Ethics in education to direct business behaviour.

How pioneering education in ethical behaviour could iron out some flaws

Leadership and ethics have a long, cross-cultural history that has been debated from Sun Tzu and Socrates to now. History has pages of both ethical and unethical leaders, but as we move forward we need to understand the role that leadership plays in the ethical decision making of organisations. Leadership is nonessential for actually undertaking ethical decision making in modern organisations but plays a critical role in the process of understanding and promoting ethical decision making in society. Leadership stems from social or position power through “personal actions…, the promotion of conduct to followers through two-way communication, reinforcement, and decision-making” (Brown, Trevino & Harrison 2005, p. 123). Modern organisations are political, business or social groups of individuals that share a common purpose. Modern organisations provide stark contrasts in leadership and ethical decision making, from exemplary actions like IBM’s corporate social responsibility and equality programs to the unethical demise of ENRON. This paper explores leadership, behaviour, the nature of ethics, and the role of leadership in ethical decision making for modern organisations.

Leadership comes in many shapes and forms: market leaders, peer leaders, position leaders and thought leaders are all examples of individuals or firms seen to be at the frontier of their field or driving behaviour in others. Leadership isn’t always ethical, and unethical behaviour can seriously damage relationships, organisations and economic systems (Gino, Schweitzer, Mead & Ariely 2011 p. 195). Some estimates suggest that unethical acts in business cost the US economy an unfathomable $1 trillion annually. These unethical acts are defined as behaviours that have harmful effects on others and are deemed illegal or morally unacceptable by society (Jones 1991). We often try to avoid unethical acts by seeing the best version of ourselves; leaders that inspire our communities are often viewed as those that are righteous, ethical and moral in their cause.

Community, political and corporate leaders such as Martin Luther King Jr. and Steve Jobs are examples of ethical and transformational leadership. Interestingly, transformational leadership and ethical leadership do not go hand in hand as one might expect. Transformational leadership doesn’t associate with ethics, rather it associates with change. Conversely, ethical leadership doesn’t convey a need for change, vision or stimulation (Bass & Steidlmeier 1999, p. 190). The process of transformation or leading change is often a process of revolution. As Mao Tse-Tung (1952) once said, “A revolution is not a dinner party, or writing an essay, or painting a picture, or doing embroidery; it cannot be so refined, so leisurely and gentle, so temperate, kind, courteous, restrained and magnanimous. A revolution is an insurrection, an act of violence by which one class overthrows another”. In essence, transformational leadership can focus on igniting either teleological or deontological feelings as a method of creating change. Nonetheless leaders do not actually control the actions of followers. Positive theory posits that ethical leaders are proactive in shaping followers’ values and ethical standards through role modelling, reward and punishment (Brown & Trevino 2006, p. 601). Normative theory contradicts and is more ambiguous: many leaders preach “do as I say, not as I do” and followers are pressured to accept that the means justify the ends.

Leadership in modern organisations tends towards the media-friendly transformational leadership over ethical leadership; Donald Trump, Malcolm Turnbull and Elon Musk are all examples of current transformational leaders. The shock and awe of transformational leadership presently generates positive perception and short-term gratification for leaders, yet there remain situations of ethical ambiguity. Alan Joyce, CEO of Qantas, publicly campaigns for equal rights, yet he is responsible for cutting 5000 jobs in order to obtain a personal bonus of over $10 million. It must be noted here that Alan Joyce has a vested interest in equal rights. A number of global companies have approached utilitarian ethics through CSR and CSV, transforming social and ecological problems into business goals. As IBM demonstrates, these goals become important motivators for employees while simultaneously generating a positive branding exercise. This paradigm shift to the ‘greater good’ may be a veil or illusion to mask the actions of self-preservation, ego and profit maximising; as we still predominantly operate in a society that supports a company’s exclusive interest in delivering profits to shareholders (Kurki & Wilenius 2015, p.146).

This value climate has been highlighted by the recent backlash to Ian Naarev, CEO of the Commonwealth Bank of Australia, for being remunerated based on social and ecological targets. Firms are still driven to maximise value for the few shareholders at the expense of the many; profit margins and firms behave in a way to exploit the masses. Thomas Piketty (2013) discusses the capital gap between the few and the many, highlighting the constant shift of power and wealth to individuals through vehicles such as assets, political parties and businesses. The exploitative concentration of wealth appears to be accepted by the public, with a social licence to operate being granted under the guise of utility maximisation. To permanently change this behaviour, we must start from the bottom: training [students and employees] needs to focus on both profitability and professionalism so that business can be sustainable and equitable (Economides & O’Leary 2005, p. 15).

Education in ethics and cultural awareness creates tools that allow individuals to understand the concepts of right and wrong in various contexts. Choi, Ullah and Kwak (2015 p.358) cite the desire of employees to receive ethical guidance from the organisation in which they work as an example of the need for ethical leadership, but employees must also understand what is ethical or potentially face being motivated into ethically compromising behaviours. The need for ethical behaviour in business is becoming critical, as only 18% of the general public believe that business leaders are truthful (Kurki & Wilenius 2015, p. 147). Businesses face issues of poor trustworthiness whilst their employees simultaneously seek leaders they can trust. Despite the fact that trust is inherent in our behaviour, research suggests that people who perceive themselves as trustworthy and honest often lie, bend the rules and cut corners in their quest for profit on behalf of their employer (Barkan, Ayal & Ariely 2015, p. 159). In other words, although people hold a particular perception of a leader or themselves as trustworthy and ethical, they may also be engaging in some form of unethical behaviour and a spiral of distrust commences. This is compounded when the paradox of composition comes into effect: people more freely engage in unethical behaviour in teams due to the perception that the unethical behaviour will benefit more people (Barkan, Ayal & Ariely 2015, p. 160). The real behaviour of individuals demonstrates that when we operate as a group with a common purpose, we believe unethical means justify the utilitarian ends. Leaders as individuals are no exception to this general rule. In line with logic proposed by Machiavelli in The Prince (1532), immoral behaviour as a means or end is justified by power, status and privilege. This logic has been supported by studies such as the dictator game and manager-employee simulations, which demonstrated that when participants were endowed with power, their perceptions of fairness and morality changed. Participants viewed their unethical acts leniently and judged the acts of others harshly, which interestly resulted in both transgressors and victims agreeing that power and status can in fact overpower morality (Barkan, Ayal & Ariely 2015, p. 161). The question is, can we mitigate our moral corruption if the collective is educated in ethics and becomes a moderator of our behaviour?

To understand whether we can teach ethics we must understand the way in which we reach ethical and moral judgements. The rationalist approach suggests that “upon experiencing an ethical dilemma, the decision maker attempts to resolve conflicts through a logical, rational and deliberative cognitive process by considering and weighing various moral standards that might be in conflict with one another” (Schwartz 2016, p. 775). This rationalist approach closely maps on to Friedman’s understandings of the operations of firms and economies. In Friedman economics, people are purely rational and capable of making decisions that measure the externalities and consequences of those decisions. Emotion, information asymmetries and behavioural biases do not exist; we are utility-maximising creatures that are capable of pure rational thought. Schwartz proposes that the decision maker’s initial cognition of right and wrong is then moderated by individual factors including ego strength, field dependence, and locus of control. Situational factors also moderate behaviour such as immediate job context and other external pressures including personal costs, scarce resources, or competition. Organisational culture and characteristics of the work also moderate behaviour. However, these factors, along with ambiguity, allow people to warp perceptions of right and wrong, blurring the lines and diminishing any threats to the moral self for unethical and immoral behaviour (Barkan, Ayal & Ariely 2012, p. 760).

The idea of rationality has been greatly debated; Schwartz (2016), for example, states “moral reasoning is retroactive: It seeks to rationalize previous judgments and not to arrive at those judgments”. Rationality for some appears only after an event, with intuition and emotion the drivers during the event. Behavioural economics would say that we have bounded rationality and are limited by information, cognitive ability and the time available to make a decision. A combination of retroactive moral reasoning and bounded rationality is most likely to form the basis of general ethical decision making. The consequence of bounded rationality and retroactive moral reasoning is that we are fallible; we make the wrong choice⏤the unethical choice⏤from time to time. Everyday choices can create ethical dissonance from the inconsistency between upholding a positive or aspirational self-image and the opportunity to profit from unethical behaviour. Ethical dissonance tends to be solved through strategies to create ambiguity in the situation, justify the behaviour, or to dismiss and relax ethical criteria (Barkan, Gino, Ayal & Ariely 2012, p. 776). Relaxed ethical criteria from leaders or followers is less than desirable for modern organisations, yet education regarding ethical and moral reasoning may improve communication and reduce situation-based ethical compromise.

It is critical to understand the process that individual firm agents undertake when making decisions about costly unethical actions, especially as these decisions are potentially preventable (Schwartz 2016, p. 776). Understanding ethical decision making is essential for modern organisations. Education in ethical decision making affects both leaders and followers of organisations. In economics, education is one of the few ways to expand and grow the economy sustainably. Sustainability is also at the heart of modern ethical decision making as businesses find themselves under increasing pressure to reduce their reliance on harmful chemicals and produce less environmentally harmful products for educated consumers (Kurki & Wilenius 2015, p. 151). The licence to operate granted by society to firms has an understanding of ethical production of goods and is shifting markets. To extend ethical decision making into modern organisations we can begin by educating workforce entrants in the tools of ethical decision making. This education could explore moral reasoning, deontology and teleology, and ultimately have the goal of providing labour force participants with the tools to recognise and formulate ethical decisions and behaviours (Schwartz 2016, p. 775). If individuals can recognise ethical behaviour, they can influence who the leaders are and restore trust.

Perception and trust form the basis of ethical decision making in modern organisations and are enabled by leadership. The perception of a leader as trustworthy results in more positive employee attitudes and workplace behaviours (Ng & Feldman 2015, p. 160). Through education and ethical awareness training, society at large, along with employees in firms, will be able to trust their perceptions of what is ethical behaviour. Ethics is cross-cultural and a rising issue in the era of globalisation, with increasing pressure on firms to mitigate externalities and produce sustainably. As Machiavelli (1532) wrote, “Men judge generally more by the eye than by the hand, for everyone can see and few can feel. Everyone sees what you appear to be, few really know what you are”. Teaching ethics at a grassroots level will promote ethical leadership and assist in preventing its corruption. To change ethical understandings and implement training in ethics, however, will require a leader who is simultaneously a thought leader, a leader of people and a transformational leader. Ultimately, we can see that leadership is essential to ethical decision making in modern organisations.