DESIGNING ETHICAL ORGANIZATIONS – PART 1

“In the pursuit of an ethical culture, remember that the true wealth of an organization lies not in numbers, but in the integrity of its actions and the impact they have on people’s lives.” (Marcello de Souza)

The 1960s witnessed Stanley Milgram’s pioneering work gain prominence, particularly his notable “Milgram Experiment” or “Obedience Experiment”. This experiment investigated obedience to authority, exploring how ordinary people would react to orders to cause harm to others. This intriguing study aimed to understand to what extent well-intentioned individuals could be influenced to commit atrocious acts, echoing the dark events of the Holocaust during World War II.

World War II left a disturbing question: how could seemingly healthy and socially adapted individuals participate in murders, torture, and abuse against civilians, such as the horrors of the Holocaust? The Milgram Experiment, initiated in July 1961, just three months after the start of Adolf Eichmann’s trial in Jerusalem, sought to answer crucial questions, such as whether Eichmann and his accomplices were simply following orders and how we should label them. (It’s important to note that Hannah Arendt also notably explored this theme in her book “Eichmann in Jerusalem”.)

Milgram revealed that many people feel they have a duty to obey higher orders, often driven by the desire to advance their careers, following bureaucratic logic. Blind compliance with orders, without ethical questioning, has become a concerning pattern, revealing the influence of authority and context on the ability to harm other human beings.

In addition to Milgram’s work, social psychology has presented many other notable studies, such as those by Leon Festinger, who explored “cognitive dissonance”. Festinger highlighted the human need for coherence between beliefs and actions, emphasizing how inconsistencies can generate internal conflicts. These studies emphasize the impact of leadership on subordinates and invite us to reflect on how to design ethical organizations. Conventional approaches to promoting ethical behavior often fail as they oversimplify the complex nature of ethical violations, focusing on individual responsibility, education, and punishment.

In times of change and numerous social norms, it is vital to rethink the meaning of ethics in businesses. Moreover, it is worth noting that current behavioral research reinforces ideas from Stanley Milgram. In other words, even well-informed and well-intentioned individuals are susceptible to the influence of ethical deviations, especially in crisis situations, which can challenge ethical actions due to external pressures and a lack of moral alarm.

Therefore, I reiterate the relevance of this discussion, especially at this year-end period, when ethics in organizations takes on a prominent role. It is essential to recognize that organizational ethics are influenced by a complex interaction of factors and systemic circumstances that are often imperceptible. To establish genuinely ethical organizations, it is imperative to adopt more sophisticated approaches aligned with the nuances of human behavior and sensitive to the context in which they operate. With this in mind, I invite everyone to participate in this discussion throughout this week, divided into two parts. In the first part, we will address three of the key principles that underpin ‘Ethical Organizational Culture’. In the second part, we will explore ‘Cultural Norms and the Practical Implementation of the Ethical Project’. I hope these articles provide valuable insights to enhance ethics in your businesses.

FUNDAMENTAL PRINCIPLES FOR ETHICAL ORGANIZATIONAL CULTURE

Creating an ethical culture within an organization goes far beyond simply believing in values. It is a challenge for all organizational levels that involves considering various critical aspects. Here, I want to highlight four fundamental elements that need to be addressed when designing an ethical culture: explicit values, decision-making processes, incentive systems, and cultural norms.

Explicit Values

To build a strong ethical culture, the essential first step is defining explicit values. The organization’s leadership must establish solid ethical principles that serve as the foundation of the organizational culture. These values should be communicated clearly and consistently to all team members, ensuring that everyone understands what is expected in terms of ethical behavior.

Furthermore, it is crucial that these values are reinforced by concrete actions and examples set by senior management. Strategies and practices should be rooted in clearly defined principles that can be widely shared throughout the company.

A well-crafted mission statement can be an effective tool for achieving this goal, provided it is used appropriately. Leaders can turn to the mission statement to guide the creation of strategies and initiatives, as well as to ensure that when interacting with employees, they demonstrate how the mission aligns with the company’s ethical principles. This reinforces the broader ethical system of the organization.

Employees should be able to easily identify how ethical principles influence company practices. They are likely to behave differently if they perceive that the organization is led by example rather than mere rules and regulations. Studies have shown that the example set by top leadership significantly influences the behavior of the entire team. Therefore, I always emphasize that simplicity is key. The mission statement should be concise, actionable, and emotionally resonant. Many corporate mission statements are too long to be memorized, overly obvious, clearly crafted to meet regulations, or disconnected from daily practices to meaningfully guide employees.

A mission statement should not be just words on paper; it should be embedded not only in strategy but also in hiring, firing, promotion, and operational policies, so that core ethical principles are deeply integrated throughout the company. This ensures that the mission is more than a slogan, becoming the foundation for a strong and lasting ethical culture.

• Decision-Making Processes

Ethics is not just about adopting values; it is intrinsically linked to the decision-making process. It is essential to encourage leaders and employees to consider the ethical implications in every decision, whether simple or complex. This reflection should encompass the impact of the decision on the involved parties, stakeholders, and the organization’s reputation.

The ability to critically think about the ethical impact of one’s actions is crucial for establishing a lasting ethical culture. Unfortunately, most people have less difficulty distinguishing between right and wrong than incorporating ethical considerations into decision-making. Ethical lapses can be significantly reduced in a culture where ethics are front and center.

For example, you may be aware that it is wrong to harm the chances of an unknown candidate by helping a friend, family member, or college engineering colleague to get a job. However, in many cases, this ethical thinking may not come to mind during decision-making. Behavior is often influenced by what is in focus at the moment of action, and these thoughts are easily shaped by context. Studies and experiments support this idea. In a recent survey, people were more likely to tell the truth when a code of conduct highlighting ethical issues was presented at the beginning of a form, putting ethics in the spotlight while they filled out the document, compared to when the code of conduct was presented at the end.

In an article published by two scholars on the subject, Nicholas Epley and Amit Kumar demonstrate that in a large field experiment involving approximately 18,000 government-contracted employees in the U.S., simply including an option to declare honesty resulted in a $28.6 million increase in sales tax revenue compared to omitting this option.

Nicholas Epley and Amit Kumar also demonstrate a study involving MBA students acting as financial consultants, which also revealed that filling out an ethics checklist before recommending potential investment funds significantly reduced the number of people recommending the fund, and that’s how they exposed Bernard Madoff’s scheme – an emphasis on ethics led students to question whether the fund was too good to be true, highlighting the importance of prioritizing ethical principles over simply following rules. For those who don’t remember, Bernard Madoff, who ran a pyramid scheme that moved over $65 billion, was unmasked by a citizen named Harry Markpolos who raised suspicions about the scheme.

Following the same idea, it is also worth noting that knowing how to ask the right questions during employee interviews can make all the difference. For example, if we look at the famous case of Enron Corporation, an American energy company based in Houston, Texas. The company had about 21,000 employees and was a world leader in energy distribution and communications. In 2000, shortly before the scandal that led to its bankruptcy erupted, its revenue exceeded $100 billion. At the time, Enron’s former CFO, Andy Fastow, admitted that he knew his actions were wrong but did not believe they were illegal. Who knows, instead of questioning not only “what is the rule,” but rather “what is the principle,” Fastow would have a different idea of reality than what he created. In the right proportions, the example of Enron exactly refers to the recent scandal of American Stores. The fact is that in an ethical culture, people should be encouraged to question frequently: “Is this right?” instead of just asking themselves “Is this legal?” This is because there are fundamental differences between the phrases “Is this right?” and “Is this legal?” Don’t understand, let me explain:

• “Is this right?”: This question focuses on the ethics and morality of an action or decision. It assesses whether what is being done is morally acceptable, fair, and aligned with the values, principles, and ethical standards of society or the organization. “Is it right?” invites reflection on the impact of the action on people’s well-being and the adherence to ethical principles.

• “Is this legal?”: This question centers on the legality of an action or decision. It evaluates whether the action complies with laws, regulations, and rules established by a legal authority. “Is it legal?” refers to adherence to legal standards and may or may not include ethical or moral considerations.

In other words, here I aim to instigate the idea regarding morality and ethics, not just conformity with laws and regulations. The question about what is right can encompass ethical aspects beyond legality, emphasizing moral and social responsibility, while the legality question is more restricted to compliance with legal norms. In many cases, what is legal may also be considered right, but not always, which is why it’s important to broaden perspectives when making significant decisions.

Incentive Systems

Incentive systems play a prominent role in promoting ethical behaviors within organizations. How rewards and recognition are structured can be pivotal in building a strong ethical culture. However, this task is more complex than it initially appears. Aligning rewards with ethical values requires a deep understanding of the subtleties of human behavior and the motivations behind our actions.

It is a truism to state that people tend to do what they are incentivized to do, but this assertion underlies a deeper truth. Humans are driven by a variety of incentives that go beyond financial aspects; many operate at an unconscious cognitive level motivated by the reward system. Certainly, as I have mentioned in various articles in the past, money plays an important role, but its impact reaches a limit that is much smaller than many still imagine.

To create an environment where ethics are the backbone, it is imperative to offer a diverse range of rewards and other incentives that are more aligned with the values and principles of employees. In addition to the financial aspect, employees value the sense of performing meaningful work, making a positive impact, and receiving respect and appreciation for their efforts. Promoting ethics in the workplace involves a deep understanding of these motivational elements.

For example, when a sign in a hospital reminds employees that handwashing benefits patients, it triggers a more effective response than a warning about personal consequences. It underscores the importance of linking ethics to collective actions for the common good. It is surprising how often managers underestimate the relevance of non-financial incentives. In a survey of customer service managers at a renowned Fortune 500 company, these leaders tended to drastically downplay the impact of these incentives on their subordinates. However, the science of human behavior shows us that these incentives can be powerful drivers of ethical behavior. After all, ethics goes beyond compliance; it is about how people feel, perceive, and relate to each other in the workplace.

In practice, returning to the example of the hospital, which is a real case: due to the increase in contamination by some superbugs, the hospital decided to implement a new incentive system that now aims to play a prominent role in promoting ethical behaviors within the institution. The hospital administration opted for an incentive system that goes beyond simple financial rewards.

Instead of merely offering a financial bonus for compliance, the hospital adopted a more comprehensive approach. They created a recognition program where whenever an employee is seen practicing proper handwashing and following hygiene guidelines, they receive a “hygiene badge”. This badge not only symbolizes their commitment to patient safety but also acts as a badge of honor.

Additionally, the hospital began holding regular meetings where employees who excelled in their hygiene practices are recognized and praised in front of their peers. These recognition ceremonies become a highlight of the organizational culture. The results were remarkable: employees not only adopted handwashing more regularly but also felt valued and respected for their commitment to ethics in the workplace.

Notice that this approach goes beyond financial rewards, aligning the organization’s ethical values with employees’ intrinsic motivation. In an ethical culture, rewards extend beyond financial transactions to encompass the potential to positively impact others’ lives. Recognition, praise, and validation become the currency of ethics. When employees perceive that their actions improve people’s lives, this strengthens ethical behavior. Moreover, this incentive approach not only shapes the present but also influences the future.

In seeking examples on this topic, I found several that demonstrate this. In a notable experiment, salespeople at a major pharmaceutical company performed significantly better after participating in a pro-social bonus system that encouraged them to spend part of their bonus for the benefit of their teammates. This system showed that prioritizing ethics leads to actions reflecting a deep sense of shared responsibility. Ethics becomes not just an obligation but a source of intrinsic motivation. By adopting a pro-social incentive approach, organizations not only promote ethics but also reap secondary benefits in terms of human resource management. The connection with others and the positive impact on people prove to be more powerful than many imagine.

In a field experiment with Virgin Atlantic pilots, a bonus system was structured to donate part of the earnings to a charity chosen by them. The result was a notable increase in job satisfaction, akin to what one feels when overcoming health issues and regaining vitality.

I hope it’s clear that the benefits of an ethical culture extend beyond the company; they reach individuals, creating happier, more satisfied, and loyal employees. Ethical cultures are not just a means to do good; they also foster an environment where people feel good about themselves and the choices they make. At the heart of this lies the understanding that ethics is not just a rule to be followed but a fundamental principle to be lived and rewarded.

Thus far, I trust it’s clear that incentive systems, when designed with wisdom and sensitivity, play a vital role in building enduring and thriving ethical cultures. They become a reflection of the importance of ethics, reinforcing a lasting commitment to values that transcend financial success and embrace community well-being and personal satisfaction. Thus, ethics ceases to be an option and becomes the essence guiding decisions and actions in the workplace.

The challenge lies in recognizing that ethics goes beyond rule compliance; it involves forging relationships, impacting lives, and shaping a future we all desire. As seen earlier, a shift in simple questioning makes all the difference, where the question is not just “Is this legal?” but “Is this right?” The answer to this question shapes the fabric of ethical culture, as we acknowledge that the true power of ethics lies in the ability to do good and feel good doing it.

I invite you to also read the second part of this article where, as mentioned at the beginning, I will highlight ‘Cultural Norms and the Practical Implementation of the Ethical Project.’ Until then!

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Hello, I’m Marcello de Souza! I started my career in 1997 as a leader and manager in a large company in the IT and Telecommunications market. Since then, I have participated in important projects of structuring, implementation, and optimization of telecommunications networks in Brazil. Restless and passionate about behavioral and social psychology. In 2008, I decided to delve into the universe of the human mind.

Since then, I have become a professional passionate about deciphering the secrets of human behavior and catalyzing positive changes in individuals and organizations. Doctor in Social Psychology, with over 25 years of experience in Cognitive Behavioral and Human Organizational Development. With a wide-ranging career, I highlight my role as:

– Master Senior Coach and Trainer: Guiding my clients in the pursuit of goals and personal and professional development, achieving extraordinary results.

– Chief Happiness Officer (CHO): Fostering an organizational culture of happiness and well-being, boosting productivity and employee engagement.

– Expert in Language and Behavioral Development: Enhancing communication and self-awareness skills, empowering individuals to face challenges with resilience.

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– Speaker, Professor, Writer, and Researcher: Sharing valuable knowledge and ideas in events, training, and publications to inspire positive changes.

– Consultant and Mentor: Leveraging my experience in leadership and project management to identify growth opportunities and propose personalized strategies.

My solid academic background includes four postgraduates and a doctorate in Social Psychology, along with international certifications in Management, Leadership, and Cognitive Behavioral Development. My contributions in the field are widely recognized in hundreds of classes, training sessions, conferences, and published articles.

Co-author of the book “The Secret of Coaching” and author of “The Map Is Not the Territory, the Territory Is You” and “The Diet Society” (the first of a trilogy on human behavior in contemporaneity – 05/2024).

Allow me to be your companion on this journey of self-discovery and success. Together, we will unravel a universe of behavioral possibilities and achieve extraordinary results.

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