What managers can learn from positive psychology in ethical borderline situations

"Because power corrupts, society’s demands for moral authority and character increase as the importance of the position increases."

- John Adams

 Entrepreneurial disasters due to lack of character

There is no shortage of bad examples: accounting fraud at Wirecard, Volkswagen and the diesel scandal, Wells Fargo and fraud with customer accounts or the creative variety of personal misconduct at Uber and WeWork. Despite ever stricter legislation, surveillance and persecution, entrepreneurial disasters often are the result of unethical behavior by managers and their dependent employees.

 There's no herb against criminal energy if we don't want a total surveillance culture? That’s partly true, but too simple. Companies cannot successfully fend off all criminal attacks, both internally and externally. However, it becomes particularly critical when companies themselves create incentives for unethical behavior through their culture. When managers and employees reach moral limits, strength of character becomes decisive. The higher the hierarchy, the more important this becomes.

 Wrong incentive mechanisms, poorly implemented transformation processes, excessive pressure on results and weaknesses in the corporate culture promote ethical dilemmas and can tempt employees to ignore basic ethical principles and to undermine the culture of the company.

Positive psychology has 24 strengths of character, which it bundles into the virtues of wisdom, humanity, justice, moderation, transcendence and courage. But what is character, how does it come about and how can we use it sensibly in ethical border areas? 

Ethical corporate culture begins with the leadership team's strength of character

The strongest protection against unethical behavior is the creation of an ethical corporate culture. This starts with the CEO and his or her management team.

 In Fred Kiel's study on “Return on Character”, more than 80 CEOs and their management teams were rated with “Character Scores” along the traits of integrity, responsibility, forgiveness and compassion. The 10 CEOs at the top end of the character score scale, in whom all four character traits were pronounced, were called 'virtuoso'. The 10 CEOs at the bottom of the scale were referred to as 'self-centered'.

 The comparison of virtuoso and self-centered CEOs shows a significant influence of character strength on the company's performance. The companies led by virtuosos and their teams were almost five times more profitable and the workforce was significantly more committed (+ 26%) than the self-directed CEOs.

Virtuoso CEOs consistently showed more character strength than self-centered CEOs. They kept their word, stood by their mistakes, respected their employees and dealt with them openly and honestly. What they all had in common was the conviction that their employees value challenges, respect, honesty and open feedback and that they want both, contribute to entrepreneurial success and create a higher level of meaning.

 The success of the virtuoso CEOs arose from the orientation towards the “right thing”. This made them approach people differently and tackle challenges differently than self-directed leaders. The working atmosphere of the virtuosos and their teams was highly energetic, positive and supportive, but also demanding and performance-oriented. Not only the employees, but also the capital markets appreciated this, which could be seen from the development of their share prices.

Orientation in the moral borderline

But what should be done if your own boss or her boss is anything but “virtuoso”? To give in? Rebellion? Resign? Business life is not black and white. Managers need to be able to deal with a certain amount of gray, in fields of ethical tension, conflicts of interest and pressure.

 But when is the ethically justifiable limit reached? Only when law takes effect or before?

 At the edges, the decision should be fairly easy. If something is clearly illegal or grossly immoral, you stay away from it, speak to it and report it if necessary. If something is clearly in compliance with the rules and is ethically uncritical, the usual cost-benefit considerations of business life apply. It gets harder though in the gray shades in between. But even if your position is clear, sticking to that position can be a challenge.

Ethical conflicts often build up slowly. Often you become part of it in small steps until you suddenly find yourself on a slide. Your own moral compass is crucial here. To calibrate this compass at an early stage, it helps to write down a list of actions that you will never undertake. Reading this list every now and then and checking the current situation with it raises awareness, provides orientation and makes it easier to position yourself.

 A good understanding of your own organization, its culture, processes and force fields also facilitates navigation in the gray shades. Important indicators for ethically critical situations can be unusual bonus payments, surprising promotions, unsystematic information channels or a particularly sharp handling of lateral thinkers and critics. Questioning unusual processes and rules and always looking for the ethically correct side in borderline situations helps to get to know your own company better, for better or for worse. And it creates additional protection against being confronted with "immoral offers".

 Get up and stand against the current

 When your own moral compass shows ethical misconduct, it's time to position yourself. Calling things by name, daring to take and sticking to your own convictions despite possible consequences. This requires strength of character such as judgment, bravery and perseverance.

Taking a position requires making decisions. What exactly do I do to avoid adverse consequences if possible? Do I start looking for allies or do I speak directly to my manager? Do I involve other supervisory authorities? Do I have to protect myself and how can I do that? Clarify these questions like any other important management decision: 

  • Make sure you understand the situation correctly. Does the critical approach deviate from usual market standards or even legal requirements? Are customers or other stakeholders harmed? How exactly are they damaged? How is it violated? How could the given situation be explained differently, perhaps even advantageously for the stakeholders? These questions help to check your own assessment. If the assessment of the situation remains critical, the answers to these questions provide the necessary basis for your own actions and strengthen your own position.

  • Look for advice. Consult a competent person you trust. Describe the situation and your concerns, explain your observations and conclusions. Let your point of view be critically questioned, look for errors in your logic, try to find other explanations, understand possible motives of those involved and anticipate resistance.

  • Evaluate your options for action. A simple decision tree helps to objectify your options and their possible consequences and to better control your own emotions. List your options and their possible consequences. Assess the scope of the possible consequences and their respective probability of occurrence. What is the worst and what is the most likely to happen to you?

  • Think creatively and practically. Try to find alternative solutions. How could the actors in the problematic situation achieve their goals correctly and legally? Should such a solution be found, this could be the most elegant way out of your dilemma.

  • Consider speaking out frankly. Addressing the driving actors directly is always an option. Depending on their hierarchical position and attitude, however, this can have far-reaching consequences. In a direct confrontation, the specific reasoning and choice of words are decisive. Allegations are risky. Sharing concrete observations and risk assessments without making accusations is often more promising: “I see a serious legal risk here that could get on our feet quite hard. How about we do the following ... "

Having clarity, distancing yourself clearly from ethically problematic issues and being unmistakably committed to your own values often brings great relief. Irrespective of the possible consequences, this increases self-esteem, self-confidence and strengthens the ability and willingness to act comparably in future situations. Ultimately, this often leads to significantly increased job and life satisfaction.

Those who manage to address potential ethical conflicts at an early stage can often avert negative consequences for everyone involved and raise awareness of their own environment for ethically correct behavior. Ethics arise from correct behavior in individual cases and resulting moral impact on others.

Dealing with negative consequences

However, you may not find a smart way out of your dilemma, despite all analysis and reflection. Or you may experience serious drawbacks after standing up for what is ethically right. What to do if the promised salary increase is suddenly withdrawn, important projects go to more obeisant employees or even open bullying takes place?

 At the latest now you have to decide: Can and do you want to accept this situation? Is the fight against the system worthwhile? Do you knuckle down or are you looking for a new employer that better fits your values?

Depending on you endowment with a sense of justice, bravery and perseverance, this decision will be different. In such situations, changing employers is sometimes the best choice. This decision to consciously free yourself from an environment that obviously does not meet your own moral and ethical standards is often a great relief.

Authors: Barbara Kearney & Jan Kiel


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