Ethics and Trust in the Business World

Stephen DeAngelis

April 13, 2010

In several past posts, I’ve noted that the global economy relies on trust. Whenever credit is extended or a contract written, the parties engaged in those activities trust that each side will fulfill its responsibilities. We all understand how important trust and ethics are in the business world; yet, most people, I daresay, have little trust in the ethics and behavior of large corporations. There have been too many Enrons and Lehman Brothers fiascos and people are now skeptical and wary. Researchers at the University of Utah have been looking into why people, who know better and believe themselves to be ethical, act in unethical ways [“Why we aren’t as ethical as we think we are,” by Tannith Cattermole, Gizmag, 21 March 2010]. Cattermole reports:

“Researchers at the University of Utah have been looking at the psychology of individual decision making in an effort to help organizations better understand thinking patterns in the workplace. The depressing, if a little unsurprising, conclusion is that what we know we should do and what we want to do can be two very different things, in other words, we are not as ethical as we think we are. Examples of corporate ethics gone horribly wrong like the Enron collapse have prompted academics to focus on the mechanics of decision making within companies. ‘The Ethical Mirage: A Temporal Explanation as to Why We Aren’t as Ethical as We Think We Are’ seeks to address the psychological processes of individuals and how they deceive themselves into thinking they are ethical people. ‘Companies typically don’t do bad things because they have bad people,’ said Kristina A. Diekmann, Ph.D., professor of management at the David Eccles School of Business, who co-authored the paper. ‘When people imagine or predict what they would do in certain situations, they think about what they should do, however, when it comes to actually making decisions, people tend to focus on what they want to do. They are not conditioned to think of the ethical consequences at the time of the decision,’ Diekmann went on to say. ‘What is particularly problematic is that when people deceive themselves into thinking they are ethical but don’t act accordingly, it encourages the continuation of negative behavior.'”

As I recall from psychology 101, humans continually find themselves confronting cognitive dissonance and find various rationalization strategies for dealing with it. The better a person becomes at rationalizing behavior the more often, I suspect, he or she does so. The pressure to rationalize is often intense. Take, for example, someone in a good-paying job they like who is confronted with a situation in which they must either test the limits of their ethical behavior or risk losing their job. It’s easy to rationalize that you must behave questionably to save your job for your family or to secure your future. The ultimate rationalization becomes, “I was forced into doing something that I normally wouldn’t do. Therefore, my unethical behavior should be blamed on those that forced me to act that way and not on me. I’m a good person.” Cattermole indicates that some cases of rationalization are less clear cut. She writes:

“An article at Zoomstart.com puts it very well: ‘ethics is like the tax code. It’s a system where people are looking for loopholes and shelters. They’re looking to get away with whatever they can while still staying within the rules.’ Integrity, on the other hand, comes from individuals.”

The article to which Cattermole refers is a blog by Shane Navratil written in 2007 [“The Difference Between Ethics And Integrity,” 15 February 2007]. It’s really very good. Concerning ethics, Shane writes:

“Ethics in business is pretty much the same as it is anywhere else. It’s a code of conduct for a very competitive sport. No biting, no eye gouging, hit above the belt. High profile companies can be rocked by scandal for shady business practices just as easily as politicians can. And scandal for a company can hurt the bottom line. When you have dozens or hundreds or thousands of people out in the world doing business and representing your company, the only way to manage all of them is to apply a set of rules or ethics to a questionable situation. For small companies without high profiles, the boundaries of ethics are much easier tested and pushed. The repercussions are still there, but they’re limited without mass media exposure.”

If ethics is behavioral framework in which people act, integrity is actual behavior that people display. Shane continues:

“True integrity comes from individuals. Integrity is a personal code of conduct that goes above the letter of good conduct and encompasses the spirit of good conduct. Your word is your bond. Your word is good. Your intentions are to create a win-win situation. People count on your professionalism and they know they can. Integrity builds relationships. It’s not who you know, it’s who knows you. Just as important, it’s how they see you. To conduct business at a high level requires people to have a lot of confidence in you. Serious business people understand the importance of good relationships and the role of integrity in forging them. Two companies can make each other stronger and worth more if they work together to make each other a success. You simply can’t do that if you’re playing the rules of ethics against each other. You can’t fake integrity but it is a great strategy. If you find yourself in a deal involving multiple parties, integrity will build your stake at the game over ethics any day. At least, it will when you’re dealing with serious and capable people. Integrity often loses when someone is selling something that isn’t real, and the other guy buys it. But that really isn’t a deal you want a part of anyway.”

If ethics and integrity play such an important role in successful business dealings, why then are there so many scandals? That question gets us back to Cattermole’s article and the research conducted at the University of Utah.

“Currently much effort is concentrated by organizations toward codes of ethics, charter values, training, and the implementation of procedures that aim to reduce the likelihood of unethical behavior. However, little attention has been afforded to the individual and their perceptions – their innate integrity or lack thereof. The paper aims to help companies better understand thinking patterns in the workplace, and hopes to encourage a more lateral approach to policies. It also produces recommendations for how to change unethical behavior within organizations. Professor Diekmann’s research at the David Eccles School of Business at the University of Utah investigates how individuals behave in organizations, with a focus on negotiation, ethics and fairness, social perception, and impression management. The paper’s co-authors include Ann E. Tenbrunsel of the University of Notre Dame, Kimberly A. Wade-Benzoni of Duke University and Max H. Bazerman of Harvard Business School.”

In a post entitled Development at Home, I wrote that poor choices and an unwillingness to take responsibility for personal actions leads to harmful social consequences. I also noted that making good choices, as opposed to bad ones, does not come naturally. I concluded that a person can’t choose a better path if, because of circumstances, the path is obscured. By that I meant that if a person is not educated about alternative ways to behave in questionable circumstances, they will act as they have seen others act. Apparently what the University of Utah study concludes is that better education about ethics and integrity can change the way people behave. John Tierney asserts that you don’t need a classroom to teach those lessons, a shopping aisle at your local supermarket will do just fine [“Moral Lessons, Down Aisle 9,” New York Times, 22 March 2010]. He explains:

“Like Diogenes with his lamp, researchers have traversed the world looking for an honest man — or, more precisely, for people who act in the same fair, unselfish way toward everyone. If you wish to learn to follow this golden rule, … your best bet is to go shopping, at least by my reading of the experiments reported in the current issue of Science. It doesn’t have to be Wal-Mart, by the way — any kind of grocery store seems to have an effect. Wal-Mart just happens to be popular with the exceptionally fair-minded residents of Hamilton, a small rural town in northwestern Missouri. They scored higher in a test of fairness toward strangers than did any of the less-modern communities in Fiji, Papua New Guinea, Africa, Asia and Latin America. The study doesn’t prove the moral superiority of Missourians, because traditional societies emphasize different virtues, like providing food and comfort to relatives. But the results do help explain a central mystery of civilization: How did small family clans evolve into large cities of cooperative strangers? Why are New Yorkers sometimes nice even to tourists?”

Okay, maybe some lessons learned in the supermarket aisle aren’t transferrable to a business situation. A person deciding whether to act nice towards a stranger is motivated by very different impulses than a person deciding to do something shady in order to save his or her job. The only thing the two situations have in common is that they both involve moral judgments. Tierney continues:

“Being nice made evolutionary sense when we lived in small bands surrounded by relatives, because helping them helped our genes survive. And we had a direct incentive to be fair to people who would later reciprocate kindness or punish selfishness. But why even consider returning a stranger’s wallet you find in a taxicab? Why leave a tip in a restaurant you’ll never visit again? Some evolutionary psychologists have suggested that we have an innate sense of fairness left over from our days of living in small clans. According to this theory, our inherited instincts cause us to be nice to strangers even when we’re hurting our interests, just as our ancient taste for fat and sugar causes us now to eat more calories than are good for us. But there’s more to it than just inherited instinct, says Joseph Henrich of the University of British Columbia, who led the study’s team of anthropologists, psychologists and economists. They found wide cultural variations by observing more than 2,000 people in 15 small communities participate in a two-player game, called Dictator, with a prize equal to the local pay for a day’s work. One player, the dictator, was given the authority to keep the entire prize or share part of it with the other, unseen player, whose identity remained secret. Along with this power came the assurance that the dictator’s identity would also remain secret, so that no one except the researcher would ever know how selfish the dictator had been. The most lucrative option, of course, was to keep the whole prize and stiff the anonymous partner. But the Missourians on average shared more than 45 percent of the prize, and some other societies were nearly as generous, like the Ghanians living in the city of Accra and the Sanquianga fishermen on the coast of Colombia. But most of the hunter-gatherers, foragers and subsistence farmers were less inclined to share. The Hadza nomads in the Serengeti and the Tsimane Indians in the Amazon gave away only a quarter of the prize. They also reacted differently when given a chance, in variations of the game, to punish another player for hogging the prize. Selfishness offended the Missourians so much that they would punish the player even though it cost them money. But the members of traditional societies showed little inclination to punish others at their own expense. ‘There are lots of norms in these small-scale societies for how to treat one another and share food,’ says Dr. Henrich. ‘But these rules don’t apply in unusual situations when you don’t know anything about the kinship or status of the other person. You don’t feel the same sense of responsibility, and you act more out of self-interest.’ The researchers found that people in small communities like the Hadza camp (population about 50) were less willing to inflict punishment than people in larger communities like Hamilton (about 1,800). That makes practical sense: the more strangers there are, the more need to keep them from exploiting one another.”

Obviously, there are some lessons to be learned for businesses out of this study. People will behave unethically whenever they don’t feel a “sense of responsibility” for all stakeholders and act “out of self-interest.” Ethical companies instill in their employees a sense of value associated with customers, suppliers, other employees, etc. There might also be some lessons learned about how to inculcate a business with a better moral base. Tierney continues:

“What enabled those larger societies to grow in the first place? Dr. Henrich and his colleagues identified two distinguishing factors. People belonging to a modern ‘world religion,’ like the Islamic faith of the Orma cattle herders in Kenya or the Christian faith of the Dolgan reindeer herders in Siberia, tended to share more of their prize than did adherents of local religions. As larger communities became possible after the invention of agriculture, the researchers write in Science, ‘intersocietal competition may have favored those religious systems that galvanize pro-social behavior in broader communities, perhaps using both supernatural incentives (for example, hell) and recurrent rituals that intensify group solidarity.’ But a second factor seemed even more important. In explaining attitudes toward fairness, Dr. Henrich and his colleagues found that the strongest predictor was the community’s level of ‘market integration,’ which was measured by the percentage of the diet that was purchased. The people who got all or most of their food by hunting, fishing, foraging or growing it themselves were less inclined to share a prize equally. Grocery shopping may seem an unlikely form of moral education, but the researchers argue in Science that the development of ‘market norms’ promotes general levels of ‘trust, fairness and cooperation’ with strangers. … ‘Markets don’t work very efficiently if everyone acts selfishly and believes everyone else will do the same,’ Dr. Henrich says. ‘You end up with high transaction costs because you have to have all these protections to cover every loophole. But if you develop norms to be fair and trusting with people beyond your social sphere, that provides enormous economic advantages and allows a society to grow.’ One such dynamic society was ancient Greece, whose ethical norms spread as it grew, widely, and perhaps it was no coincidence that those ethics were developed by philosophers debating alongside merchants at the central marketplace called the agora. In retrospect, maybe Diogenes and his lamp didn’t really have all that far to go.”

That brings me back to the point I made at the beginning of this post. The global economy depends on trust. Trust is gained when organizations act ethically and organizations are ethical when their employees have integrity. When self-interest trumps all other behavior, trouble is just around the corner. One of the reasons that I preach about the benefits of connectivity is because the more we understand about the importance of being connected, the more we realize that protecting those connections are in our long-term best interests. Most of us, I believe, intuitively understand that “market integration” is essential for our long-term survival. Unfortunately, short-term gains too often overpower long-term survival instincts. We may never be able remove self-interest from the business equation; but by strengthening the importance of market integration, we have a better chance of making organizations more ethical in their dealings with others.