Ethics training and compliance systems designed to detect ethical lapses might be flawed, according to a recent academic paper on the topic.

Further, corporate leaders often unwittingly create an environment where unethical behaviour can flourish, particularly through commonly used incentive schemes designed to encourage strong performance, the paper, entitled ‘Ethical Intelligence – helping good people avoid bad decisions’, states.

While ethics training might seem to be an obvious way to address unethical behaviour, Michael Collins, the paper’s author and an academic and consultant with Hipotential, notes that training tends to have little effect on those most likely to act unethically because of the lack of self-awareness among these people.

Collins’s paper concludes that a focus on building ethical intelligence, rather than simply teaching moral values, can equip individuals with the tools to effectively navigate their own ethical dilemmas.

He raises examples of cheating cricketers alongside financial services executives who have been implicated in fee-for-no-service issues in front of the royal commission as instances of how ethics scandals have plagued once reputable institutions.

He states that a person may view themselves as ethical and say they value morality, yet act unethically in certain situations.

“This is because the decision to act unethically involves two opposing forces: maximising self-interest versus maintaining a positive moral self-image and future relationships,” he states.

People with what Collins describes as having “high reward sensitivity” and “low cognitive flexibility” are particularly vulnerable to ethical blind spots through a process that psychologists call ‘disinhibition’, the paper explains.

“…compliance systems designed to detect and deter misconduct generally fail to change the behaviour of disinhibited people since they are unable to judge the likelihood of getting caught or the impact of penalties,” Collins continues.

“Ironically, such an approach is more likely to be noticed by threat sensitive individuals, who are typically anxious, risk averse and cautious, and therefore unlikely to act unethically in the first place,” he states.

Just as ethics training and compliance systems tend to be flawed, leaders can create situations that unwittingly encourage disinhibited individuals to act unethically.

“Consistent with a strong risk appetite, disinhibited people tend to prefer variable rather than fixed incentives by competing in remuneration schemes linked to performance rankings,” Collins notes.

Competitive remuneration schemes are common and create powerful incentives such as bonuses and commissions that motivate people to achieve exceptional results, he continues. Collins describes the relationship between financial incentives and misconduct as a “longstanding debate”.

In addition to motivating people, competitive incentive schemes in the hand of disinhibited people can also discourage knowledge sharing, cooperation and participation by women, while encouraging cheating, sabotage and collusion, he explains.

Greater awareness of disinhibition and unethical behaviour as well as training that focuses on building ethical intelligence rather than simply teaching moral values can help organisations to genuinely address ethics.

 

Smith is the editor of Professional Planner’s print and digital platforms. He is an experienced financial journalist, editor and multimedia producer who has held senior editorial positions both in mainstream press and trade media.
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