Can unethical decisions be accidental?
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Ethical decision making is an old an ongoing problem for leadership. This problem often presents in terms of moral choices forming complex decision-making scenarios that result in leadership failure. When ethics are viewed in through the moral lens, hindsight often appears clear but during the decision-making process this clarity often muddles in lack of information or understanding. Within this framework, ethical decision making appears purposeful but in reality the differences between deliberate and accidental ethical choices should be clarified to avoid future unethical decision-making and increase leadership success.
Deliberate Unethical Decision Making
Deliberate unethical decision-making occurs when leadership purposely makes unethical decisions. This situation is denoted by having knowledge of their actions and the consequences of those actions. Perhaps the most well-known and unethical leadership decision-making occurred at WorldCom between 1998 and 2002. In 2005, former WorldCom CEO Bernard Ebbers was convicted of conspiracy, securities fraud, and filing false statements related to an $11 billion accounting fraud. He was accused of protecting his personal wealth, largely in WorldCom stock, and had borrowed $400 million from the company. After stepping down as CEO in 2002, it was disclosed that he had borrowed $408 million from Bank of America using his WorldCom shares as collateral. This scandal led to the largest bankruptcy in US corporate history at the time. When the financial house of cards came apart, the WorldCom bankruptcy would become one of the largest in American history.
Ultimately, what led to the decision of Ebbers and other leaders as well as the accountants to commit fraud, was found to be simple greed and an unwillingness to admit failure:
WorldCom company performance was on the decline however, management insisted it was doing great; this was due to the fact that the company had also used general accrual account to accumulate excess accruals that could later be used to offset expenses for the benefit of the company.
At the heart of this decision making resided a corporate culture ripe for corruption as management followed leadership with what is known as bottom-line thinking or a focus that places profit above all other considerations – including ethics. This thinking's top-down effect started at the top with leaders obeying their fiduciary responsibility, then becoming overly focused on profit-making as the loss ethics trickles down into the company culture and behavior.
What may have started as an accidental loss of ethics through profit focus morphed into a deliberate fraud.
This deliberate unethical decision-making in business has a long history and sometimes with dire consequences. A case that went far beyond financial losses occurred in the 1970s when the Ford Motor Company continued producing the Ford Pinto despite being aware of a design flaw causing the vehicle to explode in certain accident situations. Ford performed a cost benefit analysis which determined that the cost of recall and possible litigation were outweighed by profit.
While the decision to recall vehicles in the face of human casualties appears obvious, research has shown that this decision making is not as clear as it appears. In an experiment where business students were presented with the same data and financial choices Ford executives encountered concerning the Pinto, “56.8% of students chose to pay for the deaths.”
One of the primary explanations for this decision-making reveals in a silo effect within groups or organizations, confining ethics choices to small numbers of leaders or even a single leader without input. Within this silo, leaders make decisions based on limited understanding or with limited focus on the results of the ethical issue. While this does not excuse the actions of Ford it does explain how reputable companies can veer into unethical decision-making.
Accidental Unethical Decision Making
Well-meaning companies are not exempt from unethical decision-making and attempts to maintain ethics sometimes backfire. Starbucks has a long history of commitment to social justice issues and ethical marketing practices yet found itself making unethical decisions when the company tried to protect its brand. While Starbucks is known for paying higher prices to be a responsible purchaser of coffee, buying from local and small companies in many developing countries such as Ethiopia, the company also must protect its brand and competitive advantage. When Ethiopia desired to trademark brands of coffee in order to increase coffee sales by millions of dollars, Starbucks fought this decision.
Starbucks used legal and financial strength to block trademarking efforts in order to maintain prices for coffee in Ethiopia. For example, Sumatra Coffee purchased at Starbucks is not trademarked by Sumatra coffee growers and has no patent or trademark protection globally. Starbucks claimed its actions protected the ethical supply chain, but Oxfam claimed Starbucks needing to do more to help these poor countries protect their assets in the global market (Crane, 2006).
Giving Starbucks the benefit of the doubt, the company likely engaged in what may be accidental unethical behavior caused by the company safeguarding its brand and profits. Had Starbucks not fought the trademarking, the company might well have lost its control over the ethical supply chain already in place, a dilemma for sure. What is not arguable is the fact that Starbucks maintains price control over coffee grown in Ethiopia and Ethiopia growers have no control over their product beyond selling it to Starbucks, raising the ethics quandary.
Learning from Unethical Behavior
Both deliberate and accidental unethical decision making provide learning points for leadership. In cases such as WorldCom, loopholes in the law allowed for some of the unethical decision-making to flourish. Prior to the Sarbanes/Oxley Act accounting practices were not enforced by both ethical and legal practices such as taking responsibility for corporate fraud. Today, CEOs and accountants are legally responsible for signing off on corporate statements and reports and can be held criminally accountable.
The Triple Bottom Line
More than just legal measures, ethical leadership decision making also finds root in developing firm values that built into the company operations and mission. WorldCom might never have occurred if the operations of the company were designed with ethical decision making in mind. Theoretically, operationalizing ethics in this manner can avoid bad decisions. This has come to be known as "the Triple Bottom-Line," which is designed as measure of a business’s performance beyond its financial results. It also considers the social and environmental impacts of the business’s activities. The triple bottom line consists of three elements: profit, people, and the planet.
Profit is the traditional measure of how much money a business makes. It shows the economic value that the business creates for its shareholders and stakeholders. Profit is important for a business to survive and grow, but it is not the only factor that matters.
People is the measure of how a business affects the well-being of its employees, customers, suppliers, communities, and society at large. It reflects the social responsibility and ethics of the business. People is important for a business to build trust and loyalty, as well as to avoid negative consequences such as lawsuits, boycotts, or reputational damage.
Planet is the measure of how a business affects the natural environment and the resources it uses. It reflects the environmental responsibility and sustainability of the business. Planet is important for a business to reduce its ecological footprint, mitigate climate change, and preserve biodiversity.
The triple bottom line aims to balance these three elements and create value for all stakeholders, not just shareholders. By adopting a triple bottom line approach, a business can improve its reputation, attract customers and investors, reduce costs and risks, and contribute to solving global challenges.
The triple bottom-line, theoretically, removes the silo effect of unethical decision-making by refocusing efforts with equal attention to ethical areas, hence people and planet. Had the triple-bottom line been create during the Ford Pinto era, Ford’s silo ethical decision making might never have occurred, since the ethics of people had to be considered with equal rate as profit.
Surprisingly, one of the more understated points of ethical decision-making inherent in the silo effect of unethical choices is the idea of shared ethics. Stated simply, if silos of ethical decision increase risk of unethical choices, then shared ethics criteria or standards should reduce this problem. Ethics are not an independent belief but a shared concept and as such, leaving ethics to the discretion of one person or a small group in many ways contradicts the idea of ethics. This is like leaving the choice of deciding whether an act constitutes fraud to one person rather than looking to the law, which has, in conjunction with society, already defined this act as criminal.
Why do corporations get to decide their ethics?
Firms have the freedom to define their ethics in the United States, in so far as they follow the law, but this discretion leaves a large area of debatable ethical behavior. A shared ethical structure common to all companies might reduce both deliberate and accidental unethical behavior by creating a more transparent and ethically-focused environment. In the case of Starbucks, this shared ethics might help reduce the dilemma of protecting profit at the expense of people. In a shared ethical approach to leadership, this problem would be less likely to occur because the leaderships ethics would be connected harmoniously throughout the organization and also would not impede competition since all firms obeyed.
The Ethics Limit
The outlook for ethical businesses does not appear bright since corruption and unethical behavior continue to plague companies. The problem lacks complexity since two obvious stop signs to ethical decision-making exist: fiduciary responsibility and ethically bankrupt leadership.
Fiduciary responsibility compels leaders to act in the interest of the stockholders, not the interest of workers or customers and and within this framework these leaders often resort to bottom line thinking to advance the stock value for shareholders and themselves. Fiduciary responsibility becomes a catalyst for unethical behavior, since the bottom-line is what counts in most places.
One might argue that cases such as WorldCom show how ultimately this thinking leads to catastrophic ends for the shareholders and all other stakeholders, raising the question of why this form of corruption continues occurring?
Ethically Bankrupt Leadership
Not everyone is cut out to be a CEO or business leader because they have ethics. To make companies successful leaders must often be willing to pursue profit at the expense of people and planet. People argue this point but the reality is that Corporate America continues producing cases that exemplify corporate corruption and lack of ethics.
Again, this problem lacks complexity. Companies are free to operate ethically within the constraints of law and those leaders who place profit above people and planet tend to be successful since they are fulfilling the fiduciary responsibility of acting the in the interest of shareholders, resulting in a leadership pool bankrupt of ethics.
Whether they got there by accident or deliberately with unethical decisions, these leaders rise to the top because they can either skirt the legal line of ethics or not get caught in ethical violations and thereby increase the bottom-line.
Accidental or Deliberate?
There will always be unethical decisions made because business leadership is driven by a legal requirement to place shareholder value above all other interest besides the law. This state of affairs gives rise to a number of issues, most notably unethical leadership but also accidental unethical decision-making. Legally, guided by corporate interest – even with a triple bottom line – ethical managers become prone to poor decision making because they must give more weight to profit. Likewise, deliberate unethical behavior results from the spawning of unethical management who are sought because they can produce profit. Within this context, ethical decision-making becomes a difficult problem to solve, requiring a shared ethics enforced by law, such that ethical leadership will rise to the top.