Ethical Recovery Paradox

Scandal, Scandal and More Scandal…

My husband and I recently attended a birthday party for a classmate of our daughter’s. When he shared that one the other fathers said, “I work for Comcast, but don’t hold it against me!” I had to chuckle.  “Wow,” I remarked, “I wonder how morale is in that organization?” Given the virtual tsunami of negative publicity Comcast has received recently, mostly on account of its aggressive customer service tactics, it is no surprise that someone might be chagrined to admit that they worked there. Of course, Comcast is only one example; consider the employees of General Motors, who recently faced numerous allegations that they failed to recall cars with known defects or maybe British Petroleum who faced charges that it did not do enough to vet the safety standards of its contractors after the Deepwater Horizon oil spill or finally, what about the United States Congress, which holds a special place of ‘dishonor’ in terms of its overall reputation for efficiency and ethics.  I have not even mentioned the financial sector, which certainly could provide an abundance of examples. I have often wondered how employees of some of the large financial companies felt both during and after the 2008 financial crisis in which their organizations were roundly (and not always accurately) pilloried in the press and in Congress.

What about the Employees?

When we think of organizations that have suffered serious reputational damage, we tend to focus on their need to make things right with their shareholders, regulators and the general public.  Another group of stakeholders, the employees, often do not get much attention. This leads to an interesting question:  “What happens to employees when their organization is involved in an ethical scandal or when they witness an ethical failing?”

The examples that we’ve considered have been large-scale events in which the failures and shortcomings of the organization were obvious, not only to the employees, but to society at large. But there are certainly smaller-scale examples, in which it is only the employees who witness an ethical failure in the organization. And it is important to remember that these may be failings that senior leadership may not know anything about. Employees may witness instances of unethical behavior, or ‘ethical failings’ that do not make the news. What effect does this have on employees and why does it matter?

Let me begin by addressing the second question first.

Organizational Identity

Research in organizational identity reveals that, in certain cases, strong identification with the organization can lead to behaviors that are advantageous to the organization. The umbrella term for this type of behavior is called organizational citizenship behavior, which we can define as behavior that goes beyond the basic requirements of the job, is discretionary and benefits the organization.

It is easy to see why high levels of organizational citizenship behavior are important and can give organizations an advantage in a competitive marketplace. We all know that contracts are incomplete, that is, that it is impossible to specify every possible contingency that may emerge in a relationship between more than one party. In that sense, contracts are almost always backwards looking; they deal with situations that have arisen in the past.

Job descriptions are incomplete as well, and they also contain what Kant would call ‘imperfect duties’, defined as duties that can never be exhausted. For example, consider the ‘duty of kindness’: you are not really ever done being kind. You simply have to balance your duty of kindness with other imperfect duties such as the duty to develop your own talents. But, even if there is no natural completion point for these imperfect duties, you can fulfill them more or less robustly. And the same can be said for your duties encompassed by our job description. Organizational citizenship gets at these two levels of behavior, are you willing to serve your organization outside of the narrow confines of your job description and how robustly you fulfill your job duties.

However, it does seem important to point out that this is not always a virtuous circle; let’s consider the example of Dick Fuld who was, by all accounts, incredibly identified with Lehman Brothers and it was the intensity of this identification that blinkered his judgment as to what actions were in the best interest of the organization.

The Ethical Recovery Paradox

Turning back to the first question, what happens when employees witness an ethical failure in the organization? A recent article published in Organizational Behavior and Human Decision Processes by Marshall J. Schminke tackles this question.

Schminke and his colleagues begin by looking at ‘customer service failures’, which occur when organizations fail to meet the expectations of customers. Researchers in the field of customer service have identified a phenomenon that they have named the “service recovery paradox” (McCollough & Bharadwaj 1992). This occurs when an organization fails to provide quality service, but recovers from that failure in a highly effective way. The paradoxical outcome is that customers have a higher level of satisfaction with the firm than if the service failure had never occurred at all.

The researchers wondered if the same phenomena could be found between employees and organizations in the case of ethical failures that were witnessed by employees. That is, would it be possible for an organization to respond to an ethical failure in such a way that it would result in the strengthening of the level of satisfaction employees felt for the organization?

The research team conducted two studies to test whether the ‘service recovery paradox’ would occur in the employer/employee relationship after an ethical failure. Their conclusion was that, under certain circumstances, the “ethical failure paradox” could be identified:

“Employees who witness an ethical failure, report the failure, and are very satisfied with the response to their report are more satisfied with their organization, feel more supported by their organization and perceive their organization as more ethical than employees who did not witness an ethical failure. Thus, organizations that do an exceptional job at responding to ethical failures are viewed even more favorably by employees who witnessed wrong-doing than organizations that had not stumbled ethically.” (214)

But There are Some Caveats…

• Observing unethical activity, but not reporting it, produced significant declines in employee perceptions of satisfaction with their organization, perceived levels of support from the organization, and perceptions of organizational ethicality.
• Individuals, who reported unethical activity, but were very dissatisfied with the organization’s response, reported lower levels of satisfaction with the organization than individuals who observed the ethical failure and did nothing at all.
• Individuals who perceived that organizational recovery efforts were ‘low’, ‘moderate’ or even ‘satisfactory’ reported less satisfaction with the organization than prior to the ethical failure.

What’s important here is that if individuals give the organization a chance to recover by reporting the ethical failure, but are unimpressed with the organization’s response, it would have been better for the organization to do nothing at all. The only way for an organization to win after an ethical failure is to really ‘hit it out of the park’.

Take-Aways

Perhaps the most important lesson is that employees’ perception matters and that it can be influenced by the actions of senior leadership. In the chaos that surrounds an ethical failure, attention is often focused (perhaps rightly) on the most visible of stakeholders, such as employees and customers. These are the stakeholders whose dissatisfaction can be most visibly and immediately felt, through regulatory sanctions, fleeing customers and the sale of shares.

But leaders ignore the perceptions of employees at their peril since, as we saw above, research on organizational identity and organizational citizenship behavior indicates that employees will work harder for an organization that they believe shares their values. Research shows that employers face a significant challenge in keeping their employees engaged in the workplace, and it seems reasonable to suppose that witnessing ethical failures can have a corrosive effect on an organization as a whole.

Of course, the good news is that it is possible to come out even better after an organizational failure, although this requires sufficient effort. More research needs to be done on what an effective response to ethical failures looks like; in particular, case studies of successful recovery would be especially helpful. Getting this right may be a tall order, but it has the potential to reap tremendous rewards.

Have You Ever Fired a Client?

I recently came across an interesting article on the Harvard Business Review blog that discussed when it was appropriate to fire a customer. It reminded me that some of the most challenging ethical dilemmas that have been shared with me concerned dealing with difficult clients (e.g. clients who treated staff poorly, made unrealistic demands and asked the rules be bent in the favor). Many times, students reflected, they could have seen this sort of behavior coming. Often, they noticed the tendencies at the very first meeting.

This got me thinking…have you ever fired a difficult client? Why did you come to decision when you did?

Follow me to the Center for Ethics Linked In Page to discuss or just leave a comment below.

What Would Your Mom Say?

Semper Eadem – “Always the Same”

I have always liked the saying, “wherever you go, there you are”.  Like many profound sayings, it can be interpreted in many ways. I have always interpreted it to mean that ‘you can’t run away from yourself’.

In other words, if the problem is you, it will keep coming back time and again.

The assumption behind the saying is that the ‘you’ is constant: that you will act in the same way, whatever the circumstance or geographic location.  Indeed, one definition of integrity is taken from its root ‘integer’, which means ‘wholeness’ (like a whole number). And many people, when asked the definition of ‘integrity’ will respond that it means to always ‘ be the same’ no matter the environment or circumstance.

Or…Semper Plurum – “Always Many?”

However, research in the field of behavioral ethics points to the limitations of this unchanging conception of the self to account for unethical behavior, and highlights the fact that people’s behavior is profoundly affected by their environments, especially by the ethical culture of their workplace.

Instead of saying, “no matter where you go, there you are,” maybe we should ask, “which ‘you’ is going to show up?”

This point was brought home by a column in this weekend’s The Wall Street Journal  by Robert Sapolsky. Sapolsky referenced a study in Nature in which researchers from the University of Zurich showed that when bankers are primed to think about their jobs (as opposed to their hobbies and other interests), they are more likely to cheat.

What does this mean?

The take-away is that ethical culture really does influence behavior (and in this case, for the worse). It means that how we respond depends more on the roles we are inhabiting at the time and less on our ethical principles than we might like to think.  As Sapolsky writes, “What I find most interesting is the evidence that people have multiple social identities – and how a fundamental building block of moral behavior can change according to which identity is most on their minds.”

“What Would Your Mom Say?”

When I ask students and practitioners how they make ethical decisions, one of the most common responses is that they ‘think about what their children/parents/spouse would say” if they knew about the particular decision. This research says that this tactic may be onto something – that is, bringing to mind another identity may be just the right means to ‘double check’ your response.

The evidence provided by this study highlights the importance for leaders on building the right sort of culture in the workplace.  This is just the sort of evidence we need to get people focused on the importance of ethics in the workplace.  Hopefully, we will continue to see more of it.

‘Deflate-gate’, ‘Gavagai’ and the Absurdity of Unethical Behavior

Now that the Super Bowl is over and the New England Patriots are the champions, what will become of the scandal dubbed by the media as “deflate-gate” (you know a scandal really has legs when it gets its own “–gate” moniker and has an entry on Wikipedia) The story took off like wildfire in the relatively dead media space between the AFC and NFC Championship games and the Super Bowl (no one seems to care much about the Pro Bowl). For those of you living in a media-free cocoon, the New England Patriots organization is under investigation for deliberately deflating the footballs used in the AFC Championship game against the Indianapolis Colts, a game in which the Patriots soundly defeated the Colts, 45-7.  NFL regulations require that game balls need to be inflated to a pressure within a certain range (12.5 to 13.5 pounds per square inch). The game balls remain in the custody of the team during the game, and each team uses on its own balls when they are on offense.  An underinflated football is thought by some to be easier to handle, especially in colder temperatures. The officials checked the footballs used by the Patriots during halftime and it was discovered that 11 out of the 12 game balls were inflated to a pressure below the accepted range. The game balls were inflated to the proper range for the second half of the football game.

Those are the facts and certainly more details will be revealed in the upcoming weeks. However, whether members of the Patriots organization were actually guilty of manipulating the game balls to gain an advantage, the case still makes for an interesting springboard for a discussion on ethical issues.

No Harm, No Foul

The origins of this expression may date from “street” games in the 1950s, and it is generally interpreted to mean that, “if the action would not have changed the outcome of the game, then no harm was done.” According to this line of reasoning, using underinflated footballs did no harm. The Patriots outscored the Colts by 10 points in the first half (using underinflated balls) but then added 28  points in the second half. No one, not even members of the Indianapolis Colts, would dispute that New England would have won the game, inflated balls or not, simply because they were the better football team that night.

But, of course, that is not the point. An action isn’t wrong only because it successfully achieves an illegal or unethical purpose.  Indeed, when examining claims of insider trading, investigators focus not only on those cases in which the investor made a lot of money, but also on those cases in which the investor suffered serious losses. If someone attempts to steal your car and is foiled by your state-of-the-art protection system, we would not shrug and say “no harm, no foul.” Just because an immoral action is ineffective does not improve the moral character of the person who performs it. In fact, the failure renders that person both immoral and inept.

While an ineffective immoral action may cause less harm than an effective one, actions should not be judged by their outcomes alone. Yes, there would have been much more justifiable uproar had the Patriots won by only 3 points rather than 38 points, still it cannot be overlooked that regardless of the score, a rule was broken.  It’s always worth exposing this particular rationalization to the light of day since its very ubiquity often goes unnoticed.

Culture Dictates Interpretation

It is not often that I get to refer to the work of W.V.O. Quine, so I certainly like to so do when I have a chance. Quine, who is one of the most influential philosophers of the 21^st century, wrote on what is referred to as the “indeterminacy of translation” and he illustrated his theory with an example that has become famous: Imagine that you’ve been transported to a society in which you have no knowledge of the language. You’re walking through a field with your guide when she suddenly stops and points at a fluffy white rabbit running through the field, “Gavagai”, your guide states. “Wonderful,” you think, “I am finally making some progress. Gavagai means ‘rabbit’.”

But can you really be sure?

Quine’s point is that you cannot be sure that rabbit and gavagai are co-extensive terms (that is, that they refer to the same thing). Your guide could mean, “moving rabbit parts” or “hand me my bow and arrow.” The perniciousness is increased by the fact that neither of you are aware of your different interpretations, nor can you correct it because you lack a shared meta-language with which to do so. Quine’s point is that we cannot learn the meaning of one work in isolation from all others, a theory called “holism.”

I think that this concept can be applied to help us understand the importance of ethical cultures. So when a leader says, “We need to do what it takes to win,” it could be interpreted in several different ways, such as; “We need to be as competitive as possible within the rules”, “we need to bend the rules where we can to get an advantage,” or it could mean that the rules don’t matter.  Borrowing from Quine, we can see that people will interpret the words of their leader in a holistic manner, they will look at their past language and past actions to determine what the leader is really trying to say.

When a scandal emerges, the key players often follow a pretty standard script. Tom Brady and Bill Belichick did just that during the media flurry following deflate-gate; both claimed that not only did they not deflate the balls themselves (which is clearly true, it is hard to picture two of the most recognizable figures in professional sports creeping, unnoticed, into a utility closet or bathroom with a bag full of footballs), but also that they didn’t direct anyone to deflate the balls on their behalf. Again, this is pretty plausible as well (it is difficult to imagine either of these two sitting down with a low level employee and instructing them on the mechanics of deflation).

But the real question is: did they create a culture based on past actions that would allow someone, likely a fairly low level employee, to reasonably conclude that  breaking the rules was an organizationally approved action? Again, the script typically plays out with the identification of the guilty party who has gone-and this is one the most overused words in business media -‘rogue’. A “rogue” agent is someone who acts outside of the values of the organization.

But the fact is that no lower-level person would attempt such a possibly controversial interpretation without being fairly confident that they had it right. Of course, it is notoriously tricky to hold people formally accountable at least for how their actions are interpreted. We normally think that people should only be held accountable for actions over which they have control, but somehow this response strikes us as inadequate or missing the point.

The reason that we feel unsatisfied by this outcome is that we sense that these leaders do have control over how their actions are interpreted; it does not seem plausible that they simply throw up their hands in the air in disbelief and claim that they are “shocked, shocked, shocked.” To ask the questions from the original “gate”: “What did they know and when did they know it?” is to focus the story on one element. Perhaps the more important questions are, “What did the people around them think they knew, and why did they think that they knew it?”

Remembrance of Things Past

But “deflate-gate” isn’t the only scandal faced by the Patriots organization. “Spygate” in 2007 was the moniker given to the discovery that Bill Belichick had authorized the surreptitious taping of the Jets’ defensive coaches signals during a 2007 game from the sidelines. The NFL punished both the Patriots organization and Belichick.

Belichick himself was issued the biggest fine in NFL history, $500,000.  The Patriots organization was not only fined an additional $250,000, but docked their first round 2008 draft pick.

Responses to the scandal varied, with many insiders arguing that the Patriots were only doing what every other team in the NFL has done, they just had the misfortune of getting caught in the act. If this is so, it is raises an interesting question, “Is a rule violation wrong, if everyone is doing it?”

At one level, this is an easy question to answer- ‘yes’ – because it does not matter or should not matter what everyone else is doing. But in another way, the answer is ‘no’, it is difficult to expect compliance with an unenforced rule, particularly when compliance puts the organization at a competitive disadvantage. Regulatory organizations, therefore, have an obligation to effectively enforce compliance with the rules in order to prevent the sort of distorted incentives. If they cannot enforce the rule, we should rethink the rule in the first place.

Regardless of these philosophical musings, the Patriots organization and Belichick in particular, was pilloried in the press for “Spygate.” Whether or not it was common practice  did not seem relevant to the general public. Reputation is a sensitive thing;  the adage states that reputation takes a lifetime to build, but can be destroyed in an instant. However, what we aren’t as familiar with is whether we can rebuild our reputation after it has been damaged or “dinged.” There are obviously circumstances in which rehabilitation in the mind of the public is likely impossible, i.e. Arthur Anderson and Enron. But these cases seem to be outliers; more common are the cases in which some sort of rehabilitation is possible, such as Ford Motor Company after the Pinto and NASA after the Challenger disaster. But reputation does appear fragile in the places where it was mended, people are always willing to look back at the original infraction, and willing to interpret your actions now in light of previous bad actions. It is true that Americans like a redemption story, but it is also true that the slate is never truly wiped clean.

There is a certain absurdity to this entire situation, which has become ready material for a series of delighted late-night comics. This absurdity becomes troubling when you think about the truly serious issues that NFL has faced this year, issues concerning domestic violence and the medical problems caused by repeated head injuries. These are fouls in which there are clear, identifiable and heart-breaking harms. To focus on the case of the deflating footballs seems bizarre, when placed in this context.

But, the unethical often ventures into the realm of the absurd, from powerful politicians paying low-level criminals to break into the offices of a psychologist, to a CFO who names ethically dubious special purpose entities after Star Wars characters – you really can’t make this stuff up.  Absurd or no, there are lessons to be learned and this case, at least, gives us a chance to remember some of the more important.