Cheaters Never Prosper?

News of a company behaving unethically has become so common that it hardly raises an eyebrow except, perhaps, in the most egregious cases – and even then the outrage is often muted after the initial flare-up subsides. Take the recent case of HSBC, which agreed to pay $1.9 billion for having enabled billions of dollars to be laundered by drug cartels and for violating U.S. sanctions against numerous countries, including Iran, Libya, and Sudan. Remember that? Barely – it was in the news over two weeks ago.

In an interview published in the most recent issue of the Harvard Business Review, noted psychologist and author of the bestselling book, Influence, Robert Cialdini, makes a provocative new claim about why behaving unethically is bad for a company’s bottom line. Cialdini’s argument goes beyond the cost of being caught doing something illegal because, he explains, “People don’t expect to be found out. Especially at the highest levels of power, people feel that they’re bulletproof.” So instead he makes a case aimed at their self-interest:

“Our hypothesis is that if an organization allows or cultivates a culture of dishonesty with the world outside the firm, the people inside the organization who are uncomfortable with dishonesty will seek to leave, and they will remain uncomfortable and stressed until they do. Conversely, the people who are comfortable with dishonesty will stay. Eventually the organization will be full of people who are comfortable with cheating—and who will cheat the organization.”

On its surface, the case is compelling. If you drive all the honest people out of your company, it may only be a matter of time until they turn their villainy against the company itself. But there is at least one issue that makes me wonder whether this is really how things are likely to play out. Why? Because if there’s one thing that people are really good at, it’s rationalization, especially when trying to avoid a painful (or costly) truth. There are piles of experimental data that attest to this fact, but it may be best captured by one of my favorite quotes, from author and unsuccessful politician, Upton Sinclair, who said, “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

In extreme cases, unethical behavior becomes so blatant that it’s impossible to sweep under the rug – for example the recorded conversations between Enron employees in which they gleefully recount how they took advantage of helpless “Grandma Millie” (Warning: expletives used, NSFW). But most of the time, things are more subtle. Even behaviors that are clearly unethical to an outside observer can be relatively easy to justify to someone whose job depends on just such a justification. That becomes even more true for people who, despite good intentions, become incrementally more complicit in the unethical behavior. Even if people are not actively engaged in unethical acts themselves, seeing others make ethically questionable decisions and failing to say anything can trigger people to justify the behaviors.

So I don’t doubt that Cialdini is right in the sense that blatantly unethical behaviors are likely to make ethical employees uncomfortable, and may ultimately lead them to leave. But I think there is still a lot of wiggle room left for companies to push the envelope on unethical behavior pretty far without triggering an ethical exodus.

What do you think? Would you feel uncomfortable if your co-workers seemed to be stepping across ethical lines? Have you had that experience? Has it ever led you to leave a company – and do you think that’s what usually happens? As the famous Milgram electric shock experiments suggest, if people are going to leave, it probably won’t be because they wake up one morning and decide that they’ve had enough; it will usually take some triggering event that allows them to justify to themselves why they’re choosing to leave today, but didn’t leave yesterday.

To me, one interesting question is, what can a company that wants its employees to behave ethically do to prevent its ethically-minded employees from rationalizing their way down a slippery slope, and instead taking steps to improve employees’ ethical standards.