How bad management leads to bad ethics

What’s the connection between ethics and competence in business? What part was played in Volkswagen’s wrongdoing by the fact that the companies engineers were apparently technically incapable of making good on the promises their marketing department was apparently intent on making?

I’ve written before about my hypothesis that cheating is often a way of covering up for your lack of talent. This hypothesis suggests that executives cook the books to hide the failure of their strategies. Companies offer bribes because they know their product or service isn’t good enough to compete otherwise. Salespeople fudge their sales numbers because they’re not as good at their jobs as they need to be.

A year or so ago I heard a presentation by someone who worked in compliance at a global company that had, some years ago, been embroiled in a bribery scandal. One of the most shocking things the speaker said is that, during the years in which the bribery scandal took place, it was not uncommon for a few hundreds of thousands of dollars to go missing from the books — not “missing” in the metaphorical sense (“That money is — wink, wink! — missing“), but missing in the literal “we don’t know where the money went” sense. The very strong suggestion here was that bribery on a large scale went hand-in-hand with very loose and unprofessional accounting standards. The managers at this company simply literally did not have a good sense of where their money was.

Consider also the case of the prosecution of GlaxoSmithKline, a few years ago, for selling adulterated drugs. The problem again was incompetence. Some of the pills manufactured at the company’s Cidra facility, in Puerto Rico, had been mislabeled. Others had been found to contain more (much more!), or less, of their active ingredient, than they were supposed to. Still others contained metal particles, the result apparently of machinery having broken and then repaired in an amateurish way that resulted in metal parts rubbing together. Through and through, the story is one of general incompetence — front-line work being done badly, managers ignoring problems, and senior managers failing to institute remedies once serious deficiencies in manufacturing practices were brought to their attention.

These anecdotes suggest at least several different connections between failures of ethics and plain business incompetence.

One connection involves resorting to unethical behaviour to cover up for mistakes or poor performance. Once you’ve found out that sloppy work has led to a poor product, you can either face up to it (but that’s inconvenient and painful and maybe expensive) or you can unethically (and maybe dangerously) sweep the problem under the carpet.

Another connection is that in some cases poor management makes unethical behaviour easier to get away with. This might involve sloppy accounting, but it could just as easily involve poor training, poor oversight, and unclear lines of accountability.

And then (perhaps more commonly) there are more complex cases, in which lack of business skill (say, at providing high-quality service) results in a desire by some employees to engage in compensatory wrongdoing, and that wrongdoing is made easier by ongoing incompetent accounting.

We all prefer simple stories, ones with clear villains. And, to paraphrase Homer Simpson, just as we like our beer cold, our TV’s loud, and our corporate villains evil. So it’s hard to accept that sometimes the truth is both more complex, and less dramatic. But we’ll do better at understanding, and avoiding, corporate wrongdoing if we come to grips with the messier truth.

5 comments so far

  1. Todd Haugh on

    Chris,

    I happen to be reading (or rereading) Joseph Heath’s work right now, and your post resonated with me. In particular, it highlights aspects of his thesis: that moral businesspersons should not be taking advantage of market externalities and other failures, that ethical firms will compete on the basis of “good service, quality goods, low prices, and so forth.” If a company can’t do so, maybe they look to shortcuts–the externalities available to them to exploit.

    • Chris MacDonald on

      Todd:

      Thanks for your comment. Yes, the connection to Heath’s work makes sense. One way of thinking of it is that, amidst the rough-and-tumble of the marketplace, the behaviours that are uncontroversially wrong are ones that are simply alternatives to doing what businesses are fundamentally supposed to do — competing to provide a good (better and better) product at a reasonable (lower) price.

      Chris

  2. Fred on

    Yep… this is true not just in business but in life in general. Someone makes a bad decision, gets put in a bad situation and has to resort to some unethical means to get out of it. I’ve actually seen that exact thing happen to a friend of mine, and it’s sad because I know he wouldn’t have done what he did if he weren’t put in the situation he was in. Which admittedly he put himself in… but still. So as you said i’s not always as simple as “that person/company is evil”.

    • JRH on

      I’ve seen this happen to people close to me too. They’re pushed into a bad situation because of their incompetence and when it comes time to dig themselves out of the hole, they can either (uncharacteristically) lie, cheat, and steal to save their own skin, or fess up to their wrong doing and face the consequences immediately. Unfortunately I’ve seen the former more than the latter. Lacking business ethics is an annoyance but incompetence is sometimes the catalyst to immoral behavior (as the post suggests).

  3. Heather on

    Chris,

    I enjoyed reading your blog, it was thought provoking and made me to consider the possibility that ethical standards may be lacking due to incompetence. Poor leadership trickles down in all areas of an organization which is why it’s important to have strong values and morals especially as a leader. There are ethical problems that may not always be apparent to the public but has the potential to slowly destroy a company’s reputation; the truth always comes out. High standards and positive values can impact an entire organization and it has to start with the leaders.

    “A company leader’s personal values affect the firm’s business strategy and all aspects of the organizational behavior including staffing, reward systems, manager-subordinate relationships, communication, conflict management styles, and negotiation approaches. Personal values also influence ethical choices.” (Phillips & Gully, 2014, p. 136)

    Heather

    References

    Phillips, J. M., & Gully, S. M. (2014). Organizational behavior: Tools for success (2nd ed.).
    Mason, OH: LRS/Acquisitions & Solutions Planning.


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