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If You Think You Can’t be Ethically Compromised at Work, You’re Wrong

It’s a bad week for corporate bosses. Volkswagen CEO, Martin Winterkorn, resigned this week in light of revelations that the car maker had, on his watch, falsified emissions tests on what may turn out to be millions of diesel VW’s. Even more dramatically, former Peanut Corporation of America owner, Stewart Parnell, was sentenced to 28 years in prison for his role in a deadly outbreak of salmonella poisoning.

Just how does this sort of thing happen? Are these corporate leaders bad apples? Do they lack a conscience? Are they devoid of normal human scruples? Are these corporate wrongdoings a whole different species from decent, ethical people like you and me? Not necessarily. Members of Mr Parnell’s family, after all, testified that the man “has a heart always to put others before himself”. Frankly, I don’t doubt it.

The notion that nice, regular folks can, in the right circumstances, do very bad things is not exactly new. Back in the early 60’s, the famous Milgram Experiments provided substantial evidence. In that series of experiments, fully two thirds of experimental subjects — volunteers from various walks of life — demonstrated that they were willing to administer a lethal dose of electricity to a stranger, just because an authority figure in a white lab coat told them to.

And modern psychology and criminology tell us there are lots of factors that can push good people to do bad things.

One factor is the ethical equivalent of inattentional blindness — failure to see something that is in plain sight. Sometimes this happens because we are so focused on the narrow definition of our own job. Sexual harassment? Dealing with that is not my job, so why would I think it’s a problem, or even notice it?

Another important factor is the slow, steady erosion of our moral sensibilities that goes with incrementally-worsening ethical behaviour. Tell a harmless little lie…then tell a bigger lie…then tell a huge lie. Eventually serious wrongdoing creeps up on you, maybe without even realizing when it was that you crossed that line.

Finally, there’s rationalization, the self-serving process of redescribing our behaviour so that we can accept that we did it without accepting that the thing we did was bad. “I didn’t steal the money, I just took what I deserved.” Or, “Sure, we fudged the numbers, but no one got hurt!” Or, “Yeah, we bent the rules, but everyone does it.” Rationalizations amount to a crummy exercise of critical thinking skills, but they can be pretty psychologically persuasive.

The net result of these various psychological factors is that you too could screw up the way Martin Winterkorn and Stewart Parnell did. If you think you couldn’t — that you’re simply above such behaviour — you’re deluding yourself.

Admitting that this is the case is a good start.

So, what to do? First, beware. You’re human, and so you’re subject to the usual human failures. Second, don’t tolerate rationalizations in others, and don’t ask them to tolerate them in you. Finally, think twice before bending the rules and thinking that you’ll do it “just this one time.” Because down that path lies ruin.


How companies can stop making their best employees miserable

The New York Times recently carried a provocative thought piece by Arthur C. Brooks called Rising to Your Level of Misery at Work. Brooks describes the phenomenon this way:

Ambitious, hard-working, well-trained professionals are lifted by superiors to levels of increasing prestige and responsibility. This is fun and exciting — until it isn’t.

I’ve certainly witnessed this phenomenon at the university. Smart, ambitious researchers get tapped for administrative jobs — being a department chair or even dean — only to find out that their aptitude for scholarship doesn’t imply an aptitude for administrivia, nor a stomach for administrative politics. It happens at universities, but it happens at organizations of all kinds when employees leave positions where they excelled and got noticed, to move “up” to managerial roles.

The result is bad for morale, perhaps bad for productivity, and, as Brooks points out, probably results in a bunch of extra alcohol consumption.

Brooks presents this as a challenge faced by individuals, a crisis point in the career of the smart, ambitious worker. And he’s right about that. But it’s also an organizational challenge, and a leadership challenge. Here are a few thoughts on what leaders are ethically obligated to do to rise to that challenge.

1. Select based on what matters. Leaders (whether CEOs or senior leaders at universities) understandably tend to choose for promotion bright people people who excel at what they do. But wise leaders need to look beyond performance, to look at the match (or mismatch) between the qualities that allowed the individual to excel and the qualities that would allow them to excel in a new managerial role. They need to ask not just, “would this person be good at the job?” but also “would this person thrive at this job? The person who could “do the job” might be good enough at it for now, but the longer-term organizational and personal costs of burning out need to be counted too.

2. Support your people. Leaders have an obligation to make sure that people promoted to what risks being their “level of misery” are provided appropriate training and support. The fact that you were a star accountant doesn’t mean you have the people skills to be good at managing accountants. The fact that you were a terrific account manager doesn’t mean you’ll have the administrative skills to run a team of account managers. Inevitably you’ll need additional training, you’ll need the support of talented admin staff, and you’ll need mentoring. That last one is tough: mentoring tends to require an investment of a senior leader’s own time — a precious resource — but it’s an essential investment to make.

3. Fine-Tune the Culture. Leaders need to foster the right kind of culture within their organizations. That’s a truism, but worth considering none the less. In particular, leaders need to foster a culture (and a reward system) that gives talented people more than one way to “advance” within in organization. It’s a bad thing if the talented salesperson can only advance (and see herself as advancing, and be seen by others as advancing) by taking on a supervisory position for which she isn’t suited. And it’s a bad thing if going “back” to front-line sales, after a few years’ hard service in a supervisory role, is seen as a sign of failure. If getting promoted to, and keeping, such a position is the only way she can demonstrate her worth, she may well do it — to the detriment of both her own health and that of the organization.


The Ashley Madison Hack: A Sleazy Attack on a Sleazy Business

Several weeks ago, hacker group The Impact Team threatened that they would release the identities and credit card numbers of clients of infidelity promoting social network Ashley Madison. This week, they made good on their threat, releasing details of a reported 36 million user accounts.

For the moment, the data is apparently out there — some news outlets clearly have access already — but it’s hard to find. But informed commentators suggest it may soon be available and searchable online.

Some will call this a victimless crime: a scuzzy company’s lying-and-cheating customers are getting exposed for what they are. But it’s worth noting that there may be some innocent victims in all this: some Ashley Madison accounts may be spoofed by people using stolen credit cards. Others accounts may belong to people who are not in fact married, but who nonetheless don’t need their online dating habits shared with the world. And even the company’s ‘core’ customers, the ones who truly are acting dishonourably, don’t necessarily deserved to be punished in vigilante style. Or perhaps more to the point, it’s not that they don’t deserve it, but rather that The Impact Team doesn’t have the right to decide.

What about Ashley Madison itself? It’s in a sleazy business to say the least. Of course, employees at Ashley Madison aren’t themselves committing adultery (well, unless they happen to be, incidentally). So some people might wonder whether the company itself is doing anything wrong in the course of business? I think pretty clearly, yes. When you actively and knowingly contribute to someone’s wrongdoing, you share the blame. And there are a range of familiar examples in which helping someone to do wrong is considered blameworthy. Think of lawyers suborning perjury. Think of business agents facilitating bribery.

Naturally, many are calling this a “wake-up call,” for web-based companies and for the corporate world more generally. Reports suggest that insiders at the company knew that privacy was a big risk, and worried about “a lack of security awareness across the organisation.” One sign of a lax attitude toward privacy: according to a report in The Guardian, while customer passwords were stored in hashed (scrambled) format, “information such as addresses, credit card details and sexual preferences is all stored in plain-text in the database.” So anyone with access to the database has access to a treasure trove of private info.

Perhaps the moral of the story is that, human nature being what it is, it’s easier to make money by pandering to people’s baser instincts, than it is to protect the private information gathered along the way.


Cecil the Lion shows how reputational risk has gone global

LionAs of this week, Walter J. Palmer of Minnesota, is pretty much obviously the worlds least-popular dentist. Palmer recently shot — as part of what he says he thought was a legal big-game hunt — a lion whose home was a protected national park in Zimbabwe.

There are some lessons for business in this tale. Even though Palmer wasn’t in Zimbabwe to “do business,” as a tourist he was none the less engaging in a commercial transaction.

The first and most obvious lesson involves the risks of doing business overseas, where it is all too tempting to rely on the guidance of locals to tell you what’s legal and what’s not. Palmer says he “relied on the expertise of my local professional guides to ensure a legal hunt.” The temptation to rely on quick advice from locals is obvious, but it’s a foolish mistake, particularly when those locals have a financial interest in painting a particular picture for you. The risk here is clear. But how far do you need to go in making enquiries? Anyone doing business overseas has to figure out just how far to go in ensuring the legality (broadly speaking) of various aspects of their business. Is this product legal here? Have you got the right permits? Is paying that fee really on the up-and-up?

The second lesson has to do with the difference between what’s legal and what’s ethical. Palmer believed he was conducting a legal hunt. But what’s legal isn’t always ethical, especially in countries with underdeveloped regulatory systems. The fact that a practice is legal doesn’t imply that you’re doing the right thing, that you should be proud of yourself, or that you’re not going to be subject to well-founded criticism.

Next, there’s a lesson here about ethical disagreement. There is deep and genuine disagreement over the morality of certain practices. Hunting lions is one of those practices, but there are others. Birth control is another. So is refusal to bake a cake for a gay couple. So the fact that you are personally absolutely certain that a business practice is ethical doesn’t mean that others are going to agree.

Finally, there’s a lesson about the vulnerability of businesses to critique in an age of social media and online business ratings. The source of criticism lies in the 2 points just above, namely ethical critique and moral disagreement. But the effect of such critique and disagreement is amplified in a world in which your customers as well as the general public can post online messages about you, more or less with impunity. The Yelp page for Palmer’s dental practice has apparently been flooded with angry messages. Twitter has been awash with criticism, and the story has (partly as a result) received widespread media coverage. The doors to his practice are closed, and it’s not clear whether he’ll ever practice dentistry (in the US) again. He will forever be “that dentist who killed the poor lion.”

Maybe Palmer will need to flee to a developing nation. It would indeed be a kind of irony if the only place Walter Palmer can practice dentistry, in the coming years, is a place like Zimbabwe — a place where social media plays a smaller role, where dentists are needed but seldom get wealthy, and where hunting big game is a significant and tempting form of economic activity.


Ethics of Extended Warranties

Shopping this weekend, I was twice offered the “opportunity” to buy an extended warranty on a consumer good. Both times I declined. In one case, I bit my tongue because the warranty was such a bad deal that I was tempted to chastise the salesman. But in neither case do I think it wrong for the sellers to try to sell the warranty to me.

Let me explain.

“Extended” warranty offers are of course common these days. Such warranties may cover a longer period of time, or cover a greater range of problems than does the basic warranty that comes with the product. Whether you’re buying small electronics or a laptop or major appliances, the salesperson will likely offer you the chance to pay extra to get a warranty that goes above and beyond.

But let’s focus here on the small stuff — not major appliances, but smaller items. And let’s start with the two warranties I turned down this weekend.

First, I bought a new pair of prescription reading glasses, for $500. The extra warranty I was offered was priced at $25.

Next, I bought a small, waterproof digital camera to take on a beach vacation. Cost: $189. The young salesman (he could have been one of my students) confidently explained that I “really should” buy the extended warranty, for “just $49.”

Now, whether you should buy a warranty depends on two things. First, it depends on the probability that something bad will happen to the product you’ve bought, multiplied by the cost of repair. That gives you the “expected value” of not having the warranty, which is what you must compare to the expected value — the price— of buying the warranty. In most cases, the expected value of the warranty will be lower than the value of going with out it. Not a good deal.

But one more factor must be counted, namely whether you can afford to cover the cost of loss or damage yourself. If my house burned down, I wouldn’t be able to afford to buy another one, which is why I have house insurance. But in the case of the $189 camera, I know that if it breaks I can afford simply to pull out my credit card and buy another, and so the ridiculously expensive warranty doesn’t make sense for me. But the warranty could conceivably make sense for someone who has the extra $49 to spend on the warranty, but who absolutely would not be able to afford another $189 for a new camera eighteen months from now. People in that category are presumably relatively few, but probably not zero.

What direction did my rough math point in, for the two warranties I was offered this weekend? I figured the warranty on the glasses might, barely, be worth it, but I decided to take a risk and opted not to buy. (Besides, I’m in my 40’s and my prescription might well change in the next 2 years, which would mean buying new glasses anyway.) The warranty on the camera, on the other hand, was laughable; I would have been a fool to buy it. (You can find lots of blog entries out there about why extended warranties on small electronics are generally a bad deal.)

So what about the ethics of offering such crummy warranty deals to customers?

In generally, I think it’s ethically fine to offer such warranties, even though they’re generally a bad deal.

First, the dollar value on these things is relatively low. So, although I think the $49 warranty is (for most buyers) a rip off, it’s a small rip off. No one is going to miss a mortgage payment over it.

Second, the ability to figure out whether a warranty is worth it is well within what we should expect in terms of basic financial literacy for grown-ups. That’s not to say that everyone has that bit of financial literacy. But warranties on small electronics are very simple insurance policies. Compare the question of selling indexed annuities or derivatives or other complex investments. In those cases, investment professionals are selling highly sophisticated financial instruments, and we should expect them only to sell them to sophisticated investors.

So buyer beware. There are bad warranties out there. And they’re generally not unethical products, so even an honest salesperson earnestly advise you to buy a warranty that you don’t really need.


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