In today's fast-paced and complex world, ethical dilemmas are more prevalent than ever, leaving us to question whether our moral compass is in decline. The landscape of business ethics is particularly challenging, with companies and individuals often caught in the crossfire between legal compliance and doing what is right. Should we rely solely on codes of ethics, or is there a need to foster ethical cultures within organizations? Furthermore, can we entrust the government with enforcing our morals through legislation, or does this shift responsibility away from where it truly belongs?
These critical questions were at the heart of a “Perspectives Matter,” a McCuistion program that I was hosting, featuring SMU Professor of Practice in the Management Department, Scott Hansley, and Richard Bowen, a former Citigroup Chief Underwriter turned whistleblower. The conversation delved into the complexities of ethical behavior in corporate America, especially in the wake of high-profile scandals like Enron and the 2007 financial crisis.
Whistleblower's experience
Richard Bowen’s experience as a whistleblower at Citigroup during the 2007 financial crisis offers a stark example of the ethical challenges within corporate environments. Bowen revealed how Citigroup, despite being aware that over 60% of the mortgages it was purchasing were defective, continued to guarantee their quality. His repeated warnings to senior management, including a direct email to the Chairman of the Board were ignored, leading him to ultimately blow the whistle to the Securities and Exchange Commission (SEC). Bowen’s story highlights a significant ethical failure, not just in breaking the law, but in violating the company’s own code of ethics.
Delegating ethics to the government?
The discussion then turned to the effectiveness of laws like Sarbanes-Oxley, enacted in response to corporate scandals. While these laws were intended to enforce ethical behavior, Bowen and Hansley argue that they are often reactionary and lack teeth, particularly when enforcement is weak. Bowen noted that despite the legal requirements under Sarbanes-Oxley, including protections against retaliation for whistleblowers, there has been little to no prosecution under these laws. This raises the question of whether ethical behavior can be effectively legislated or if it should be cultivated within corporate culture.
Code of ethics, only for show?
Hansley pointed out that while some companies create codes of ethics with the genuine intent to follow them, others do so merely for show, to project an image of ethical responsibility without genuine commitment. This discrepancy between appearance and reality can lead to significant ethical lapses, as was the case with Citigroup. Bowen bluntly described Citigroup’s code of ethics as a façade, taught in classrooms but not practiced in reality. Employees were aware that the code was not reflective of the company’s true operational ethics.
From compliance to culture
This discussion underscores the need for companies to go beyond mere compliance with laws and codes of ethics. While such frameworks are important, they are not sufficient on their own. Companies must foster ethical cultures where doing the right thing is ingrained in the organization’s DNA, not just enforced through external regulations. Creating such a culture requires leadership that not only talks about ethics but also demonstrates it through actions. This includes holding employees accountable for unethical behavior and encouraging open discussions about ethical challenges without fear of retribution.
How do you know if your company is ethical?
For new employees, identifying whether a company is truly ethical can be challenging. Hansley suggests speaking with former employees who are no longer bound by company loyalty to gain a more honest perspective on the company’s culture. Bowen adds that while companies may have robust codes of ethics on paper, the true test of an ethical culture is whether employees feel safe and valued when reporting misconduct.
The importance of trust
The importance of trust within organizations was another key theme in the conversation. As outlined in Yoram Solomon’s work, trust is the foundation of all relationships, including those within a corporate environment. When trust is present, employees feel empowered to act ethically and report misconduct. Conversely, in low-trust environments, unethical behavior can proliferate unchecked, leading to scandals and significant legal and financial repercussions.
In conclusion, while codes of ethics and legal frameworks are essential components of ethical behavior in business, they are not enough on their own. Companies must build ethical cultures from within, where trust, transparency, and accountability are paramount. Only by fostering such cultures can organizations hope to navigate the complex ethical challenges of today’s world effectively.
Want to hear more? Watch the episode on YouTube at: https://perspectivesmatter.com/2024/05/corporate-ethics-intentional-or-for-show-4002/ or listen to the podcast episode at: https://podcasts.apple.com/us/podcast/s14e8-perspectives-matter-corporate-ethics-intentional/id1569249060?i=1000665991921
Dr. Yoram Solomon is an expert in trust, employee engagement, teamwork, organizational culture, and leadership. He is the author of The Book of Trust, host of The Trust Show podcast, a three-time TEDx speaker, and facilitator of the Trust Habits workshop and masterclass that explains what trust is and how to build trust in organizations. He is a frequent speaker at SHRM events and a contributor to HR.com magazine.
The Book of Trust®, The Innovation Culture Institute®, and Trust Habits® are registered trademarks of Yoram Solomon. Trust Premium™, the Relative Trust Inventory™, and The Trus
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