How malleable is your Ethics Strategy ??

 

Every strategy has an embedded risk-reward ratio and thus an effective beta. Ethics is no exception. The malleability (or lack of it) of your approach to ethics effectively determine the sustainability (or lack of it) of your success story

Gandhiji’s birthday , now more significant from the holiday standpoint than anything else, presents an opportune moment for us to reflect on this !!

This Black Box of Ethical Dilemmas has tested us at different junctures of life, be it personal or professional !!

Its a barrage of never ending questions with no clear cut answers.

Is it ok to copy a few answers from my friend and secure a better grade in this exam?

Is it ok to present an exaggerated version of my resume, just to secure that first job

Is it ok to call in sick , bunk office and appear for that interview for the next job ?

Is it ok to lie to my partner and say rose things about myself during courtship?

As we enter the corporate world, the magnitude gets a notch higher

Is it ok to reverse provisions in my books of accounts just to jack up the profits this quarter and meet analyst expectations?

Is it ok for me to bribe for securing that super profitable government contract or that vendor empanelment?

Is it ok to malign my colleague or take credit for his/her work?

Corporate scandals, government corruption, cheating, stealing, lying are ever-present and ever-tempting.

In response, a lot of us have often adopted a malleable approach to ethics !!

Real-world competitive and institutional pressures lead even the most well-intentioned managers astray

The answer we often give is

Its ok as long as it allows me to stay ahead on the Bell Curve.

Its ok as long as I don’t get caught

Its ok as long as it is altruistic in nature – it brings happiness to my parents, my lover, my shareholders.

Often , as employees/entrepreneurs, you risk giving too much because of what your superiors demand from us. But the same superiors who keep pressing you to do more, or to do it better, or faster, or less expensively, will turn on you should you cross that fuzzy line between right and wrong. They will blame you for exceeding instructions or for ignoring their warnings. The smartest managers already know that the best answer to the question, “How far is too far?” is don’t try to find out.

Ultimately we must realize that the Beta associated with a portfolio of dysfunctional ethical choices choices is very very high !! When the lid blows off, the consequences are quite disastrous

Take the example of the ‘diesel dupe’  by the legendary Volkswagen .

“We’ve totally screwed up,” said VW America boss Michael Horn, while group chief executive Martin Winterkorn said his company had “broken the trust of our customers and the public”.

With VW recalling almost 500,000 cars in the US alone, it has set aside €6.5bn  to cover costs. Plus the potential fines, consumer lawsuits and criminal proceedings.

What were the rewards ? Astonishingly, they were peanuts in comparison to the current mayhem.

Compromising on state-of-the-art emissions technology between 2009 and 2014 probably saved VW a measly 4.3 bn €. The maths is simple- 10.8 mn diesel-powered cars * 400 € per car = 4.3 bn € over six years. If only the 482,000 cars actually sold in the US legally required this – since permitted NO2 levels in Europe are higher, tests less stringent and fines lower – the saving is less than 200 mn €.

With market capitalization falling almost 29 bn €, shareholders have lost more than 140 euros in market value for every single euro that VW saved by cutting corners on its diesel engines in the US. It’s hard to think of a better reminder that cheating doesn’t pay.

It is ironical that in the 1970s, under intense competition from Volkswagen; Ford  had got stuck in a similar ethical loop . The Ford Pinto, a compact car, became notorious for its tendency in rear-end collisions to leak fuel and explode into flames. It took 25+ causalities before the company issued a recall to correct the problem. A probe revealed that engineers had discovered the potential danger of ruptured fuel tanks in pre-production crash tests, but the assembly line was ready to go, and the company’s leaders decided to proceed.

It was part of a formal cost-benefit analysis—The Net Present Value(NPV)  of a redesign, potential lawsuits, and even lives Versus that of the repair. That methodical process colored how they viewed and made their choice. The moral dimension was not part of the equation. Its termed as “ethical fading” in management jargon, in other words- unconscious unethical behavior

Not sure whether installing codes of ethics, ethics training, compliance programs, and in-house watchdogs will help. It up to the company’s top management to send a clear and pragmatic message to all employees that good ethics is still the foundation of good business.  We clearly can’t afford the boat of the global economy being capsized by another Arthur Anderson, Enron and Lehman Brothers.

Probably good ethics is still the foundation of good business 🙂

In the by-now famous words of former SEC Chairman John Shad: “Ethics pays.”

References

https://hbr.org/1986/07/why-good-managers-make-bad-ethical-choices

http://blogs.reuters.com/breakingviews/2015/09/30/vws-dodgy-diesel-gains-a-measly-4-3-bln-euros/

https://hbr.org/2011/04/ethical-breakdowns

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