Why Do Businesses Continue to Ignore Their Role as a Moral Agent?
Has Wells Fargo Learned its Lesson?

Corporate Culture Run Amok

Product Safety Scandals Keep On Coming

How can we explain the extent of recent corporate wrongdoing that raises the question: Where were the top officials? Just in the past few years we learned of fictitious accounts set up for customers at Wells Fargo and adding costs to the products sold by selling unwanted items like homeowner's insurance. At Volkswagen, a 'defeat device' was installed in thousands of cars that reported false information about auto emissions in order to meet environmental standards in the U.S. In each case the existence of these schemes was reported to management but nothing was done about it. Whistle-blowers were even retaliated against for reporting it.

The latest scandal is at Johnson & Johnson (J&J) where, users claim, baby powder had asbestos in it. Health issues followed and led to lawsuits against the company. J&J has already lost round one of the many lawsuits that will be bought against it for selling a tainted product.

I could go back further in history but they wouldn't change the fact that the cause of these fraudulent activities is a lack of an ethical corporate culture. Top officials seem to be blind to the ethical issues in selling safe products to the public and acting quickly when reports of problems arise. Duck safety

Corporate culture is the shared beliefs of top managers in a company about how they should manage themselves and other employees, and how they should conduct their business(es). Corporate culture starts with an explicit statement of values, beliefs, and customs from top management that guide ethical decision-making.

An important element of ethical culture is the tone at the top. Tone at the top refers to the ethical environment that is created in the workplace by the organization’s leadership. An ethical tone creates the basis for standards of behavior that become part of the code of ethics. Setting an ethical tone is a necessary but insufficient basis to expect ethical behavior to occur. The actions of top managers must match the tone to have that effect. In other words, top managers must “walk the talk” of ethics. For example, if top management only pays lip service to claims of a hostile work environment, actions such as sexual harassment may not be taken seriously and abusive behaviors may continue unabated.

The tone set by managers influences how employees respond to ethical challenges and is enhanced by ethical leadership. When leaders are perceived as trustworthy, employee trust increases; leaders are seen as ethical and as honoring a higher level of duties.

If the tone set by management upholds ethics and integrity, employees will be more inclined to uphold those same values. However, if top management appears unconcerned about ethics and focuses solely on profitability, employees will be more prone to accept improper behavior by managers, such as fraud, and may engage in it themselves. 

Corporations never seem to learn their lesson. I can recall a product scandal back in the 1960s when the Ford Pinto was sold with safety concerns because at low speed crashes the car could catch on fire, occupants inside were burned, and even some deaths occurred. What did Ford do? Nothing at first, claiming the placement of its gas tanks (the cause of the problem) met all safety regulations.* The company put compliance over ethics, was sued for millions, and lost its reputation for selling reliable automobiles.

The moral of the story is the more things change the more they seem to stay the same, at least with respect to the way in which companies deal with product safety issues. Why? Top management seems to be blind to the ethical issues and needs a wake-up call to to change the corporate culture.

Blog posted by Steven Mintz, aka Ethics Sage, on April 4, 2019. Visit Steve's website and sign up for his newsletter. Follow him on Facebook and "Like" his page.

* Back in the day the gas tank was behind the rear license plate so rear-end rashes could cause the car to be enveloped in flames. The positioning of the gas tank changed to the rear side as a result of the Ford Pinto scandal.