Corporate scandals don’t just happen to ‘bad’ people in other organisations. Executive and group coaching can promote a ‘speak-up’ culture by supporting leaders to become more self-aware and less complacent, says ethics and compliance expert Professor Guido Palazzo
Many employers will feel that 2020 has been a non-stop succession of challenges, but moving forward other risks will present themselves. A recent survey from the Association of Certified Fraud Examiners (ACFE) found that almost seven out of 10 anti-fraud professionals have already observed an increase in fraud levels during the pandemic and almost all (93%) said they expected a further increase over the next 12 months.
The reason for this is simple. The tension between the pressure to succeed and the pressure to comply can lead to good managers getting involved in fraudulent practices. The conventional technical and regulatory approach to compliance is designed to stop bad people doing bad things. However, it doesn’t take into consideration the importance of leadership behaviour or human psychology and invariably fails to spot wrongdoing until it’s too late.
When we examine corporate scandals, what we often see is that they start with good people doing bad things in highly stressful circumstances, often catalysed by an internal crisis of some sort. We also see cultures in which people are able to rationalise rule-breaking because they felt they were struggling for survival, often to such a degree that the behaviour becomes routine and they even convince themselves that they’re doing the right thing. It’s something that my HEC Lausanne colleagues, Franciska Krings and Ulrich Hoffrage and I have termed ‘ethical blindness’, and it plays a fundamental role in systematic organisational wrongdoing.
One of the most potent antidotes to ethical blindness is a culture in which individuals at all levels feel safe and able to voice their concerns about potential problems and ethical issues, without fear of retaliation. Critically, however, this only happens if people see that their own bosses are prepared to speak up and so this has to be led from the top. Complacency and a lack of self-awareness about how their behaviour impacts those around them are obvious leadership blockers to the emergence of a speak-up culture and so represent critical areas to address in terms of coaching interventions.
This is why a key aim of our ethical blindness workshops for senior executives is to encourage this sort of self-reflection, to get them to ask themselves, ‘Does my leadership style create the conditions for ethical blindness? Am I creating the circumstances in which fraud could flourish through the unrealistic pressure I put on people? Am I so different from the people involved in the scandals at Volkswagen or Enron or Wells Fargo?’
These questions help leaders understand that corporate scandals don’t just happen to ‘bad’ people in other organisations or that ‘it could never happen here’. This attitude is risky because the whole point about ethical blindness is that it emerges from stressful situations in which sound judgement no longer prevails. Unrealistic targets and pressure on people to meet objectives is a classic catalyst for this. And, once individuals start to act dishonestly, they lose the ability to make objective decisions and this distortion can become a mutually reinforcing cycle.
If they’re to be more effective, compliance professionals need to be able to identify and relieve the pockets of pressure that can be the starting point for ethical problems. This also helps to facilitate clear and aligned decision-making. In these situations, group coaching comes into its own. For example, if you bring together a group of sales people with an executive coach, they can share the challenges they’re facing in a safe space. It’s also an opportunity to let off steam on key concerns such as meeting targets and performance.
Case studies and story-telling are also useful tools for coaches who are working to help shape or change an organisation’s approach to compliance and risk. For example, by analysing corporate scandals and applying this learning to potential scenarios within their own organisations, executives can develop a much more nuanced risk picture and are better able to see issues from different perspectives. This can be especially effective when working with smaller groups of participants where people can learn from each other and ideas can develop through debate and dialogue.
There’s no doubt that coaches have an important role to play in helping executives to better understand the human risk impacts their organisations face with compliance and risk, including the psychological and emotional issues. This is also why our new certificate in compliance and ethics focuses on the human side, as this is systematically underestimated in comparison with the legal dimension of risk management.
- Professor Guido Palazz is academic director at Executive Education HEC Lausanne and director of the centre’s new Ethics & Compliance Certificate of Advanced Studies