see the next ethical crisis coming before it decimates a hard-won reputation!

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