Signs that a firm is struggling with its ethical tone from the top

Delivering an ethical ‘tone from the top’ can be a challenge at times for some business leaders. Recent problems at the UK’s Co-operative Bank show how a company’s reputation can start to unravel as a result. So what are some warning signs to look out for, if senior directors are finding the challenge too much?

One warning sign is referred to as ‘ethical fading’. This occurs when those in charge find themselves surrounded by such a web of corporate infrastructure (targets, remuneration, controls, etc) that they progressively loose sight of the ethical dimension to many business decisions. They may have started with the best of intentions, but find the intricacies of competing factors too complex to resolve. Despite having values at the top of their corporate vision documentation, ethical practice starts to fade. This is picked up by middle management, who adapt accordingly. Everyone keeps on talking about the importance of ethics, but then undermine this by paying it lip service.

Then there’s the problem of behavioural forecasting errors. These happen when we firmly believe that we will behave in a certain way in a given situation, but when actually faced with such a situation, we behave differently. So a regional broking office may be sure that it really will adhere to the firm’s conflicts of interest policy, but as end of year targets loom and everyone’s keen to be seen to have pushed hard for the firm, a blind eye is then turned.

Another warning sign to look out for is rationalisation. This happens when business leaders rewrite the ethical history of their decisions by rationalising into them more of an ethical quality than actually happened in practice. The fairness of a claims strategy is thought in retrospect to have been more reasonable than in fact it really had been. This can be a slippery slope, leading a claims function to redefine what it thinks is fair, with all sorts of subsequent impacts. The investigation of insurance fraud (and in particular the rationalisation of proof) could be prone to this.

So what can be done to make sure that ethics is part and parcel of the decisions business leaders take? That I’ll explore in the next post. In the meantime, if you’d like to read more on this theme, then I’d recommend ‘Blind Spots’ by Max Bazerman and Ann Tenbrunsel, published in 2011 by Princeton University Press.