What is ethical leadership? Do you base it on something as simple and straight-forward as Don’t Do Evil or is it grounded in one of the more well-known philosophers, such as Jeremy Bentham and utilitarianism, John Stuart Mill and the concept of liberty, or Peter Singer who delineates “practical ethics” which he defines as the application of morality to practical problems based on philosophical thinking rather than religious beliefs? In the Harvard Business Review (HBR), Max H. Bazerman takes a look at this issue for the business leader in a piece entitled “A New Model for Ethical Leadership”.
Bazerman said, “For centuries philosophers have argued over what constitutes moral action, theorizing about what people should do. More recently behavioral ethicists in the social sciences have offered research-based accounts of what people actually do when confronted with ethical dilemmas. These scientists have shown that environment and psychological processes can lead us to engage in ethically questionable behavior even if it violates our own values. If we behave unethically out of self-interest, we’re often unaware that we’re doing so—a phenomenon known as motivated blindness.” I want to spend a couple of blog posts looking at this theory and seeing if it can apply not only for the modern-day compliance professional but whether it might have broader applications in business leadership.
Bazerman’s approach is that “improving ethical decision-making blends philosophical thought with business-school pragmatism.” He believes to the underlying principles of “utilitarianism, a philosophy initially offered by Bentham, which argues that ethical behavior is behavior that maximizes “utility” in the world”. Yet he re-monikers it as value, that includes “maximizing aggregate well-being and minimizing aggregate pain, goals that are helped by pursuing efficiency in decision-making, reaching moral decisions without regard for self-interest, and avoiding tribal behavior (such as nationalism or in-group favoritism).”
He begins with the concept of bounded rationality, “which is core to the field of behavioral economics, sees managers as wanting to be rational but influenced by biases and other cognitive limitations that get in the way.” While most academic researchers do not expect persons to be fully rational in their decision-making, they believe “we should aspire to be so in order to better align our behavior with our goals.”
In the ethics domain we struggle with bounded ethicality—systematic cognitive barriers that prevent us from being as ethical as we wish to be. However, through correcting our personal goals from maximizing benefit for ourselves (and our organizations) to behaving as ethically as possible, we can establish a sort of “North Star to guide us. We’ll never reach it, but it can inspire us to create more good, increasing well-being for everyone. Aiming in that direction can move us toward increasing what I call maximum sustainable goodness: the level of value creation that we can realistically achieve.”
To begin to create value, Bazerman cites to the work of Daniel Kahneman, specifically his book Thinking, Fast and Slow, which posits that persons have two different modes of decision-making. The first, “System 1 is our intuitive system, which is fast, automatic, effortless, and emotional. We make most decisions using System 1”. The second is System 2, which is “our more deliberative thinking, which is slower, conscious, effortful, and logical. We come much closer to rationality when we use System 2.” He further notes, the philosopher and psychologist Joshua Greene has called it a “two-system view of ethical decision-making: an intuitive system and a more deliberative one.” The deliberative system leads to more-ethical behaviors.
What Bazerman found is that “intuition and emotions tend to dominate decision-making is that we typically think about our options one at a time. When evaluating one option (such as a single job offer or a single potential charitable contribution), we lean on System 1 processing. But when we compare multiple options, our decisions are more carefully considered and less biased, and they create more value. We donate on the basis of emotional tugs when we consider charities in isolation; but when we make comparisons across charities, we tend to think more about where our contribution will do the most good.”
What all of this would seem to portend is that the skills of a good Chief Compliance Officer (CCO), listening, marshalling the facts and calm deliberation, are more directly in tune with System 2 thinking. Indeed, much of the work of a CCO is negotiating or mediating positions of others. This means managing trade-offs. He noted, “The easiest trade-offs to analyze involve our own decisions. Once two or more people are engaged in a decision and their preferences differ, it’s a negotiation. Typically, negotiation analysis focuses on what is best for a specific negotiator. But to the extent that you care about others and society at large, your decisions in negotiation should tilt toward trying to create value for all parties.” This would seem to be a direct definition of a CCO.
Further, the strategies for negotiations work towards using strategies to find more sources of value. He states, “These strategies include building trust, sharing information, asking questions, giving away value-creating information, negotiating multiple issues simultaneously, and making multiple offers simultaneously. If you’re familiar with negotiation strategy, you appreciate that most important negotiations involve a tension between claiming value for yourself (or your organization) and creating value for both parties—enlarging the pie.”
Bazerman emphasized that negotiation ethics is not simply not cheating or lying, he defines “it as putting the focus on creating the most value (which is of course helped by being honest). You don’t ignore value claiming but, rather, consciously prevent it from getting in the way of making the biggest pie possible.” All of this drives home the role of the CCO and how these strategies can be used to drive ethical behaviors in an organization.
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