Toshiba is the latest iconic brand to be caught up in accusations of unethical and illegal behaviour by its top executives. It has been revealed that senior executives, including its past two CEOs, had padded pre-tax profit by at least 152 billion yen ($1.2 billion) over six years, according to a third-party accounting probe, and created a culture based on the premise “get it done like your life depends on it”. Investigators reported that Toshiba’s corporate culture was one where senior, middle and line managers continually carried out inappropriate accounting practices to meet targets in line with the wishes of their leaders. Going along to get along was the cultural norm.
In 2014 we heard a similar story about the culture at GM where safety defects went unreported because the dominant management paradigm was cost cutting at any cost, including risk to purchasers. This management mandate encouraged employees to filter out of their decision making notions of spending money even when it was to rectify a known product defect.
What these high profile cases continually highlight is the power of context; how organisational cultures can, and do, repeatedly encourage employees to act unethically. The sad reality is that most unethical behaviour in business happens because the environment tolerates it; usually, because there was never any clear and focused management intention to skilled employees and middle managers to manage the ethical dimension of their workplace realities. Those realities that pit time pressures against following proper procedures; budget pressures against doing things the right way; financial targets against customer interests; or job security against willingness to raise issues of concern. All the typical workplace challenges that remain unaddressed by codes of conduct and become the “undiscussables” of modern management practice.
We now need to place less emphasis on thinking in terms of risk, reward, punishment and deterrence and more on how and why organisational leaders and managers tolerate the unethical behaviour that flourishes in their midst. We need to begin by accepting that even good people, when they find themselves in certain organisational contexts, will take their cues from how other people behave and will fall into line without considering the ethical implications.
It’s time leaders accept that they preside over a culture they help to create, whether by commission or omission. Organisational cultures do not grow by themselves; they are shaped, spun, woven by either a group of strong-minded executives who recognise the economic value of a ‘good’ culture or created by those in the executive suite who put their own interests above those of the enterprise. Either way, the person at the top either collaborates in creating a healthy workplace culture or blithely turns their back on those that seek to advantage themselves at the expense of the corporation, no matter what the motivation.
The old approach of leaders commissioning mission and values statements and then imposing them on cynical workforces just doesn’t work – neither with employees nor with regulators. “Culture change” goes well beyond aspirational words and essentially involves creating a new organisational context where employees are empowered to speak up and proactively manage the ethical risks inherent in most business practices – even if this means exposing leaders in the process.
A large part of our work with enlightened leaders involves helping them to build their organisational ethical infrastructures. Critical to this is what we call building “ladders of escalation” to enable issues to be raised safely. These multiple feedback sources encourage employees at the very early stages to voice concerns and check out if these concerns are justified. It’s not easy work. To gain employee engagement with notions of workplace ethical accountability requires removing existing barriers including an unquestioned employee reluctance to expose colleagues to potential punishment; prevailing management inertia in managing ethical risks proactively; management reluctance to provide fast and ongoing feedback to employees while investigations are underway; and the reluctance to share the learning with the rest of the organisation when poor practices have been revealed.
When allowed to go unchecked or unreported, these poor management practices effectively inhibit employees’ confidence that their leaders value ethical behaviour as highly as they say they do or that there are sure consequences for behaving unethically and illegally.
Perhaps the biggest barrier to employees raising ethical red flags inside their organisations, however, relates to employee’s perceptions of the degree of organisational justice that exists there. Leaders and managers may talk about the importance of ethics and integrity but what employees hear are notions around “fairness”. Employee perceptions of overall fairness in the workplace are very strongly correlated with the incidence of misconduct—the more fairness, the less misconduct—and the link between fairness and voluntary internal reporting of misconduct is strong.
By building a robust ethical infrastructure and then training mid and lower management levels on how to appropriately respond to issues raised and how to recognize and prevent retaliation, leaders will build employee confidence that their leaders want to succeed in a principled way. Such initiatives build organizational cultures that help protect against the kinds of reputational and financial damage Toshiba, General Motors and many other iconic brands experience. They build ethical resilience and pride amongst employees that they work for an organisation that values much more than short-term results at any cost.