Ethical systems design is based on the principle that behavior in organizations must be understood by examining the interaction of many factors and forces; you should not start by looking for good and bad people.
This is particularly true in business, where leaders, managers, and employees face conflicting incentives, messages, and pressures from multiple stakeholders. If you want to improve ethical behavior within your organization you have to think about many moving parts, take many different perspectives, and draw on research from many scientific fields. The purpose of Ethical Systems is to help you do that. See an article in Ethisphere on our organization.
For instance, if you want to improve trust and morale within your company, you could change your hiring practices, improve the fairness of your internal procedures and change some toxic social contexts, while modeling ethical leadership at the top and supporting it in the middle. If you do all of these things, you’ll profoundly change your company’s culture in ways that will make the changes self-sustaining—and ultimately profitable.
The heart of our site is the “Research” tab, where we review the existing research and distill best practices based on insights from the behavioral and management sciences. Find a summary of our research below.
Accounting is the language of business. Like spoken language, people sometimes use it to try to hide the truth. One common problem is “measure management,” in which people focus on improving measures of their performance, rather than improving their true performance. Another common problem is “earnings management,” in which firms manipulate the earnings numbers reported to outside investors. Such manipulations often benefit someone in the short run but usually hurt the firm in the long run. Ethical systems designers should therefore find ways to make reports reliable and consistent. We present the research on what has been shown to work — for example, regulations that require partners to sign off on audits with their own names, rather than the firm’s name.
Cheating and Honesty
Research shows that most people cheat in some situations, as long as they can find a way to justify their cheating to themselves. This is why appealing to people’s sense of honesty and begging them to be honest is not very effective; often people don’t even know that they are cheating. On this page we cover a variety of more indirect methods shown to decrease cheating and increase honesty. For example: you can activate moral values moments before an opportunity for cheating. Above all, leaders should model honest and ethical behavior (walking the walk, not just talking the talk).
Compliance and Ethics Programs
In recent years several US laws gave companies greater protection from prosecution and penalties if they could show that they had created effective Compliance and Ethics programs. Many companies have created such programs, but they administer them in perfunctory “check the box” ways. On this page we show that a good C&E program is part of good management, particularly when the program strives to create a more ethical organizational culture (rather than merely complying with the mandated rules). We also show that good C&E programs– when strongly supported by top management, who exemplify ethical behavior themselves– deliver many benefits to companies, including greater employee engagement and customer trust.
Conflicts of Interest
Conflicts of interest occur whenever a professional’s self-interest offers an incentive that might bias his or her judgment against the best interests of the enterprise or its customers. Doctors recommend drugs from companies that treat them to lavish vacations; financial advisors recommend investments that pay them larger commissions. Most people think that they can manage such conflicts and still be objective, but they are wrong. Many people think that disclosing conflicts of interest is the best remedy, but they too are incorrect. Disclosure often backfires. When people see a decision maker disclosing a conflict they take it as evidence that the decision maker is honest. On this page we summarize the research on conflicts of interest and offer advice for reducing their pernicious effects within organizations, and between professionals and clients.
We’re all really good at blaming people. If something bad happens, we jump to the conclusion that a bad person was the cause. Most of us greatly underestimate the power of social contexts in causing both good and bad behavior. If you want to improve ethical behavior in your organization, you’ll get a lot more bang for your buck by trying to change the environment than by trying to change the people directly. We describe two main ways to intervene: 1) change the way people construe their work (that is, the way they understand what they’re doing, and what your organization is doing); and 2) change people’s perceptions of social norms. For example, people often think that lying and stealing are much more common than they really are. If you show people how rare bad behavior is, they will be strongly influenced to behave well.
External shareholders are inherently, significantly constrained regarding what they can know. These constraints make it easier for management and the board, and in fact make it compelling, to practice “short-termism,” e.g., via earnings management, but ethical companies should resist short-term pressures. Good boards provide a balance of advisory support as well as monitoring oversight, but the most important job of the board is to get the right CEO (and to be willing to get rid of the wrong one).
Corruption allocates resources and opportunities in ways that are unfair and inefficient. Corruption, found in every country, is widespread in some. Bribery is of particular interest to governments and international agencies. In recent years, the number and scope of anti-corruption laws and initiatives has increased globally. For businesses this means that it is increasingly important to know the rules, and know how to keep in the clear when operating in environments where corruption is common. On this page we describe research on corruption, showing what some companies have done to combat it, and how corruption tends to go along with a variety of other governance problems.
The ethical culture in an organization can be thought of as a slice of the overall organizational culture. So, if the organizational culture represents “how we do things around here,” the ethical culture represents “how we do things around here in relation to ethics and ethical behavior in the organization.” The ethical culture represents the organization’s “ethics personality.” From an ethical systems perspective, creating and sustaining a strong ethical culture is the key to creating an organization that supports people making good ethical decisions and behaving ethically every day. There are so many forces and factors that lead people to take ethical shortcuts. But when all relevant organizational systems are pushing people in the same ethical direction, ethical failure is much less likely.
People are excellent at finding faults in others, yet they often fail to “notice the log” in their own eye. Research demonstrates that we don’t just “turn a blind eye” to ourselves; we often don’t notice unethical behavior in our friends, our companies, or anywhere else that we don’t want to find it. On this page we review research on “ethical blind spots” and “ethical fading” (the ways that ethical concerns often fade out of the picture when people discuss business challenges). We offer advice for procedures and norms that can bring ethical concerns back into view, before unethical behavior damages organizational culture or reputation.
Is there a “business case” for behaving ethically? Yes. We have scoured the research literature for studies that have examined whether it really pays to be ethical. Of course crime and cheating are often profitable in the short run, and in corrupt countries and corrupt industries they can be profitable in the long run too. But in most areas of business, in the United States and other developed nations, good ethics is good business. The main reasons are that 1) A good reputation is valuable, not just with customers but when trying to hire top talent; 2) Illegal conduct can be extremely costly; 3) Good governance pays off financially; and 4) Good corporate social responsibility policies usually (though not always) lead to benefits such as better employee morale, better access to capital, and better reputation with customers.
A sure-fire way to embitter employees is to treat them unfairly. Research on fairness in organizations consistently finds that employees are more motivated when they feel that organizational resources are allocated fairly, that organizational decisions are made in fair ways, and that their organization treats them fairly. On this page we review research on the downstream benefits of attending carefully to fairness in management, and we offer advice for how to put managers in a fairness-oriented mindset. A pervasive sense of fair treatment is an essential component of an ethical culture.
Research suggests that it is usually very difficult to report wrongdoing within organizations. Most people do not report because they fear retaliation, or because they believe that nothing will be done. This can be extremely problematic; if issues are not addressed internally, they can destroy the firm when later exposed externally. Conversely, employees who do report say that they did so because they felt supported by managers and coworkers, they believed something would be done, and they were able to report anonymously. On this page we describe research on the factors that make employees more or less likely to report problems internally.
There are a few major laws that anyone interested in ethical systems design should know about. Many were passed in the wake of high profile business scandals. Some of them were written specifically to help or compel businesses to become more ethical systems, such as the U.S. Federal Sentencing Guidelines, which offered lighter penalties to firms that established ethics and compliance programs. On this page we summarize the major laws, and raise important issues about how they have been interpreted. For example, the liability of a corporation (or other business organization) can be based on the misconduct of a single employee. Leaders of large organizations must be especially aware of their legal environment, as it is almost inevitable that an employee will commit a crime at some point.
Being a leader means more than simply charting the course for your organization. It means that it falls to you to shape the environment in which others work; your actions will create a more or less ethical system. On our leadership page we review evidence on the traits that have been found to characterize ethical leaders (such as conscientiousness); on the many measurable outcomes caused by good leadership (such as employee satisfaction and commitment); and on the ways that good leaders affect followers (primarily by modeling ethical behavior).
Negotiation involves both cooperation and competition, and is rife with opportunities for deception. Research indicates that when a negotiation is viewed as a conflict or fight, negotiators are more likely to be focused on value-claiming strategies rather than value-creating ones, and they are also more likely to use deception. On the other hand, when negotiators take the perspective of their counterparties, they are better able to both create and claim more resources at the bargaining table.
Personality and Personnel
Everyone knows it’s crucial to hire the best people; this doesn’t just mean finding the highest performers. It means finding the highest performers who will make the best decisions for your organization, without putting their own interests ahead of the organizations, or exposing the organization to legal or reputational liability. On this page we review evidence showing that there are a few personality traits that really matter (such as high conscientiousness and low aggression). We point you to some methods for testing potential employees – methods that can even detect psychopaths. We also cover research on how to bring out the ethical qualities of employees you’ve already hired.
Although students might ace an ethics course, they will not necessarily use that knowledge once they leave the classroom. Because the unconscious mind has so much control over our behavior, it is insufficient to teach only the conscious mind. A class that alters the unconscious (or changes the external circumstances influencing the unconscious) will be more effective. Additionally, because individual and group identity play a large role in how we conduct ourselves, a course that affects how students think of themselves, and of their classmates, has a greater chance of success than one that simply tries to educate the student by imparting knowledge and skills.
Ethics and trust are inextricably linked. We are interested in ethics in large part because we are concerned, even obsessed, with the question of who we can trust is a world where there is risk and uncertainty. In our relationships, we humans are much more concerned about assessing trustworthiness of others than we are in trying to figure out how ethical they are. So what is trust and what is trustworthiness?