What is Corporate Wrongdoing? 4 Ways to Prevent It

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Corporate wrongdoing is driven by context. 4 strategies can shift the context and prevent unethical behaviour.

Dr. Timothy Devinney is Professor of International Business at the University of Manchester

What is corporate wrongdoing?

A day rarely passes without news of corporate wrongdoing. Unethical actions by corporations include automobile safety faults, lead paint in children’s toys, bribery of officials, environmental damages and so on.

These actions occur despite the clear penalties associated with such behaviours and the clear ethical implications.

We need a new approach to encourage ethical behaviour

Looking at corporate wrongdoing, many see the solution as yet more penalties and regulations. Others call for more ethics training. But this discussion ignores the key role of context — our environment — in driving “immoral” decisions and after-the-fact rationales.

As individuals, we also make choices that don’t seem to align with our intentions or values. For example, surveys consistently report consumers saying that they will save the planet by purchasing ethically and living sustainably life. But actual purchases reflect little of that enthusiasm, as my colleagues and I showed in the book The Myth of the Ethical Consumer.

The good news: Change the context, and you can change behaviour. The bad news: We must recognize that we ourselves could fall victim to immoral or unethical decision making.

How we know that context drives wrongdoing

Two famous examples illustrate the role of context.

  • In the Stanford Prison Experiment, volunteers were randomly assigned to roles as either prisoners or guards and required to live in a makeshift prison on the Stanford campus. Researchers found that regardless of volunteers’ personalities (they were randomly assigned), nearly all the volunteers played to the role: prisoners became submissive and guards became abusive.

  • In the Good Samaritan experiments, researchers tested students’ willingness to help a struggling traveler. Students attending a lecture were redirected to a new location; as they walked, they encountered an actor pretending to be ill. Students’ willingness to assist the indvidiual depended on their perceived time pressure. Some students had been told that they had little time to get to the new location, and others that they had plenty of time. The result: 63% of seminary students who were not time-constrained stopped to help the “ill” person, while only 10% of those in a rush did.

These experiments reveal that free will can be an illusion when roles and contexts demand specific behaviour. They suggest that rather than focusing on making people more ethical, we may need to emphasize putting them into situations where “the right thing” is demanded and expected.

4 conditions influence behaviour

The good news: We know what factors influence corporate and personal decisions — ethically or unethically.

  1. Stress and time pressure lead to less moral and ethical decisions, as in the Good Samaritan experiment, researchers J.M. Darley and C.D. Batson suggest that “ethics become[s] a luxury as the speed of our daily lives increases.” When people are pressured to meet quotas, they may cut corners. The Challenger Space Shuttle disaster shows how the pressure to perform leads reasonable and smart people to make catastrophic decisions.

  2. Power corrupts. Researchers Adam Galinsky and Joris Lammers found that people who believe they have more power are more hypocritical – believing that they had a right to do things that others did not. They also felt that their rationales were purer and that others’ transgressions were more worthy of punishment.

  3. The possibility of publicity improves action. If a decision might be revealed publicly, people are more likely to act in accordance with social expectations (norms). For example, in one experiment, my colleagues and I varied how much we monitored a purchaser. People were more likely to make an ethical product choice when they thought they might be monitored.

  4. Role expectations shape our behaviour. We may also seek to meet expectations around our role. For example, people tend not to live up to their ideals of ethical purchasing because the purchasing context implies that they play the role of consumer. “Consumers” make rational, cost effective and, in many cases, ego-satisfying decisions. Being in a different role can change goals. My colleagues and I found that individuals behaved more sustainability in their role as parents (helping children with an environmental project) than in their role as consumers.

Each of us may have the potential to act unethically

While we like to believe that Jeffrey Skilling, Raj Rajaratnam and Jérôme Kerviel are different from us and that we would never do what they did, we simply do not know, because we do not know the context in which they made decisions. We are deceiving ourselves when we tell ourselves that ethics in business is different from ethics in other circumstances, or that we are unlikely to transgress.

This view of human nature is stark and uncomfortable. But it also suggests how we can make the best of human nature.

We can prevent wrongdoing by changing the context

Companies and individuals should be alert to the aspects of a context that can foster wrongdoing. As discussed above, they should:

Companies and individuals should be alert to the aspects of a context that can foster wrongdoing. As discussed above, they should:

  • Consider and try to reduce stress and time pressure

  • Be aware of bias coming from power differentials

  • Increase transparency around actions

  • Encourage people to think of themselves in a different role: e.g. parents rather than consumers. Changing the focus and the goal can lead to very different decision outcomes.

Humans are very good at deceiving ourselves. “We often see the world the way we would like it to be rather than the way it is,” scholar Harry Triandis writes. We select information that confirms our beliefs, and downplay or ignore information that doesn’t.

Every corporate scandal features character witnesses professing shock at what a seemingly “nice,” “normal” and “hardworking” person ended up doing. Ultimately, our views of who we are and why we do what we do are an illusion. To a very great extent, we are manipulated by the contexts and roles that we find ourselves in. It is no simple task to not give into what those rules and context demand.

About the Author

Dr. Timothy Devinney is Professor of International Business at the University of Manchester. He has published eleven books — e.g., Managing the Global Corporation (with J. de la Torré and Y. Doz, 2000) and The Myth of the Ethical Consumer (with P. Auger and G. Eckhardt) — and more than ninety articles in leading journals. He has presented papers and addresses at more than 200 universities and conferences in the last ten years.

In 2008 he was the first recipient in management of an Alexander von Humboldt Research Award (Forschungspreis) given by the German government and was Rockefeller Foundation Bellagio Fellow. In 2008 he was elected a Fellow of the Academy of International Business and a Fellow of the Australia-New Zealand Academy of Management (ANZAM). His research, teaching and public service has been recognised in a number of ways, with numerous best paper and teaching awards. He is a frequent commentator on public events and social issues in the press and various media.

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