The Decline of Ethical Behavior in Business

How the quality professional can and should meet the challenge.

 

Enron. Worldcom. Tyco. Cendant. Bernie Madoff, once chairman of the NASDAQ, is now cooling his heels in jail. The ex-CEO of Comverse is arrested in Namibia, the CEO at United Healthcare is forced to step down, and Patricia Dunn of Hewlett Packard is charged in an ethics scandal. And, of course, AIG has no problem doling out millions in bonuses to the very people who drove the company and the country into a financial crisis. It seems that no matter where we look today, the erosion of ethics and basic moral principles of right and wrong have taken us to the point where trust in our institutions and the very systems that make our society work are in imminent danger of oblivion. Perhaps at no time during the last two or three decades has business ethics, or the lack thereof, been of such paramount importance to the well-being of our business entities and country.

According to a 2006 Business for Social Responsibility brief, “Corruption and Bribery” ( www.bsr.org/research/issue-briefs.cfm  ), an organization has many reasons for operating ethically, including avoiding fines and litigation, reducing damage to the firm’s reputation, protecting or increasing capital and shareholder value, direct and indirect cost control, creating a competitive advantage, and avoiding internal corruption. On the other hand, unethical behavior in firms results in lower productivity, especially among highly skilled employees, as seen in “The Relationship of Ability and Satisfaction to Job Performance,” by Philip E. Varca and Marsha James-Valutis (Volume 42, No. 3 of Applied Psychology: An International Review ), lower financial performance as measured by metrics such as economic value-added, and market value-added as shown in the 2003 study “Does Business Ethics Pay?” by Simon Webley and Elise More (Institute of Business Ethics, London), and abnormally negative returns to the shareholders for prolonged periods of time. All of these are documented results of unethical business behavior according to “The Wealth Effects of Unethical Business Behavior,” by Michael D. Long and Spuma Rao (Volume 19, No. 2 of Journal of Economics and Finance). 

Worse, as pointed out by Edson Spencer, former chairman of Honeywell, in “The Hidden Costs of Organizational Dishonesty” (Robert B. Cialdini, Petia K. Petrova, and Noah J. Goldstein, in Volume 45, No. 3 of MIT Sloan Management Review), it takes years to build a reputation for integrity that can be lost overnight. Once an organization loses its reputation for integrity, the effect can be permanent, according to the 2004 Josephson Institute report, “The Hidden Costs of Unethical Behavior”  (http://josephsoninstitute.org/pdf/workplace-flier_0604.pdf) . As unethical behaviors are manifested by upper-level management, workers throughout the organization note them, and unethical behavior becomes a cultural norm. Ultimately, this culture results in detrimental behaviors such as underdelivering on promises, turf-guarding, goal-lowering, budget-twisting, fact-hiding, detail-skipping, credit-hogging, and scapegoating, according to studies conducted by the Online Center for Engineering and Science at Case Western Reserve University, cited in the same article.

go in read to website: http://www.qualitydigest.com/magazine/2009/may/article/decline-ethical-behavior-business.html