Exploring the Ethical Crevice
Leaders do what is right, not what is expedient. ~Principal #5—Crescent Leadership Manifesto
My first teaching gig was at a local community college in North Carolina. At the time, I worked in the nonprofit industry but taught night classes as a side hustle to keep me sharp and feed my desire to learn. I moved to Asheville, North Carolina, from Houston, Texas, mere months before the SEC began its investigation into Enron’s accounting practices. By the time I started teaching Business Ethics to anxious, young business students, Congress had passed Sarbanes-Oxley (SOX) with bipartisan support. Enron is likely the most recognizable offender, but Congress’s rush to pass SOX in 2002 resulted from a series of egregious corporate abuses and ethics violations at the turn of the century. SOX was one of the first of its kind—a federal law established to protect investors and whistleblowers through sweeping auditing and financial regulations. Teaching business ethics in the shadow of SOX gave us some thought-provoking dialogue.
One night my student, Emma, asked, “if I act unethically, am I breaking the law?” My short answer was, “no, not always.” Ethics are moral principles held by individuals or societal groups. They represent standards of behavior. On the other hand, laws are structured rules that governments create. They differ from country to country and change at a dizzying pace. Laws designed to protect citizens, such as those against rape, murder, and theft, are also ethically and morally wrong. But the expanse of law does not cover all unethical activity. These spaces are ethical crevices. Lawmakers often create laws when individuals or groups of people exploit commonly accepted ethical practices. Laws can stop the widening of ethical crevices, but often the damage is already done.
I have debated with colleagues numerous times whether Enron actually broke the law or just exploited the system. The other side of the argument holds that Enron executives gamed a system full of crevices not yet covered by the law, and they did that because they believed their actions were in the best interest of their shareholders. That may have been true as it was happening. However, when Enron failed suddenly and disastrously, it destroyed shareholder value and the lives of its broader group of stakeholders. Enron executives did what was expedient but not what was right.
Next, Emma asked, “if breaking an obscure, undefined code of ethics is not yet covered by the law, how can ethics guide our behavior?” Every business school in the country teaches business ethics for this exact reason, but unfortunately, most business ethics courses miss the mark. Understanding the components of business ethics is one thing. But acting on morally-challenging decisions in the face of intense pressure is altogether different.
Dieselgate—Volkswagen’s World Domination Megalomania
In 2011, Volkswagen was one of the largest auto manufacturers in the world, 2nd only to Toyota. CEO Martin Winterkorn stood on stage in Chattanooga, Tennessee’s new Volkswagen manufacturing facility, and to a crowd of dignitaries, he said, “by 2018, we want to take our group to the very top of the global car industry.” Volkswagen executives were driven by the unbridled ambition to be the preeminent car manufacturer in the world. They knew that would not be possible without increasing the company’s interest in the US market. But they faced an uphill battle. Volkswagen had to achieve what they believed to be unrealistic US emissions standards.
This singular focus on dominating the market through increased US sales created unbearable pressure to perform. Working within a restrictive budget and against a challenging timeline, engineers could not produce a solution that complied with the NOx emissions standards and lower fuel consumption (Singh, 2018). So instead of reporting their concerns and resisting the pressure to cheat the system, the engineers proactively and systematically engineered an illegal defeat device. They designed the device to cheat emission tests inside a test environment. Outside the test environment, its diesel cars would produce dangerously high NOx levels, up to 40 times more than allowed.
It took years for Volkswagen’s actions to come to light. The company ultimately recalled 11 million diesel vehicles worldwide involved in the falsified emissions test results. Volkswagen pled guilty to three felonies—conspiracy to defraud the United States, to commit wire fraud, and to violate the Clean Air Act (US Department of Justice, 2017). Six Volkswagen executives were indicted on criminal charges. Since the scandal became public in 2015, Volkswagen has paid more than $35 billion in legal fees, sanctions, and settlements. Steven Barrett and a team of researchers at MIT developed a model to quantify the impact of the excess admissions on human health impacts and the associated costs. The tangible cost of more than 482,000 emissions-cheating diesel vehicles sold in the US between 2008 and 2015 is estimated to be between 59 to 140 premature deaths. Other projections include $450 to $910 million in health and social expenses (2015).
The Intersection of Ethics and Emotional Intelligence
All people will face decisions that push the boundaries of ethics during our lifetimes. Often, these decisions exist in a crevice yet to be covered by the law. In these moments, we must let our moral compasses guide us. Later that night in class, Emma asked, “how do we know if we are following our moral compass?” I told her to pay attention to her answers to the three ethics tests:
The Gut Test—Is my stomach turning as I make this decision? Does it make me physically ill?
The Front-Page Test—How would I feel in my decisions ended up on the front page of the New York Times? (Now expanded to include the Social Media Test—How would I feel in my decision went viral?)
The Grandma Test—What would my grandma think about my decision?
If your responses fail any of these tests, you’re likely letting outside pressure guide your decisions, not your moral compass. This seems simple enough. Unfortunately, so many forces are working outside of our control when it comes to ethics. Sometimes a violation of your code of ethics may be clear to you and obscure to others. While there are generally accepted codes, an ethical code is personal and specific to each individual.
Years ago, I faced a difficult situation. Executives at my organization defined a direction I thought would have damaging long-term effects on our clients. I had to choose to provide this guidance to my clients and tell them that these actions would grow their businesses. Or I could choose not to guide them in this direction. If I chose not to provide this guidance, I would likely lose my job. I mustered my courage and expressed my concerns to the executive team. I explained that the proposed recommendations would give our clients a short-term boost but ultimately destroy their organizations. They disagreed. They focused solely on performance that would lead to immediate results and had lost sight of the long-term ramifications. In this situation, I used the Gut Test. My brain told me we were about to advise our clients to take a short-sighted, damaging approach, and when my recommendations to change direction fell on deaf ears, my gut told me I had to resign.
When faced with morally-challenging decisions, if we fail to ask these questions in the first place, sometimes we fall victim to ethical fading. Tenbrunsel and Messick (2004) introduced the concept of ethical fading to explain pervasive unethical behavior in organizations. Sometimes unwittingly, humans will engage in self-deception, making trade-offs between self-interest or self-preservation and moral principles. We focus heavily on some aspect of a decision other than the ethical ramifications of the decision. Our brains signal to us to see what we want to see by interpreting information that supports our pre-existing beliefs, self-interests, and expectations. As this happens, the rest of the elements of our decisions fade into the background. The high-pressure environment created the conditions for ethical fading at Volkswagen. The engineers focused solely on performing, achieving the result at any cost. In doing so, they lost sight of the human cost.
Although humans are the most intelligent species on the planet, the unevolved amygdala is quite primal. It causes us to react without thinking. The Leader-First® Touchstone, Emotional Intelligence (EI), is one of the best ways to combat ethical fading and to actively tame the amygdala. EI consists of four typically progressive elements—self-awareness, social awareness, regulation of emotions, and using emotions to facilitate performance. However, I’ve coached many leaders who get fixated on self-awareness. They say, "I know I don't follow through with what I say I'm going to do." "I know I'm difficult." "I know I don't accept feedback well." They wear self-awareness as a badge of honor. But self-awareness without action is narcissism. And even highly self-aware people can fall victim to ethical fading.
Self-awareness is not emotional intelligence. It is simply the first step to achieving emotional intelligence. Fully emotionalized leaders are self-aware but act on that awareness in a way that brings about a positive outcome for all involved. At the same time, they create safe environments that encourage their team members to explore ethical crevices, guided by their moral compasses.
References
Barrett, S. R., Speth, R. L., Eastham, S. D., Dedoussi, I. C., Ashok, A., Malina, R., & Keith, D. W. (2015). Impact of the Volkswagen Emissions Control defeat device on US Public Health. Environmental Research Letters, 10(11), 114005. https://doi.org/10.1088/1748-9326/10/11/114005
Singh, P. (2018). Volkswagen emissions scandal - A case study report. International Journal of Human Resource Management and Research, 8(5), 11–18. https://doi.org/10.24247/ijhrmroct20182
Tenbrunsel, A. E., & Messick, D. M. (2004). Ethical fading: The role of self-deception in unethical behavior. Social Justice Research, 17(2), 223–236. https://doi.org/10.1023/b:sore.0000027411.35832.53
US Department of Justice. (2017, January 11). Volkswagen AG agrees to plead guilty and pay $4.3 billion in criminal and civil penalties; six Volkswagen executives and employees are indicted in connection with conspiracy to cheat U.S. emissions tests. The United States Department of Justice. Retrieved October 9, 2022, from https://www.justice.gov/opa/pr/volkswagen-ag-agrees-plead-guilty-and-pay-43-billion-criminal-and-civil-penalties-six
