How to manage for ethics

People's ethical choices may depend on their overall mental state, workload, and even the time of day. Better structure can help avoid the urge to cut corners.
 How to manage for ethics

People's ethical character isn't set in stone. It can change for the better or the worse. In fact, it can depend on a few surprisingly simple details in their everyday environments.

That's the conclusion of recent research into workplace environments, and it has significant implications for managers and leaders. This emerging field of study shows that it's possible — and even imperative — to create a business environment that encourages good behaviour.

"You're going to be hard-pressed to find a business leader out there that says, "'You know, when it comes to ethics and integrity, it's not that big of a deal to me,'" said Dan Griffiths, CPA, CGMA, a partner at Tanner LLC in the US state of Utah who consults with leadership teams.

"But when it comes to actually translating what that value looks like in action, that's when people get stuck. You can't just say, "'Be ethical.'"

It starts with the employees

It's tempting to believe that some people are simply unethical and that they plan out schemes to break the rules and enrich themselves. Sometimes, that's true. However, researchers in recent years have tried to prove that it's much more complicated than that.

The perpetrators of fraud and deception often begin with good intentions, according to a study led by Francesca Gino of Harvard Business School. For many, though, "good intentions cannot guarantee ethical action," the researchers wrote in "Unable to Resist Temptation: How Self-Control Depletion Promotes Unethical Behavior", which was published in the journal Organizational Behavior and Human Decision Processes in 2011.

Simon Webley, the research director at the Institute of Business Ethics, based in London, said that research like Gino's touches on an incredibly important question.

"I think it's the least explored area in business ethics at the moment, but it's being realised that it is important," he said. "Why do normally very good people, and that's 80% of everybody, occasionally do the wrong thing?"

Imagine, for example, a manager who is tempted to inflate her billable hours. She might weigh the short-term benefits with the long-term risk to her reputation. That equation will vary from person to person — but it can also vary within a person.

In fact, people's ethical choices and self-control may depend on their mental state, which can change from day to day, or even with the time of day. Working under a tight deadline or with frequent interruptions can deplete people's ability to make higher-minded decisions, Gino's team found. A later paper by US researchers Maryam Kouchaki and Isaac Smith, "The Morning Morality Effect: The Influence of Time of Day on Unethical Behavior", found that people have lower "moral awareness" in the afternoon than they do in the morning. (See "Signs of Trouble," below, for behavioural clues that could signal malfeasance.)

"Our work suggests that these familiar experiences increase the likelihood that individuals will cross ethical boundaries (eg, inflate expense reports, offer self-serving advice to customers or colleagues) because they will fail to recognise the moral issue involved in the situations they face," Gino wrote.

In addition, employees may be more likely to get away with ethical lapses if they are in this state of "ego depletion". Another study by Kouchaki, of the Kellogg School of Management at Northwestern University in the US, and colleagues found that managers may be more lenient if they think that an employee is overworked and tired.

This is a familiar theme for Griffiths. He has noticed that when employees are burned out or stressed — such as during a merger — they're more likely to be lax enforcing internal control processes.

"Motivation is not necessarily a predictor of our behaviour," Griffiths said. "What does predict it is structure: What sort of environmental factors are going on? Are they set up to make an ethical choice because of the influences playing on their behaviours?"

What is your moral ideal?

Kouchaki's and Gino's research points to one obvious solution: Efforts to improve employees' quality of life may also encourage ethical behaviour. Generous annual leave policies, rules that encourage employees to go home at reasonable hours, frequent assessments, and communication about mental health — all could counteract the threats of stress and overwork. Additionally, requiring staff to take paid time off has been shown to be a way to combat workplace fraud.

But an ethical environment isn't so simple to create. Ethics, of course, is a complicated subject. Even Plato and Aristotle studied the rights and wrongs of money and trade — but the academic field of "business ethics" only took shape in the 1960s and 1970s. In short, it would be foolish to expect that everyone naturally understands and agrees on what "ethical" behaviour looks like.

Instead, businesses must actively work to calibrate their employees' moral compasses. "Whatever the business you're in, if the culture is one that allows ethics and ethical considerations to go astray, then they will," said Jeff Kaye, FCMA, CGMA, a former trustee of Transparency International and the owner of NFP Advisory, a consulting firm in London.

Those standards can differ by organisation, depending on what matters most in the way it creates value. A sales-oriented culture, for example, might care most about making a sale and might be less concerned with the exact details of expense account reporting, while those details could become far more important in a company with a compliance-related mission.

No matter the industry, it's up to management to set expectations — a process that begins with conversations at the leadership level to distil down the company's ethical norms.

"It's kind of like telling employees, "'You have to be loyal, or be proactive, or be disciplined,'" Griffiths said. "You have to articulate, "'What does that look like in action?'"

For example, the leadership team might collaborate on a shared digital document, with each member inputting their own experiences and pushing towards consensus, Griffiths said. Those notes can become a foundation for revisions to strategies and policies, including updates to the company's code of conduct.

Or it may be easiest to have a tangible example. During off-site retreats, Griffiths asks leaders to identify people within the company who "absolutely personify" the ethical behaviour that they value. He even asks them to talk about former employees who violated the company's ethical spirit.

"Capture some of that thinking," he said. "Once that's been done, you've got a page that describes, in pretty good detail, what we mean by "'ethics'. It's specific and engaging."

Putting it all together

Finally, it's time to put the company's ethics into operation. It's useful to have the details in an accessible and readable document — but the art of building ethics really comes in day-to-day interaction.

Above all, leaders have to model the desired behaviour. For example, a manager might voluntarily initiate a product recall when one is needed, even if it's harmful to the company's bottom line in the short term. "The impact of those kinds of symbolic actions cannot be overstated," Griffiths said.

Webley said this is important because it can break the "group thinking" that can drive individuals to violate their own morals.

When managers see behaviour that they like, they can make a positive example of it. Meanwhile, some companies are experimenting with apps that allow employees to praise and recognise each other.

"It's all done by encouragement, by continuous training and reinforcing people," Kaye said, "so they feel there's only one way to act."

The key may be to treat ethics as something that can be managed. Instead of assuming that good people are good and bad people are bad, Webley suggested that leaders must work with individual employees in individual cases. The goal, he said, is to help people understand both the financial and the philosophical arguments for good behaviour.

And by establishing an environment for ethics, organisations can fulfil one of the key ideas of the Code of Ethics for Chartered Global Management Accountants (CGMAs). The code notes that "[t]he rules, fundamental principles and interpretations seek to address many situations; however, they cannot address all relationships or circumstances that may arise."

When the rules don't speak to a specific circumstance, employees must be ready to apply the larger frameworks of both the ethics code and their own company's culture.

"Those companies that do have a positive culture get far more repeat business, and they retain their good staff longer," Webley said. "There's a business case for it, but to me that's not good enough, really. The real case is the moral or ethical one. It's the right thing to do."

Signs of trouble

Potential signs of malfeasance can be an opportunity for intervention, said Simon Webley, the research director at the Institute of Business Ethics, based in London. If he sees symptoms that someone is under excessive pressure, like irritability, he might ask another team member to double-check their decisions. Sometimes, he’ll send an employee home for rest. And if it comes to a confrontation, he tries to frame the situation in practical terms.

“Let’s just sit down and work it out, particularly with the impact on other people,” he said.

Behavioural clues that fraud or malfeasance is happening, according to the Association of Certified Fraud Examiners’ Report to the Nations, include these. An employee:

  • Is living beyond their means;
  • Is experiencing financial difficulties;
  • Is unusually close with vendors or customers;
  • Has control issues, such as an unwillingness to share duties;
  • Is going through a divorce or other family problems; or
  • Displays a “wheeler-dealer” attitude.

Andrew Kenney is a freelance writer based in the US. To comment on this article or to suggest an idea for another article, contact Neil Amato, an FM magazine senior editor, at