Caterina Bulgarella: Why good words can produce bad acts
Tuesday, June 26, 2018 at 7:08AM
Caterina Bulgarella in BP, Volkswagen, Wells Fargo

One of the most common discussions in the ethics and compliance community today revolves around the idea of using corporate values to foster ethics in organizations. Though this conversation has helped practitioners move away from a check-the-box compliance approach, practices based on corporate values have unwittingly created a check-the-box approach to ethics, obscuring the disconnect between external values and what the organization actually values.

Here are a few examples.

According to its stated values, BP was committed to the safety and development of the communities in which it operated. But that didn’t prevent the energy giant from finding itself at the center of the worst environmental disaster in the history of the United States.

Responsibility and sustainability were among Volkswagen’s official principles of conduct before the infamous 2015 emissions scandal. Yet, the German automaker ended up lying about its cars’ fuel efficiency.

Wells Fargo touted integrity, respect and principled performance until it became known that the most successful financial institution in the post-financial-crisis era had been opening millions of fraudulent accounts to meet audacious growth targets.

These stories (and many others) remind us that, even though values have the potential to activate people’s moral identity, they are unlikely to shield organizations from risk. There are at least two reasons why that’s the case. On the one hand, the practice of using corporate values can have unwanted consequences. For example, values can license bad conduct and/or provide moral justification to cheat in the name of preserving the appearance of high standards. On the other hand, their positive impact is likely to be curbed by the many pressures employees face at work. Goals, performance targets, incentives and norms can have a host of negative consequences even on individuals with a strong moral identity.

It is noteworthy that today’s wide-ranging conversation about ethics and corporate values has not delved into the territory of what organizations actually value. We talk of values as if they were inherently reflective of what the organization values, but the two oftentimes represent conflicting priorities, at best. And, though values have merits, it is what an organization actually values, not its stated values, that shapes internal practices and the organization’s culture. This is why overlooking the potential gap between values and what is valued represents a key source of ethical risk.

That is a key tenet of a report I recently published, SAI Global’s Strategic Culture Framework (SCF). Integrating a wealth of insights from behavioral science, the Strategic Culture Framework connects the dots between culture, ethics and risk, explaining how culture affects people’s ability to do the right thing and what risk an organization faces as a result of it. The SCF is a model for maximum impact. It identifies the two culture dimensions and six culture determinants that organizations should actively manage to reduce ethical risk and increase ethical performance.

The first dimension is Delegation of Ethical Dilemmas -- the extent to which the organization’s culture creates dilemmas and leaves them unaddressed. The second dimension is Ethical Capacity—the extent to which the various culture layers encompass the resources, practices and resilience needed to deal with ethical challenges successfully.

Delegation of Ethical Dilemmas is a function of whether the things the organization values conflict with each other, creating competing priorities and undue pressure. If we ask employees to reconcile incoherent priorities, that will have an impact on their ethical posture, as noted above. Therefore, if we want to understand how the culture of an organization creates Delegation of Ethical Dilemmas, we need to look at the determinants that generate that type of incoherence and pressure. Asking people to abide by competing principles of conduct is a key determinant. Likewise, having leaders and managers reinforce principles/goals that are at odds with each other, and/or letting them legitimize impropriety through abusive conduct, is another core factor. Finally, letting implicit and explicit incentives emphasize the importance of certain priorities at the expense of others is also a key driver of Delegation of Ethical Dilemmas. 

While Delegation of Ethical Dilemmas highlights the span of risk an organization faces at any given point in time, Ethical Capacity sheds light on the organization’s ability to respond to risk. The SCF underlines the three culture determinants that shape Ethical Capacity. These are:

1. Ethical Ownership—the responsibilities, goals and framing the organization has created around ethics;

2. Ethical Reasoning—the internal conditions (i.e., resources + dynamics) that make it possible for people to engage in sound ethical reasoning;

3. Ethical Voice—the availability, access and control of resources and experiences that enable effective reporting, sharing and speaking out.

The six culture determinants qualify and quantify the level of ethical risk and performance an organization can expect. They also clarify the potential divide that exists between ethics and business in the organization, as well as the intensity of that divide -- the extent to which ethics are actually embedded into business practices. When we measure the six determinants, we should establish which ones are strong and which ones are weak, what is making them strong/weak, the depth of the gaps observed, where these gaps emerge, and so on. These data points will help us qualify the type of risk the organization is facing as well as the level of ethical performance it can expect.

While the practice of using corporate values to shape business ethics underscores the right aspirations, it is, in and of itself, insufficient. As the SCF highlights, values must be introduced and managed within the context of what the organization actually values, not under the pretense that that’s all the organization values or will come to value. By understanding the norms and expectations that surround conflicting priorities, organizations can develop the insights they need to recalibrate such priorities and, at the same time, build the level of ethical capacity that is most suited to effectively manage the type of risk that arises from them.

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Caterina Bulgarella, Ph.D., pictured above, is a member of Ethical Systems’ core team and a collaborator of SAI Global. She's a culture architect and ethics expert who advises senior leaders on culture change and ethical challenges. She can be contacted here.

Article originally appeared on The FCPA Blog (https://www.fcpablog.com/).
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