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Four Ways Honest Leaders Accidentally Create Ethical Risks

09/09/2012 12:34 EDT | Updated 11/08/2012 05:12 EST

The hard reality is that good people do bad things, and honest leaders let it happen. Honest leaders don't do it on purpose -- they create ethics risks at their organizations by simply focusing on the wrong issues.

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As behavioural economist Dan Ariely tells us, it's normal human nature for all of us to cheat a little bit. We balance our desire for more with our desire to perceive ourselves as honest. So long as our self-justification keeps us from feeling like cheaters, we'll continue to feed our self-interest.

Cheating and dishonesty on a cultural level starts with little acts: telling white lies, lifting office supplies, or fudging small details on expense reports. Then people see whether they can share such actions with peers around the coffee machine. Once they discover that what they did caused neither noticeable harm nor social ostracism, they find themselves pushing the envelope further.

The organization is now well on its way to an ethical crisis. Like the ancient Chinese style of execution, it's death by a thousand little cuts.

So how did the good and honest leader unwittingly cause such behaviour? Here are four ways it happens.

1. The leader focuses on rules.

When making rules is more important to a leader than making cheating socially unacceptable, ethical lapses are inevitable. A classic example of this happened at Sears in the 1990s, when leadership gave auto repair mechanics a mandatory sales goal of $147 per hour. It wasn't long before customers began to be overcharged or sold unnecessary repairs.

Don't focus on implementing more rules. Instead, manage individual actions by guiding and shaping the social norms of the organization. If you make it taboo to lie or cheat, people won't. That's because we're all vulnerable to social pressures and social norms that influence our self-perceptions that we're a good person.

2. The leader doesn't sweat the small stuff.

Since the road down the slippery slope toward a weak ethical culture starts with small things, leaders need to identify what kinds of small actions can lead to bigger problems.

An instructive case example is pulp and paper manufacturer Weyerhaeuser, where employees drive a wide variety of vehicles, from big-rig logging trucks to forklifts. To get across their message of safety as a core standard of the culture, leadership insisted that everyone wear seat belts all the time. Their motto, "Unbuckled, Unsafe, Unemployed," focused on zero tolerance for even minor violations.

3. The leader touts irrelevant values.

When a leader makes general pronouncements about the importance of doing the right thing, it will fall on deaf ears until that pronouncement focuses on the very conflicts that employees are grappling with.

For example, many people blame Johnson & Johnson's serial scandals and recalls of the past few decades on management's insistence on meeting tough production deadlines. If getting it done on time, or else, is more important to leaders than helping employees achieve consistent quality, scandal can't be far behind.

Make values relevant by talking about how easy it is to cross the line, and discuss how failure to manage those urges to cut corners, for example, will have negative consequences for each individual as well as the company.

4. The leader keeps the fox out of the hen house.

Once a leader has identified the kinds of risks and behaviours that can get people into trouble, the worst mistake he or she can make is putting controls into place that will shield employees from taking those actions. This only foments resentment that can lead to other issues.

Instead, show those employees that you trust that they can manage these risks and not veer off course. During the aftermath of Hurricane Katrina, Walmart leadership was famously praised for giving its managers the discretion to make real-time ethical decisions in the midst of the crisis -- including raiding their own pharmacies for local emergency hospitals, opening the stores to desperate survivors, and donating inventory to shelters.

Trusting employees to uphold the social norm as to what is acceptable boosts their sense of responsibility and will prevent even the most vulnerable people in the organization from straying too far down the slippery slope.