In 2015 we have essentially recovered from the 2008 “financial down-turn” (to use the euphemism that we adopted for that disaster). Thousands and thousands of people lost their homes, their savings, their jobs, and it disrupted our confidence in our economic system. Most of the decisions made by lenders and investors during that time were perfectly legal. They were also highly unethical. Here we’ll explore 6 ethical concepts since legal and ethical are different.
To look at just a single example, it’s perfectly legitimate to advance money to someone who can’t afford to repay it. You can loan money to anybody you want to without restriction. It might very well be legal, but that doesn’t make it right.
As an investor or a lender, it’s basically your job to know values, recognize over-valuation, and ensure that borrowers have the ability to repay their loans. Overlook that in favor of fast profit, and you are unethical.
You know the difference
Don’t ask your lawyers if something is ethical; that’s not their job, and they have no expertise in that area beyond what’s available from any of your other advisors. You could hire an ethics consultant, but doing that pre-answers your questions doesn’t it? If you wonder if something is ethical, it probably isn’t.
Only sociopaths don’t have a moral compass; the rest of us can pretty well tell right from wrong. Putting a cage full of mice in a little old lady’s basement window to get her to sell her home so you can knock it down and put up four condominiums? Wrong. Signing her to a 15 year closed-mortgage at 6% when everybody else is charging 2.5%? Wrong.
It comes down to choices
A common business practice is not ethical simply because “everybody else does it”. Let’s imagine for a minute that white chicken meat is considered superior to dark chicken meat and is more expensive. Let’s also imagine that a commercial meat producer develops a technique for bleaching dark meat to make it look like white meat.
Let’s say they sell this “light meat” at a lower price than white meat, and people don’t detect the difference. They don’t actually claim that it is white meat, and the company makes lots of money. With just a little industrial espionage soon all the meat producers are doing this.
Everything seems fine until a consumer figures it out and points an accusing finger at one of the companies. That company takes the brunt of the bad publicity and can actually be put out of business even if they didn’t start the trend. Someone always pays for bad ethical choices.
Whom do you trust?
If you do get caught up in some sort of ethical issue don’t let it be investigated by those whose ethics may have caused the problem in the first place. The single largest problem with this strategy is that no one wants to admit they made an error. Lapses in judgment get sloughed off on others as the guilty party goes into self-preservation mode.
Bring in an investigator from another department or different office that is independent of the problem. Failing that, hire an outside investigator that can examine the situation without bias.
Appearances
Not only do you have to be ethical but you have to appear to be ethical. Consider the case of a company near a small (but international) airport. Needing to organize a regional meeting, a conference planner was faced with an expensive conference center in a neighboring city, with hotel bills for attendees, meals on expense accounts, and Data Services. He also discovered that he could get a commercial flight, including hotel accommodations, free use of the conference center at the destination, several meals, and free Wi-Fi in the Grand Bahamas at half the price, which would you choose?
His manager made him select the local venue at twice the price because he would never be able to persuade the stockholders that it actually saved money. He couldn’t have the perception of waste while the economy was still in turmoil; that the employees were off having a good time on the company’s dime while the profits were still down. Appearing to be ethical was actually more costly, but important for investors’ confidence.
Internal Ethics
Another aspect of ethics that is often overlooked is how you interact with fellow employees. If you’re in charge of reviewing somebody’s performance, you’re ethically bound to tell the truth. Sugar-coating it to take away the sting can also take away the impetus to improve. You certainly don’t have to be cruel, but you do have to be honest.
If you gloss over someone’s failings in a report to upper management, now you’re cheating your employers of the information they’ve paid you to provide. And that makes you… Unethical!
Being ethical is a full time occupation
Fulfilling an order for a large customer before filling an order for a small customer who ordered earlier is unethical. It may result in more profit, but it’s not fair. The impact for a small customer who doesn’t get a product they need could be significantly higher. Ideally you should treat all customers exactly the same.
When you make a mistake you should admit it and cope with the details of getting it fixed. You don’t want to be like the manufacturer who inadvertently creates a dangerous product, and corrects the ongoing process to make sure that he makes no more dangerous products. By not contacting the people whose items are likely to burst into flames and burn down their house, he is being unethical.
Most importantly you should encourage ethical behavior in the people around you. Make it part of your corporate culture that people strive for ideals; that they keep their word; that they provide fair value to the customer at a fair price.
Being ethical is not difficult. Sometimes you have to override your fear or greed in order to make the right choice. But unless you’re an honest-to-goodness psychopath, it’s really not that difficult. Don’t be evil, and you’ll do just fine.
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