June 2009

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Why Do Good People Do Bad Things?

Many people are currently unhappy with the ethical state of leaders in government and business. The financial crisis stems fundamentally from a leadership crisis and the financial meltdown should be understood as a reflection of a moral meltdown. The global financial crisis ought to be viewed as moral failings of leaders and senior executives who have lost touch with reality. We simply cannot have business and government without responsibility. Why then, do so many well-respected leaders and corporate executives cross moral boundaries apparently without fear of disastrous consequences of their actions (especially when the right thing to do is fairly obvious)?

The phenomenon of the slippery slope provides a plausible explanation that demonstrates the potential for radical deterioration of socio-moral inhibitions and a perceived sense of permissibility for deviant conduct that develops into a pathological, materialistic attitude and behaviour that leads to devastating consequences. If minor moral transgressions are overlooked or accepted, they may lead to a downward trend that ends with the unthinkable. In his book “The Lord of the Rings” (arguably the best literary work of the last century), Tolkien graphically describes the dramatic example of the result of the transformation of the Hobbit “Smeagol” to the miserable wretched-looking creature “Gollum.”

Some classic examples of this transformation of how unethical practices triggered the indictment and collapse of institutions and individuals include Arthur Anderson (85,000 employees lost their jobs), Nick Leeson of Barings (ran up more than $1.3 billion of liabilities through unauthorized trading wiping out investors’ savings), Martha Stewart (convicted of lying and was sentence to five months in prison, five months of house arrest, fined $30,000, and given two years of supervised probation), and more recently, the former President of South Korea, Roh Moo-hyun, who jumped to his death last month after being accused of being involved in a corruption scandal.

The lubricants or rationalization that makes the slope slippery include: scripts (rote behaviour that replaces careful and active thinking when one encounters familiar situations), desensitization (analogous to the metaphor or parable of the boiling frog: a frog that is dropped into boiling water will jump out; but a frog that is placed in cool water that is gradually heated, will unsuspectingly take no notice of the temperature change, only to be boiled alive), distractions (not paying attention to small details that can result in ethical lapses), moral exclusions (excluding those who ought to be involved in the decision-making process), quid pro quo arrangements (putting oneself in a position to compromise one’s integrity), perceived victimization (some may feel that they are not sufficiently appreciated or valued for their work), fixation (focusing exclusively on a goal without regard for other important considerations), availability syndrome (conducive situations where resources are readily available), socio-cultural factors (breakdown in values and ethical commitments), innate psychology imbalance (narcissistic behaviour and other personality disorders), and other factors including lack of ambition, laziness, irresponsibility, and so on.

Because corporate reputation and the value of that reputation have become more critical in light of recent and ongoing business scandals, companies ought to focus on building strong ethical cultures, especially the tone at the top. Organisational cultures that are in trouble are characterised by narcissistic egos that lead to information hoarding and empire building, the blame game, and an emphasis on appearance rather than substance. Strong and effective cultures are characterised by decisions based on integrity, core values that are shared values, respect for human dignity, and communication that encourages constructive and critical feedback among all levels.

Ethical behaviour depends on the individual’s ability to recognise ethical issues and dilemmas. It is both a function of the organisational DNA and of the individual’s character traits and dispositions. In order to build a culture of integrity and accountability, one can emulate behaviour of moral exemplars, seek advice from someone who has consistently demonstrated practically-wise judgments, avoid ethically dangerous situations and seek ethically desirable ones, and actively engage in moral reflection and imagination to ensure accurate calibration of one’s moral compass or conscience (in the final analysis, the level of morality in business lies in the formation of the individual’s conscience).

What is required therefore is not only financial and social capital, but business must be built on a foundation of moral capital which is precisely the cultivation and practice of human virtues guided by ethical motivations and principles. The difference between the temporarily successful business persons and those who became and remained successful is that the latter possess virtuous characters. While there are no perfect corporate governance systems that would regulate human behaviour (morality cannot be legislated), no system or society would work justly unless it is governed by professionals who are not only technically competent, but also morally competent. Business does not need social reformers, new management theories and models, as much as it needs leaders and professionals who live and practice personal integrity. This is where the real risk lies.