The true cost of unethical leadership

Executives’ nightmares are haunted by revelations their organisation has done something wrong. The toll of being hauled in front of a Royal Commission, dragged through the courts or splashed across news headlines is significant.

The harsh spotlight of public scrutiny is often accompanied by financial – and potentially criminal – consequences.

It’s a chilling thought because, in the depths of a sleepless night, it’s impossible to be sure that everyone is doing the right thing. But when the sun comes up it’s easy to think, ‘we’d never cross that line’.

It’s not hard to spot unethical conduct, right? A bank charges fees for services it doesn’t deliver. Athletes tamper with equipment to gain an unfair competitive advantage. Franchisees deliberately underpay vulnerable workers.

This kind of corruption is clear-cut and those involved pay a justifiably high price for their malfeasance. Unethical behaviour is easy to identify and thus easy to avoid.

But consider for a moment that these reprehensible breaches of trust didn’t come out of nowhere. The organisations responsible didn’t make one giant leap from the straight and narrow to a wayward criminal path. They built up to it slowly over time.

Little by little, small transgressions become larger ingrained modes of behaviour, what the philosopher Amélie Rorty calls the slippage into habit.

What might start as a failure to declare a conflict of interest could lead to a pattern of kick-backs and under-the-table deals, and the next thing you know, a middle manager is rorting a project to renovate their home.

Left unchecked, these kinds of actions create a culture that first enables, then encourages and ultimately demands that rules be broken.

READ MORE: How to become moral leaders

You may well think, ‘we’d never let it get that far’. However, the high-profile scandals that make the news are outliers. The common result of an unscrupulous culture is far more prosaic: you end up presiding over an underperforming and lacklustre operation.

The slow but persistent rot of low morale and cynicism among staff will do more damage than scandal. This is the real cost of unethical leadership, the thing that should plague the sleep of the C-suite.

It has been estimated that the Australian economy loses $3.8bn each year in lost productivity due to staff turnover. Employees leave for a multitude of reasons, but a lack of respect and poor culture are routinely cited as drivers.

These motivations are often derisively attributed to millennials. But given they’ll account for 75% of the workforce by 2025, it’s worth taking these concerns seriously. They want transparency. They want to make a positive impact.

And, crucially, they want to work for leaders with integrity. Get it right and you’ll not only have a secure and productive workforce, but an army of passionate advocates championing your brand.

So, how do you create a culture of integrity? A list of do’s and don’ts pasted up in the staff kitchen isn’t going to cut it. Some might say, ‘don’t do unethical things!’ But this is just the managerial equivalent of the abstinence approach.

What’s actually needed is for employees to be equipped with the capabilities to assess their conduct and permission to act on what they may uncover.

There are some common steps that can put a solid foundation under your organisation:

• Expose your people to different ethical decision-making frameworks. The idea is to move from simply following a rule to being able to question the rightness of an action or circumstance.
• Let people know that it’s OK to ask challenging questions. Ask ‘what if’, ‘why’ and ‘why not’ of the status quo.
• Extend this permission to all levels of the organisation, from the top to the bottom, with leaders at all levels acting as role models.
• Support people who are motivated to create change along ethical lines and make sure their efforts are recognised.

There are no quick fixes and every context is different. But the fish rots from the head, as the old saying goes, so it’s critical that leaders lead by example. ‘Do as I say, not as I do’ doesn’t work.

Getting it right creates an organisation that operating at its peak can outperform its contemporaries by a significant margin – and helps everyone get a good night’s sleep.

Vanessa Pigrum is the CEO of the not-for-profit Cranlana Centre for Ethical Leadership, which helps Australian leaders develop skills in critical reasoning and ethical decision-making.