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«Global TrusT and EThics in FinancE Innovative Ideas from the Robin Cosgrove Prize Carol Cosgrove-Sacks / Paul H. Dembinski Editors Trust and Ethics in ...»

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Or, perhaps, it is too hot, too cold, or raining outside. A rationalisation process may often lead to an exponential pursuit of the behaviour or actions originally identified as dissonant. To continue our example, our rationalisations continue, the weather may be warm and we may be on vacation, but we’ve fallen into the habit of driving, and so we continue.

Perhaps, given the amount of time we spend driving, we upgrade to a nicer model of car. Cognitive dissonance encourages the denial of contradictory data and the development of a confirmation bias. Once in our new car, we rarely, if ever, stop to consider our original oppositions to driving.

Cognitive dissonance and self-rationalisations can take many forms.

In experiments where participants who held a particular belief were pubTrust and Ethics in Finance licly forced to state something to the contrary, researchers have found that participants often shifted their beliefs to accommodate the statements that they had made. Interestingly, when participants were induced to make public statements in order to receive some form of a reward, the greater the reward, the less of a shift was observed within their personal belief system (Festinger and Carlsmith, 1959).

The implications of this study must be carefully considered, as they infer that those people who modify their beliefs for small rewards are subject to more internal pressure to justify this changed direction. For corporate and public policy this indicates that rather than watching for shifts in corporate culture at the top of the organisation – where there is much to gain by unethical behaviour – attention ought also be carefully focused on the middle ranks, where a combination of powerlessness or minimal authority, small rewards, and cognitive dissonance might combine in very damaging ways.

Moral aspects of choices

Moral decision-making has been considered by two key theories, deontological and consequentialist. The deontological approach, derived from the Greek word for duty, takes the perspective that a particular act or action is right or wrong; the consequentialist considers, of the act, what the consequences of doing something might be (Tanner et al., 2008). Of course these are not mutually exclusive concepts, as the consequence of an act often defines whether it is right or wrong.

From the allegorical narrative of The Lord of the Flies, to internet chat rooms, the Klu Klux Klan and masquerade balls, we are well aware that anonymity allows for the expression of the baser, and less culturally supported, human desires. As detailed in the theory of consequentialist decision making, acts are considered with a focus on outcomes – the risks and rewards of the choice. When anonymity is allowed, the risks decline dramatically. With this in mind, a movement has sprung up Emotions, Personal Ethics and Professional Life 127 among the strange bedfellows of institutional investors, environmentalists and human rights activists, aimed at seeking greater disclosure and transparency from companies around their social and environmental programmes and policies. A positive feedback cycle is created, as investors increasingly incorporate these data into their valuations, as strong sustainability programmes are rewarded by greater investor support, which, in turn is rewarded by greater disclosure and stronger programmes.

Research is just now beginning to consider the moral aspects of choice, particularly when trade-offs, or cognitive dissonance, is involved. The term “protected values” has been developed to describe those beliefs that people are not willing to compromise at any price. Protected values have been shown to be highly associated with a deontological orientation. When someone has a protected value, they consider the consequences of their decision to be irrelevant, as long as their protected value is prioritised. A 2008 study found that those people having a deontological orientation were more likely to prefer acts to omissions.

That is, they were more likely to respond and be motivated by positive statements such as “bring about good”, than negative statements such as “do no harm” (Tanner et al., 2008).

The role of emotion

Another emerging field, moral cognitive neuro-science, provides us with additional insight into the human decision making process. The roles of deliberation, affect and emotion are highlighted through this research. In this field, emotions are defined as somatic changes in response to a stimulus. Feelings, on the contrary, are created by the correlated emotion, as a secondary result. This research field is in direct opposition to the classical Cartesian view of decision-making as a reasoned, emotion-free process. By using brain imaging, positron emission topography and magnetic resonance imaging, researchers have deterTrust and Ethics in Finance mined that two clear neural processes, cognitive and affective, are involved in decision-making. Business decisions, however, have traditionally assumed a rational and deliberate process – one that is free of the affective.

Current neuroscience research indicates that the mind does not have the ability to compute without emotion. The cognitive system must work through the affective system. While the cognitive system is responsible for the searching of options and predicting consequences, the evaluation of this data must be done by the affective system. Indeed those people with damage to their affective region were both emotionally flat and poor decision makers.

Research indicates, however, that according to the decision at hand, the brain works in different modes. In research studies, brain activity associated with emotion is significantly higher when participants viewed the situation as being “moral personal” versus “moral impersonal”. An example of “moral personal” would be one that had direct contact with human suffering, such as deciding who to save from a sinking boat.

“Moral impersonal” involved questions around returning money from a lost wallet (Wenstop and Koppang, 2009).

The influence of management

Individual factors identified that influence ethical decision-making includes: gender, moral cognitive development, ego strength, and control. Meanwhile situational factors include: reinforcement, commitment, sense of justice and social pressure. While a company can do little, in legal terms, to address individual factors of ethical decision-making, it can do much to address situational elements.

As demonstrated in Dipanker Ghosh’s 2008 research, employees determined to maintain high ethical standards “do indeed become less ethical when corporate management adopts a profit-oriented approach compared to when it values integrity, or when no corporate values are Emotions, Personal Ethics and Professional Life 129 professed”. It is important to note that in his study, ethics were assessed as they related to the company’s own resources. Therefore, employees at companies with inflexible foci on the bottom line were significantly more likely to behave unethically towards their own employers. Ghosh’s study also observed that those employees identified as holding high ethical standards were significantly more likely to demonstrate these standards in workplaces where company management actively encouraged and valued integrity-based decision-making. When corporate management did not seek to create and encourage a public sense of integrity, the discernable difference in behaviour between high and low ethical behaviour in employees was significantly lower. Ghosh’s study gives significant credence to the idea that corporate attitudes and intentionally created cultures are of great import in developing an ethically run company.

Further research into workplace environments has demonstrated a strong link between management behaviour, company culture and employees’ personal decisions. Studies have shown that employees tend to look to their supervisors for guidance on the appropriateness of certain behaviours. A particularly telling study conducted in 1979 by Hegarty and Sims found that when employees were presented with a letter from the CEO that encouraged ethical behaviour, even using a method as indirect as an expression of enthusiasm about a journal article, the employee was significantly less likely to pay kick-backs. Similarly, a study in 1985 showed that employees at companies where work-life balance was emphasised were far less likely to accept kick-backs than employees at explicitly profit-driven companies (Bailey and Alexander, 1993).

Alternatives to the status quo For a more ethical financial system, the goal must be to empower employees to stand in opposition, to question, to push, and to think creatively about ways to meet corporate goals, rather than developing anTrust and Ethics in Finance other set of laws or voluntary codes. It is not feasible to create a universal ethical framework. Any company or oversight body that tries to do so, will find itself slighted – if not in the creation of these codes, then certainly in their implementation.

There are significant advantages to successfully implementing a sense of meaning in the workplace. Studies have identified such positive elements as enhanced commitment, performance, motivation, satisfaction, and trust in management.

However, this paper would not be complete without a warning, as was issued in a 2006 study by Sandra Cha and Amy Edmondson. These researchers found that charismatic leadership around shared employee values may inadvertently lead to employee disenchantment. Disenchantment is defined by a feeling of violation, a loss of trust and enthusiasm, the presence of anger, resentment, bitterness and outrage with a sense of being betrayed or mistreated. This may occur should employees perceive any hypocrisy in their leaders’ in organisational value statements. Values, by their


nature, create the opportunity for multiple interpretations of intention. As such, employees and management may read different commitments between the lines.

In addition, there is often a natural conflict between business and communal values. Management, as occurs when staff cuts must be made, is obliged to choose between strengthened business performance

and the employees’ sense of community. In order to reduce the perception of hypocrisy, leaders are advised to take a number of steps:

• Explicitly acknowledge tensions between work-place values and business decisions.

• Engage in a thoughtful discussion with employees around the company’s values.

• In times of stress, conscientiously affirm the company’s ongoing commitment to its values.

Emotions, Personal Ethics and Professional Life 131

• Allow for feedback around areas of employee concern or disappointment. Management is particularly encouraged to discuss feelings arising from unexpected actions or events.

Opportunities for change Knowing the challenges facing their employees, what other opportunities exist for managers, investors and other stakeholders to encourage ethical financial markets? Innovative thinking is of essence here, and the opportunities for positive change are limitless.

First of all, corporate social responsibility units should not be designated to fall within the purview of only one division or department of a company. While it is essential to have a designated lead in questions of coordination, reporting and management of sustainability, organisations should seek to disallow the rationalisations that we have seen associated with cognitive dissonance. The negative repercussions of creating autonomous corporate citizenship centres allow employees to justify a detachment from their own responsibility to steward the companies’ ethics. Their rationalisations can become: “Addressing this is formally the responsibility of someone else, it is not my responsibility, therefore I need not become involved.” The Stanford prison experiment was not terminated on the sixth day because the sponsoring professor was concerned for his students. Rather, he, Philip Zimbardo, acknowledges that in his role of prison supervisor, he was as caught up in the process as the other guards. It was instead a girl he was dating (later to become his wife) who, on visiting the prison, was appalled by the conditions, and who insisted that the experiment ought to be shut down. This anecdote points to the importance of including external stakeholders. Finance institutions should seek to actively build relationships with non-governmental organisations, and actively bring in external viewpoints, perhaps through quarterly open town hall meetings. This would provide relationship-building, communication, an 132 Trust and Ethics in Finance exchange of ideas and culture between people who hold opposing viewpoints. Being directly responsive to external stakeholders would provide a much-needed unmasking of anonymity, the benefits of which were detailed earlier. Management would be stopped, or at least slowed, in slipping down the slope of confirmation bias by receiving occasional external feedback.

Personal meetings and active relationships with stakeholders would also do much to shift decision-making processes from “moral impersonal” to “moral personal”. This shift would do more than change the neurological processes seen in financiers’ brains from cognitive to affective, it would also address an additional concern highlighted by the Stanford prison experiment: that of the depersonalisation and deindividualisation of the victims. By encouraging, and indeed insisting that employees be more connected to the impacts of their decisions, particularly in how they affect other humans, companies would do much to shift patterns of behaviour.

Finally, management must also be cognizant of its power to create a strong ethical corporate culture. As we have seen, even a casual word of support from the CEO can shift an employee’s ethical behaviour in an unrelated activity. More than the occasional sound-byte to the press, or press release, management should recognise and praise those employees who take extraordinary actions to protect the ethics of their organisations. Company leaders need to make daily efforts to build, and reaffirm a culture of employee empowerment. This is particularly important as it is the small, everyday self-rationalisations that shift an ethical compass, not the large, high-reward steps more often associated with financial transgressions.

Integrating ethics in the workplace The detachment from, and the marginalisation of personal beliefs and values creates an untenable division within the financial markets.

Emotions, Personal Ethics and Professional Life 133 The New York Times of May 28th, 2009, reports that more than 20% of Harvard’s graduating MBAs have voluntarily pledged themselves to an honour code to serve the greater good. This is a fine gesture. But, what happens when these students are faced with decisions that are incompatible with their morals or ideals? When their hard-won job would be put at risk, should they choose to follow their code and “oppose corruption, unfair discrimination, and exploitation”? It is not enough for financial leaders to espouse a commitment to ethics and point fingers at rogue bad apples. These leaders must take conscientious steps to integrate a culture of ethical behaviour, personal ethics and autonomy into the workplace. If they fail to do this, then these MBAs, however earnest and committed they may currently have made that pledge in vain.


Bailey, J./ Alexander, R., 1993. “Organisations social cues, framing and justice:

effects on management’s ethical decisions”, The International Journal of Organisational Analysis, Vol. 1, No. 2.

Cha, S./ Edmondson, A., 2006. “When values backfire: Leadership, attribution, and disenchantment in a values-driven organisation”, The Leadership Quarterly, Vol. 17.

Festinger, L./ Carlsmith J.M., 1959. “Cognitive Consequences Of Forced Compliance”, Journal of Abnormal and Social Psychology, Vol. 58.

Ghosh, D., 2008. “Corporate Values, Workplace Decisions and Ethical Standards of Employees”, Journal of Managerial Issues, Vol. XX, No. 1.

Hegarty, H./ Sims, H., 1979. “Organisational philosophy, policies, and objectives related to unethical decision behavior: A laboratory experiment”, Journal of Applied Psychology, Vol. 64.

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