What makes good people make unethical decisions? How can you ensure your employees don't accept bribes, cut corners, or cheat when you're counting on them?
These are the questions EthicalSystems, a new nonprofit formed by business school professors, social scientists, and behavior specialists, aims to answer. The group's website, launched in early January, was spearheaded by Jonathan Haidt, a professor of ethical leadership at New York University's Stern School of Business.
Haidt, the author of The Righteous Mind: Why Good People are Divided by Politics and Religion, tells Inc. that the best leaders create a culture that takes into account their employees' fallibility.
"People are often bad judges of their own motives and behavior. We are really good at fooling ourselves and not so good at keeping our resolutions," Haidt says. "A wise leader will accept flaws of human nature, accept that we are not perfectly rational, benevolent creatures and will therefore design a company that works with human nature to get the best behavior from everyone, including him or herself."
After teaching psychology at the University of Virginia from 1995 through May 2012, Haidt was invited to NYU-Stern to revamp its business ethics program. To build a body of work to guide students, he solicited help from the country's top experts in morality, behavioral economics, and organizational psychology from business schools at Harvard, the University of Pennsylvania, Yale, and others. Together, the 21 professors compiled their years of research on ethical leadership, cheating and honesty, conflicts of interest, law, negotiating, and whistle-blowing.
The nonprofit urges companies to take a "systems approach" to ethics, which means overhauling their culture and practices to foster honesty and goodwill. The site gives practical, research-backed advice on how to implement new hiring procedures and adjust internal policies that may allow for unethical behavior. It also provides resources for building a leadership model that can guide a company's executives--and, in turn, its employees--to make ethical, honest, and moral decisions.
EthicalSystems's long-term goal, Haidt says, is to "reverse the decline in trust in American business and make the American business climate more ethical." Improving the climate starts with educating students in business schools, he says. But to truly transform trust in business, company leaders and regulators need to adopt EthicalSystems' approach.
Provide a Model
As for advice to help your company become more ethical in the near-term, Haidt says it's all about setting a good example though your actions, not just your words. "One of the most powerful ways of doing this is conspicuous self-sacrifice by the leader," Haidt says. "People pay a lot more attention to what you do than what you say."
He suggests if your company hits hard times, you should take a pay cut. If you pass up a chance to close a deal that would make a lot of money in an underhanded way or hurt investors, your employees will notice these "powerful signals" that show you are running a trustworthy company that takes pride in its ethical processes.
Another EthicalSystems researcher, Francesca Gino, a professor at Harvard Business School, stresses the importance of talking with employees about ethics from the time your company is first forming.
"[Having] people who are good but act unethically all depends on culture," Gino says. "We see ethical issues at companies because the culture fosters a competitive, fast-paced atmosphere where cutting corners pays."
As CEO, if you want to build a company that cares about how your employees actually get things done, you need to create an ethics code, talk about it, and "make it part of your culture," she says.
Still, corruption can surface quickly, says Linda Treviño, a professor of organizational behavior and ethics at Penn State's Smeal College of Business, and an EthicalSystems contributor. So even after you've made efforts to give your business an ethical foundation, it's crucial to continously monitor your employees' business dealings.
"You need to really understand that a company is a complex human system and a social system," she says. "You need to have all the pieces in place and you need to be constantly assessing it, asking where are we falling down, where can we do better? You need to ask if your employees are living up to your values."
One reminder: While your intentions may be good, don't expect strict adherence to a code of ethics always to benefit your company's bottom line. "In the short run, ethics is often costly. It would be ridiculous to say ethics always pays," Haidt says. "But in the long run, in most industries and in a country with good civil institutions, empirical research says it does."