How bad management leads to bad ethics

When scandal breaks, we prefer our corporate villains evil, but the truth is usually more complicated

 
GlaxoSmithKline headquarters in London
GlaxoSmithKline’s 2008 incident with a poorly managed pharmaceutical plant shows how poor operations and poor ethics go hand in hand. (Ben Stansall/AFP/Getty)

What’s the connection between ethics and competence in business? What part was played in Volkswagen’s wrongdoing by the fact that the companies engineers were apparently technically incapable of making good on the promises their marketing department was apparently intent on making?

I’ve written before about my hypothesis that cheating is often a way of covering up for your lack of talent. This hypothesis suggests that executives cook the books to hide the failure of their strategies. Companies offer bribes because they know their product or service isn’t good enough to compete otherwise. Salespeople fudge their sales numbers because they’re not as good at their jobs as they need to be.

A year or so ago I heard a presentation by someone who worked in compliance at a global company that had, some years ago, been embroiled in a bribery scandal. One of the most shocking things the speaker said is that, during the years in which the bribery scandal took place, it was not uncommon for hundreds of thousands of dollars to go missing from the books — not “missing” in the metaphorical sense (“That money is — wink, wink! — missing”), but missing in the literal “we don’t know where the money went” sense. The very strong suggestion here was that bribery on a large scale went hand-in-hand with very loose and unprofessional accounting standards. The managers at this company simply literally did not have a good sense of where their money was, a situation that easily enabled ethical lapses.

Consider also the case of the prosecution of GlaxoSmithKline, a few years ago, for selling adulterated drugs. The problem again was incompetence. Some of the pills manufactured at the company’s Cidra facility, in Puerto Rico, had been mislabeled. Others had been found to contain more (much more!), or less, of their active ingredient, than they were supposed to. Still others contained metal particles, the result apparently of machinery having broken and then repaired in an amateurish way that resulted in metal parts rubbing together. Through and through, the story is one of general incompetence—front-line work being done badly, managers ignoring problems, and senior managers failing to institute remedies once serious deficiencies in manufacturing practices were brought to their attention.

These anecdotes suggest at least several different connections between failures of ethics and plain business incompetence.

One connection involves resorting to unethical behaviour to cover up for mistakes or poor performance. Once you’ve found out that sloppy work has led to a poor product, you can either face up to it (but that’s inconvenient and painful and maybe expensive) or you can unethically (and maybe dangerously) sweep the problem under the carpet.

Another connection is that in some cases poor management makes unethical behaviour easier to get away with. This might involve sloppy accounting, but it could just as easily involve poor training, poor oversight, and unclear lines of accountability.

And then (perhaps more commonly) there are more complex cases, in which lack of business skill (say, at providing high-quality service) results in a desire by some employees to engage in compensatory wrongdoing, and that wrongdoing is made easier by ongoing incompetent accounting.

We all prefer simple stories, ones with clear villains. And, to paraphrase Homer Simpson, we like our beer cold, our TV’s loud, and our corporate villains evil. So it’s hard to accept that sometimes the truth is both more complex, and less dramatic. But we’ll do better at understanding, and avoiding, corporate wrongdoing if we come to grips with the messier truth.

Chris MacDonald is director of the Jim Pattison Ethical Leadership Program at the Ted Rogers School of Management, and founding co-editor of the Business Ethics Journal Review.

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