Max H Bazerman and Ann E Tenbrunsel write about Ethical Breakdowns in organizations.

They are concerned about the sort of ethical problems that happen with perfectly good
people, who are responsible family men and reasonable neighbours, do wrong things.
Indeed, there will be corporate greed, cowboy businesses and an eternal hide-and-seek
with regulators, but we are to assume business to be a positive force in the society, which
can get us out of the current recession, we need to have our faith back average businesses
run by average people: That way, this is an interesting essay to read.

The authors point to five barriers to an ethical organization: Shall we say five excuses. To
their credit, the barriers they cite sound remarkably familiar. It is worth recounting them
here, therefore:

First, there are Ill-conceived Goals. To quote, "we set goals to promote a desired behaviour,
but they encourage a negative one". Edward Demming talked about the role quantitative
goal-setting plays in lowering quality standards decades ago, and we all know how counter-
productive simplistic sales targets can be. The authors also talk about the pressure to
maximize billable hours in accounting, legal or consulting practices, and indeed, Clinton
administrations perfectly reasonable goal of increasing home ownership in America (which
led to easy mortgages in a way, and this recession, the authors argue).

One possible remedy is to brainstorm such intended consequences while setting the goal.
This sounds simple, but I shall agree that most organizations don't even try to do this. I shall
argue this is one of consequences of 'Best Practice' thinking, or in other words, the
propensity to use a template which worked elsewhere. For example, in the Private
Education industry, rewarding sales teams for student recruitment has proved to be
problematic, as this leads to less than honest promises made to students, less
consideration of academic ability of the students vis-a-vis courses chosen and other
unethical behaviour. However, it is very difficult to challenge the practice as this will fly in
the face of convention, every college follows the same practice. However, as American For
Profit players are finding out, such sales practice is unsustainable and this is the key reason
they have landed in regulatory hot water. In Britain, the new, harsh immigration regime has
come into force primarily because of the commission driven agencies that British colleges
and universities use, though so far the regulators failed to pin down the problems to
recruitment practices. The moot point is that changing the goals may need more than just
brainstorming, and often regulatory pressures are needed. [I know this sounds cynical and
sometimes, industry practices change as a leading player changes the rules of the game, or
a fad catches up. In a way, we don't give enough credits to fads.]

Next, there is Motivated Blindness. This is when we overlook other people's unethical
behaviour when it pays to remain ignorant. The authors cite Baseball officials who failed to
notice widespread steroid use. The same can be said, with caution, about game-fixing in
professional sports. Bribery and match fixing may be common in Cricket (and it is easy to
do so, given the individual roles in the game), but the officials may just pay no heed as
unearthing such practices may undermine the game and drive spectators and sponsorship
money away from them.
The solution to this is rooting out conflicts of interest. Businesses are not very good at doing
this, and yet again, regulatory pressures may be needed to sort things out. Returning to my
familiar territory, For Profit colleges in Britain, I know that many of the college admission
departments employ staff who are related to, or have a direct or indirect interest in, the
recruitment agencies that the college employ. In a way, this is common sense for the
college administrators - they are employing people with best relationships and knowledge of
the market - but they are intentionally turning a blind eye to the conflicts of interest and
ethical problems this cause.

Third, there is the phenomena of Indirect Blindness, the cases where the unethical practices
are carried out through third parties, with our indirect involvement and sanction. The authors
cite a case of a drug company which sold the rights to another company, who imposed a
price increase, to deflect attention from itself. One can also talk about thousands of
mortgage advisors who worked on behalf of banks etc handling the housing loans during
the past boom, who encouraged the customers to apply for mortgages beyond their usual
paying capacity, and banks turned a blind eye as they did not think they can control the
mortgage advisors without rocking the boat and losing business.

Again, employing agents in For Profit Education is an endeavour to allow, but keep a
distance at the same time, unethical recruitment practices. The college administrators often
fail to accept the responsibility of wrong promises made to the students, though they were
fully aware of the possibility and failed to ensure that the students were properly informed in
the first place.

A 'pre-mortem' of an outsourcing operation is a good place to start. But, again, institutional

blindness and management by templates is likely to come in the way. Regulatory pressure
is often the only way to keep things in check. However, I shall argue that the educational
institutions, particularly business schools, can and should play a role - indeed, making
people feel committed to the broader goal of building a better society ahead of making
money and staying safe should be a key goal of any business education.

Then, there is the problem of Slippery Slope. We are less able to detect unethical behaviour
if it develops gradually, which it usually does. There is always the small corner-cutting which
the problem starts with. This is the problem of 'Let Go' which we do all the time. I shall
argue that the problem of plagiarism, which is widespread in higher education these days,
grow up in this way, when the assessors let go of small transgressions noted in coursework
and regular class assignments. And, catching this early is only a part of the solution;
following up and making sure that the practice is stopped is required at the same time.

Finally, the Outcome Centricity, the thinking that 'the end justifies the means' allows
unethical behaviour. This is a key point, as ethics is not a end of the year product to be
shown in the balance sheet, but a matter of everyday responsibility. Too many
organizations approach ethics as an objective to be met to satisfy external parties,
regulators, customers and suppliers as the case may be, and intend to do as much as they
can get away with. Often, these things end up in disasters, though not in the scale of
Deepwater Horizon that BP had to contend with last year. This was one case where
incremental negligence and a focus on outcome undermined all sorts of internal and
external controls: The manager who let a less than optimal valve remain in its place
because the end of year production targets were more important helped to cause the one of
the biggest environmental damages in recent history.

This is one area, unlike others, regulatory pressures are ineffective. Outcome centricity is
life-blood of business and one can not legislate this out. However, consumer awareness,
the need for transparency about the process as much as the product, media scrutiny and a
more responsible business education can make an impact here.

The reason why ethics is so important is because we are usually bad at counting the costs
when making business decisions. While all of us want to create organizations which last
longer and turn profits over a longer period of time, available methods of accounting and
decision making are quite limited in scope. We only measure one dimension of business
(okay, four, if you have got to Balanced Scorecard) and usually have a narrow view of
resources we consume. For a business to function, it consumes many social (people's time,
family support, health care, busy traffic situation during the peak hours, holiday rushes are
all examples of society paying for a business to work) and natural resources which we don't
account for adequately. However, if the give-and-take balance isn't right, the businesses we
build are likely to be unsustainable. A constant vigil on ethical practices in the organization
helps to keep the business on the ball. A business leader can only ignore this at his/her
peril.