Improving Ethical Behavior

           Ethics in Business

           Leaders and managers can under report expenses and/or over report sales figures. Either of these would have the effect of making the company appear to be in a healthier financial position than they are actually in. These same people can also suppress information on anticipated litigation where the company has significant risk of being levied with financial penalties or being barred from certain markets due to regulatory non-compliance. Any of these actions can drive higher stock prices until they are exposed.

            One of the key reasons why unethical behavior occurs in financial management is that it tends to be rewarded in one form or another. Employees, managers, and leadership at many companies have a portion of their compensation tied to financial results. Even if compensation isn’t tied to financial results, continued employment often is. Given these pressures it isn’t hard to understand how some people may give in to the temptation to realize personal gain at the expense of the long term financial health of the organization. In some cases unethical behavior is a symptom of widespread cultural dysfunction, while in other cases it can be limited to isolated individuals or departments.

            There are several things that companies can do to improve ethical behavior. The first is to clearly communicate what the behavioral expectations in terms of code of conduct, anti-corruption and ethics training that goes beyond the 15 minute annual training that hasn’t changed since 2000 that so many companies offer. When companies take that approach to ethics training it is often motivated by the desire to claim plausible deniability when employees acting unethically are caught by authorities or exposed in the media. The second thing is to lead by example from the top down. Leadership and management must be seen to be acting ethically even when it is not in the companies or their personal best interest. This will help to build a culture of ethical behavior. The third thing is to stop rewarding unethical behavior. Compensation and promotions need to be based on a system that is fair, transparent and auditable. Finally, companies can hold individuals responsible for their behavior. If unethical behavior is consistently punished with demotion, termination, or handing the offender to authorities, employees will quickly realize that developing a strong ethical compass is in their best interest.