The focus on effective Ethics and Compliance Programs based on values and principles has been steadily increasing in the past years. “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders”, wrote BlackRock CEO Larry Fink in a letter to CEOs of public companies in January 2018. Culture has been identified as a crucial cornerstone of effective Ethics & Compliance programs. PwC chairman Bob Moritz has called committing to a common purpose, a shared set of values and behaviors, and driving them through organizations is “perhaps the most important job CEOs … can do to contribute meaningfully to social progress, as well as business results.”
However, despite all the effort that company leaders and in particular Ethics & Compliance Professionals have been putting into creating a Culture of Integrity, why do we just have to open the pages of a major newspaper to find to our surprise (or meanwhile not so much anymore) yet another case of corporate misbehavior like Wells Fargo having opened 3.5 million false accounts, the Volkswagen “Dieselgate”, United Airlines, and so much corruption in the pharmaceutical sector?
What is wrong with people that they are still breaking the rules or laws, acting against professed Codes of Conduct…? Shouldn’t everybody be able – with only sufficient training to create awareness and knowledge – to understand the fundamental rationale, and the proven economic advantages (decreased misconduct, higher productivity, higher profitability), of doing business in an ethical and compliant way? Is the work of Ethics & Compliance Professional a Sisyphean task then?
The concept defined
The concept of “Ethical Fading” can help explain why establishing an Integrity Culture is not a one-time task and does not lead to a virtuous circle. (Maybe that’s a good thing for the employment prospects of the Ethics & Compliance Professionals.)
Ethical fading means that there are occasions of a cognitive dissonance between values, beliefs and behaviors: Despite being aware of values, rules and the “right” behavior, in certain situations people act in a non-compliant or unethical way, because at the given moment of decision they fail to recognize or ignore the ethical dimension of a decision or action.
Starting often very small, and barely noticeable (maybe by negating the ethical dimension of a decision, framing it as a “pure business” matter) this can set in motion a progressive ethical erosion. By compromising culture, values and behaviors, we slip and slide downwards on a slippery slope as previous decisions and actions serve as precedents to rationalizing, justifying or normalizing subsequent ones. Moreover, by observation of the organizational cognitive dissonance by other employees, ethical fading can gain momentum in a kind of vicious circle. Thus, the achieved culture of integrity “fades” and disappears. Much like in the broken windows theory.
Example: In his book “The honest truth about (dis)honesty”, behavioral economics professor Dan Ariely describes an experiment at a university where a soda vending machine was manipulated to return the money inserted in addition to giving the desired drink. The effect was that students not only took advantage of the obvious technical problem, but also informed their friends of the opportunity to get free refreshments. Although individually these students would all agree that “thou shalt not steal” and consider themselves to be honest and law abiding persons.
Dan Ariely explains that people are driven by two basic behavioral tendencies:
- We tend act in a self-serving way (free drink).
- Nevertheless, we still want to be able to look into this mirror and feel good about ourselves (one dollar for a can of soda is no real damage to an anonymous owner of the vending machine; Ariely calls this the “fudge factor”.)
Another perspective to look at Ethical Fading is that there is a large part of the actual organizational culture (“the way we do things here”) which is actually and not necessarily congruent with the professed organizational culture.
The four core mechanisms
Four mechanisms should be understood and distinguished in “fudging” our decisions:
- Neutralization: “This is not an ethical decision.”, “I am not responsible.”
- Rationalization: “This is the only logical course of action.”
- Justification: “There is a good reason for this course of action.”, “The business opportunity outweighs the moral considerations.”
- Normalization: “Everybody is doing this.”, “We have always done it like this.
Ethical fading can be triggered by a variety of situations and then almost unnoticeably begin to affect the way we think and act. Two big groups of triggers are:
- Organizational & situational (e.g. pressure and stress, conflicts of interest, goal setting, incentives, )
- Psychological (cognitive biases like motivated blindness, confirmation bias, framing, loss aversion, ostrich syndrome… – there is a lot to write about cognitive biases; look out for a later separate post on the topic or click for more information about cognitive biases.)
Michael Kuckein, Sandoz TR, Ethics and Compliance Director, CIA, CISA, CCSA, CRISC, CRMA
The author contributed to this article in his personal capacity. The views expressed are his/her own and do not necessarily represent the views of TEİD.