I read the most brilliant article in the April 2011 issue of Harvard Business Review titled "Ethical Breakdown" that resonated a great deal with me, and I want to share it, because I suspect that many of us are thinking a lot about the "difficulty of being good" – that lovely phrase which has become my touchstone ever since I read it on the cover of Gurcharan Das' book. The article deals with the question of why good people do unacceptable things, and why it doesn't get spotted and stopped early on. Think board dynamics; where we sometimes unthinkingly classify asking questions or insisting on more analysis as disruptive or demoralising behaviour, when the sense of the house is that it is a good decision and there is a time-bound pressure to it so why not go ahead; or in not being appreciative enough of good outcomes that have been achieved at the expense of long-term health or by using practices or processes to arrive at them that are not that good and so on. Often there is the refrain of "let's be practical", and that word hides a multitude of sins. Let's be practical, everyone does it and we will be at a competitive disadvantage if we don't; let's be practical, taking this may cause xyz to quit and that will make things quite tough; let's be practical, you have to work with this person in some other situations that are important to you and voting against a resolution he or she is supporting will queer the pitch and so on.
The Harvard Business Review article by Max H Bazerman and Ann E Turnbull – also authors of Blind Spots: Why we fail to do what's right and what to do about it – is an eye-opener because it suggests that more often than not we condone or even encourage behaviour that is not ethical; and that it is small and minor but continuous violation of ethics that end up in big disaster situations. As we would say in India, unethical behaviour usually "jhatke se nahin hota hai, halaal se hota hai". They describe it as "the slippery slope", where small infractions may be accruing over time. As a remedy they suggest "be alert for even trivial ethical infractions and address them immediately. Investigate whether a change in behaviour has occurred". Suggesting this of course could lead to peer disapproval because it is so minor that the cost of everybody's time and morale is more valuable. But they use a compelling analogy of the frog and hot water. Put a frog directly into hot water, and it jumps right out but put it into cold water and heat the water gradually and it doesn't notice that the water has got that hot. So, too, does tolerance for not doing the right thing.
"Ill-conceived goals" is another reason they give – saying that there are "unintended consequences when devising goals and incentives." We have seen this often with remuneration incentives like stock options given to management or board of directors. The argument that is put forward that these will promote outright unethical practices like cooking the financials is really not the problem because 99 per cent of managers have a strong sense of ethics. However, they do orient business judgement and decision-making in a direction that favours short-term results at the expense of the long-term fundamental health of the company – developing management by moving people into different roles, evaluating the benefits of organic growth and the risks of inorganic growth fairly and so on. Sometimes in a culture that celebrates meeting business targets and disgraces those who don't, a slightly underperforming business may end up taking a few steps the ethics and the consequences of which they haven't fully thought through. Yes, corporate life is for the big boys and girls who should be able to stand the heat or else get out of the kitchen; but life is about human frailties and esteem needs as well. The remedy suggested by the authors is to brainstorm "unintended consequences of goals and incentives" and consider alternative ways to reward. Therefore, it isn't about keeping or throwing out these incentives but it is about what else to add to the performance parameters to mitigate them.
Perhaps the most obvious and the most insidious thing that needs to be guarded against is what the author calls "overvaluing outcomes". So if we clock a 10 per cent growth rate for the next year and the stock market hits an all time high, then the fact that there was a lot of corruption in this government will not become important anymore. As boards sometimes want to say, why ask too many questions of a spectacularly successful business or probe a questionable action that added to shareholder value. The authors call this "we give a pass to unethical behaviour if the outcome is good". The remedy they suggest is obvious, but here's where the difficulty of being good kicks in! They suggest "reward solid decision processes not just good outcomes". Because the flip side of this is do not reward – or heaven forbid even penalise good outcomes for bad processes.
Perhaps the most thought-provoking line in the article, in the context of a case study of the faulty Ford Pinto that was allowed to go to market despite flaws that later killed people who drove it, and was described as evidence of greed and callousness on the part of the management: we suspect that few, if any, of the executives believed they were making an unethical choice – apparently because they thought of it as purely a business decision rather than an unethical one.
The writer is an independent market strategy consultant.