Ensuring that employees understand the appropriate ways to address daily ethical issues can prevent your company from spiraling into corporate scandal.

When German car manufacturer Volkswagen was caught cheating on its diesel emissions testing regime a few years ago, the subsequent scandal launched numerous lawsuits, cost billions of dollars in fines, and severely harmed the company’s reputation. The actions — and inaction — of dozens of employees at all levels, across divisions and countries, contributed to this disaster, including the software engineers who designed the cheating device, the workers who installed it, the managers who approved the fitting and testing, and the members of the senior leadership team who either orchestrated the scam or simply turned a blind eye.1

Of course, VW isn’t an isolated example. Consider the costly lapses in judgment at Wells Fargo,2 for instance, and at Samsung Electronics.3 Why do such scandals continue, despite the clear moral and financial imperatives for ethical action? And — perhaps more important — what can be done to change matters?

Although some argue that people are innately inclined to behave unethically out of self-interest,4 our research reveals that organizational ethics matter significantly to most employees and managers, and that people want to work for employers whose values and principles are aligned with their own. This suggests that ethical employers are likely to attract and retain ethical employees.5 What’s more, research has shown a link between ethical leadership and task performance, organizational citizenship, and other productive work behaviors6 — companies have many compelling reasons to address ethical failings at the earliest opportunity. The urgency is all the greater in this digital age, since businesses must continually make rapid, high-stakes choices about how to handle sensitive customer and employee data.

To uncover the reasons behind persistent unethical conduct, we asked employees at five U.K. organizations — a national government department, a nationwide retailer, a nonprofit in the social services sector, a county-level police force, and a construction company — to tell us about their experiences of both ethical and unethical practices on the part of their colleagues, line managers, and senior executives.7 (See “About the Research.”) We found that the ethical tone of an organization is the cumulative outcome of how its members address daily ethical dilemmas as they go about their work.

References

1. R. Parloff, “How VW Paid $25 Billion for ‘Dieselgate’ — and Got Off Easy,” Fortune, Feb. 6, 2018.

2.The Wells Fargo Fake Account Scandal Just Got a Lot Worse,” Fortune, Aug. 31, 2017.

3.Samsung Heir Lee Jae-Yong Jailed for Corruption,” Aug. 25, 2017, www.bbc.com.

4. T. Haugh, “The Trouble With Corporate Compliance Programs,” MIT Sloan Management Review 59, no. 1 (fall 2017): 55-62.

5. D.R. May, Y.K. Chang, and R. Shao, “Does Ethical Membership Matter? Moral Identification and Its Organizational Implications,” Journal of Applied Psychology 100, no. 3 (2015): 681-694; and O. Demirtas and A.A. Akdogan, “The Effect of Ethical Leadership Behaviour on Ethical Climate, Turnover Intention, and Affective Commitment,” Journal of Business Ethics 130 (2015): 59-67.

6. T.W. Ng and D.C. Feldman, “Ethical Leadership: Meta-Analytic Evidence of Criterion-Related and Incremental Validity,” Journal of Applied Psychology 100, no. 3 (2015): 948-965.

7. C. Bailey, A. Shantz, P. Brione, R. Yarlagadda, and K. Zheltoukhova, “Purposeful Leadership: What Is It, What Causes It, and Does It Matter?” technical report, Chartered Institute of Personnel and Development, June 2017, www.cipd.co.uk.

8. We draw here on the ideas of W. Mischel, “Personality and Assessment” (New York: Wiley, 1968).

9. A.L. Kristof-Brown, R.D. Zimmerman, and E.C. Johnson, “Consequences of Individuals’ Fit at Work: A Meta-Analysis of Person-Job, Person-Organization, Person-Group, and Person-Supervisor Fit,” Personnel Psychology 58, no. 2 (June 2005): 281-342.

10. M. Motyl, R. Iyer, S. Oishi, S. Trawalter, and B.A. Nosek, “How Ideological Migration Geographically Segregates Groups,” Journal of Experimental Social Psychology 51 (2014): 1-14.

11. C. Frisch and M. Huppenbauer, “New Insights Into Ethical Leadership: A Qualitative Investigation of the Experiences of Executive Ethical Leaders,” Journal of Business Ethics 123, no. 1 (2014): 23-43.

12. J. Pucic, “Do as I Say (and Do): Ethical Leadership Through the Eyes of Lower Ranks,” Journal of Business Ethics 129, no. 3 (2014): 655-671.

13. Parloff, “How VW Paid $25 Billion for ‘Dieselgate.’”

14. S.A. Eisenbeiss, D. van Knippenberg, and C.M. Fahrbach, “Doing Well by Doing Good? Analyzing the Relationship Between CEO Ethical Leadership and Firm Performance,” Journal of Business Ethics 128 (2014): 635-651.

15. Haugh, “The Trouble With Corporate Compliance Programs.”

16. J.R. Detert and E.R. Burris, “Can Your Employees Really Speak Freely?” Harvard Business Review 94, no. 1 (January-February 2016): 80-87.

17. Parloff, “How VW Paid $25 Billion for ‘Dieselgate.’”

18. Ibid.

i. J. McGregor, “More CEOs Are Getting Forced Out for Ethics Violations,” The Washington Post, May 15, 2017.

Acknowledgments

The authors would like to thank the Chartered Institute of Personnel and Development for the funding that supported this research and the Involvement and Participation Association for its assistance in gathering data.