Thinking and acting morally

Written by Dan Lucy on 1 May 2013 in Features
Features

Dan Lucy examines the importance of ethical leadership and how it can be developed

At a time when the roll call of big corporate names falling victim to poor ethical standards seems to lengthen by the day, it is worth asking whether this apparent trend is with us for the foreseeable future.

While the UK, and much of the rest of the Western world, continues to struggle economically, there is a sense in which we expect economic recovery to come eventually (because this is what has happened before) but can we say the same about ethical standards in organisations? Does the recent spate of ethical failures relate to an increasingly short-term focus on profits, targets and shareholder value above sustainability?

Further, are the scandals we are seeing the result of bad apples or do they represent something more systemic in the organisations concerned? What is the role of boards, senior leaders or HR in all of this? Who is accountable for organisational ethics? And what can be done to develop ethical leaders and organisations?

In response to the growing wave of corporate scandals featured in the press and the increasing prominence of ethics in business debates, Roffey Park Institute included a number of questions on the issue in its annual Management Agenda survey of 1,460 managers from across the public, private and not-for-profit sectors1. The vast majority of managers regarded their organisation as behaving ethically towards a range of stakeholders including employees, customers, suppliers and shareholders.

Looking beyond the bare numbers from this year's Management Agenda, there are one or two signs that, although some managers regard their organisations as ethical, they may see organisational ethics as an issue of compliance, either with legal requirements or commercial imperatives, rather than a felt sense that behaving ethically is the 'right thing to do'. While this is not evidence of widespread moral collapse, it does possibly suggest that ethics may not be at the forefront of managers' minds. And perhaps it should be. Gross corporate failures of the likes of Mid Staffordshire NHS Trust prompt much soul-searching, perhaps because of the shock we experience that such things can happen in the modern world. We like to think these things don't and can't happen. And perhaps the first lesson for any manager or organisation is that they can and do.

So what can, and should, organisations do to ensure that they do not experience the kind of failure of standards and behaviour that have tarnished the names of some of our leading companies?

The task of designing organisations to foster ethical behaviour is not a simple one, but there are lessons both from the scandals that have hit the press and existing knowledge. One central tension is that between an approach based on compliance with rules, policies and procedures and one based on softer, culture-based efforts. The two approaches are not mutually exclusive, but there is a real danger with an approach focused on policy and procedure that employees become automaton-like, thoughtlessly complying with rules and procedures and suspending their capacity for ethical reasoning and judgment.

Research has suggested that individuals' capacity for moral reasoning may be depressed in some situations and that they typically reason at a lower level of sophistication in response to work compared to general ethical issues2. Reliance on a compliance-based approach is likely to further disengage employees' capacity for moral reasoning in the workplace.

There are lessons to be learned from a number of the scandals to hit our press around the use of incentives or targets and the way in which these can distort behaviour, and can lead to hitting the target but missing the point. An example of this would be the alleged behaviour of senior nurses at Stafford Hospital in removing patients inappropriately from accident and emergency wards to hit waiting-time targets. There are similar examples of unethical behaviour prompted by incentives in the financial services industry. HR must play a role here and consider the potential implications of reward systems, and whether they are likely to create perverse incentives and to encourage unethical behaviour.

HR should also have in mind the knowledge that rewarding ethical behaviour has been shown to be potentially counter-productive3. In other words, offering reward for behaviour that is motivated by a desire for fairness can diminish the motivation to engage in the behaviour.

Equally, there are lessons to be learned about the consequences of a lack of leadership and an unwillingness to tackle bad practice. The Pollard report into the BBC's Savile inquiry makes reference to a lack of leadership4, and the failure of both senior leaders and the board at Mid Staffordshire NHS Trust to act on the evidence it had of bad practice was highlighted by the Francis report5.

So, what is ethical leadership and how can it be developed? And how can it support a culture that furthers the success of the business in a way that does not put sustainability at risk? One of the main requirements of an ethical leader is that they have a strong and clear sense of their own values and what they themselves would consider fair. Judgment is another crucial element. That is, slavishly following existing rules, procedures or customs is not what's required but a capacity to think about how others may see a situation and what the long-term consequences of any action may be.

Research studies have suggested that individuals capable of more complex, higher level moral reasoning are more likely to consider a problem in the round and make decisions for the 'good of the group' rather than focus on narrow, short-term interests6. A question, then, is whether organisations focused on sustainability should select individuals for leadership development based on their moral reasoning capability.

Clearly, the ethical stance of senior leaders is important as they set the 'tone at the top', but to what extent are they really able to encourage ethical behaviour throughout their organisation? Is it too much to expect C-suite leaders to influence the day-to-day behaviour of potentially thousands of employees who they may rarely have contact with, despite their best efforts to be visible and communicate regularly? Research has suggested the importance of role modelling for the development of ethical behaviour in organisations. Importantly, the ethical role modelling relationship requires close interaction and, when asked for ethical role models in the organisation, individuals tend to look to those with whom they work most closely. The implication is that ethical leadership must be developed throughout the organisation, rather than a focus on a select group of senior leaders.

The development of ethical leaders is also key to facilitating two-way communication and the reporting of problems to management. Previous research studies have demonstrated that employees are more willing to report problems when they view their supervisors as leading ethically7. Perhaps of some concern then is the finding from this year's Management Agenda that roughly a quarter of the managers who were surveyed felt leaders were poor or very poor at ensuring communication channels work well. Barriers to the reporting of bad practice can prevent a light being shone on it and allow it to continue. A culture of poor ethical standards can be difficult to change once embedded: newcomers are socialised into existing ways of doing things and these become the accepted norm, unquestioned by those involved but clearly unethical to an outside observer.

The risks to organisations of failing to recruit and develop for ethical leadership are several. One is clearly the sort of scandal that damages reputation and future business. Another is that leaders with a moral and long-term view leave an organisation that is too narrow or short-term in its thinking. Organisations attract types similar to those they currently employ. If an organisation is staffed by leaders with a short-term, narrow focus, in the long run it may not have a future.

HR has a crucial role to play in developing ethical leaders and organisations, both in terms of aspects of ethical infrastructure, such as reward systems and policies, but also in terms of fostering an ethical climate through the development of ethical leadership. It must also operate on a sound moral basis, particularly if it is to be the custodian of such things as organisational values and behaviour.

A key role HR can play is helping to ensure organisational policies and practices are fair, and that they are implemented fairly by managers. Whether or not employees perceive their organisations to be fair is an important part of fostering ethical behaviour.

In her HR Leadership book, Linda Holbeche (a Roffey Park fellow) says: "Sustainability involves more than building environmental or social responsibility policies. It is more than ensuring that employees are treated fairly. It is fundamentally about ensuring that the organisation has an ethical basis of its existence and the organisation delivers on its promises to all its stakeholders, including society at large." 8On this latter point, a yearly survey of public perceptions of business ethics conducted by the Institute of Business Ethics in partnership with the market research firm Ipsos Mori is instructive: the proportion of the public viewing British businesses as treating their stakeholders ethically fell from 59 per cent in 2010 to 48 per cent in 20129.

While these figures tend to fluctuate depending to some extent on the news of the day, based on the above figures, more than one third of the public do not view British businesses as behaving ethically. Key concerns reported with some consistency are executive pay and the ability for employees to speak out about improper practice.

It does seem, then, that wider society sees room for improvement in the ethical standards of business. Any business with a view to long-term success should consider ethics a key to a sustainable future. All parts of the organisation have a role to play, but HR and L&D should be central to efforts to create an ethical climate.

While, in thinking about organisations, words such as structure, policies, processes and even bureaucracy may occur to us, we should not forget that organisations are essentially groups of people, and what actually defines performance is the accumulation of the behaviours, attitudes and values of the people who make up and serve that organisation. Moving beyond compliance to engage the capacity for individuals to think morally will help to create a sustainable future, as will efforts to ensure that company policies and practices such as reward and recognition do not encourage unethical behaviour.

A fully-referenced version of this article is available on request.

About the author

Dan Lucy is head of research at the Roffey Park Institute. He can be contacted via www.roffeypark.com

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