Business schools teach ethics and companies have developed and instituted policies aimed at fostering an ethical workplace. If these efforts are more than lip service, why is unethical behavior and corporate corruption so prevalent?

Corporate corruption is widespread. Unethical behavior permeates organizations. It rarely is organized from the top however.

Granted, some leaders are crooks and some managers become involved in institutionalized breaking of rules and ethical standards in order to meet targets and goals. KPIs are gamed because that is what is incentivized.

But the intention of the majority of managers and leaders is to run ethical organizations.

Usually employees end up bending or breaking ethics rules for personal gain and because those in charge unknowingly encourage it.

These behaviors are the unintended consequences of setting aggressive targets and goals without addressing and implementing guardrails and rules of the game. You need to frame the market.

In many cases ethics is not taken into consideration in business situations. Companies are in business to maximize profits and create shareholder value. It is the sole focus of the corporate charter. Collateral impact and implications are not addressed in articles of incorporation or corporate bylaws.

Correcting mistakes takes time and resources and that translates into costs, lost market share and dings to the brand. That cascades into lost revenues and reduced profits.

Admitting problems and attempting to remedy them can damage a brand’s reputation and decrease market share and competitive position. These are all business issues that incentivize not dealing with, delaying dealing with, or covering up problems. This behavior is unacceptable from an ethical standpoint but is baked into the corporate mandate.

We can examine a long list of case studies: Ford and the infamous Pinto, Enron, Volkswagen and emissions cheating, and on and on.

What would make CBS CEO Leslie Moonves say of our United States poisonous political environment, “It may not be good for America, but it’s damn good for CBS.” He was certainly not thinking of patriotism, high ideals or coming from a principled position.

Bottom line:

Greed and vanity are the twin engines of capitalism.

They are powerful motive forces and drive much productivity and innovation. But the side effects are debilitating. Nassir Ghaemi in his book A First Rate Madness makes the interesting claim that there is a sweet spot of madness that allows people to function and perform at a high level. Less madness and a person is unmotivated, too much and they are psychopaths. But the goldilocks principle applies to just the right amount to succeed in society; to rise to the top.

This phenomena speaks to the the dysfunction of unregulated capitalism and its pernicious social effects. Proper regulation can frame markets and nudge good behavior and curb bad behavior.

We can apply this thinking to corporations and find the sweet spot of regulation that allows profit maximization to spur creativity and innovation but not to spill over into anti social behavior.

Reigning and Framing

With all this said about reigning in and framing corporate behavior, the overwhelming benefits of the invention of the corporation are sometimes obscured and overlooked.

The corporate structure of organizing activity is one of the greatest beneficial inventions of modernity. The concepts of limited liability, governance by plurality, and separating ownership from management, were massively innovative and have spurred economic growth for 150 years.

Corporation form and stock markets were the perfect combination and were the dual engines of growth during the twentieth century. Stock markets have become less central to sourcing capital as we have private companies with great than one billion valuations called unicorns. But even as capital markets evolve and private equity becomes a big player, the corporate form of organization is still the standard.

Innovation in organization

We usually think of innovation as coming from science and technology. Corporate form is an innovative way of organizing people to get things done. One form that seems to be challenging corporate supremacy is wiki and open source forms.

Linux and Wikipedia are two examples of people self-organizing and working on massive projects without being managed or paid.

Ethical Leadership

Ethical leaders have external reference points and guiding principles. They have a pole star that they navigate by and criteria against which they measure each and every decision and action.

These external reference points come from study and observation. They come from philosophy, religion, psychology, biography, and history. They come from non-fiction and fiction. They come from doing the hard work of thinking, drawing conclusions, and taking stands.

These are deep resources to draw on when making difficult decisions. These are how values are created that can be lived by.