Why is it hard to be ethical in business?

No one ever said leading was easy, much less leading with ethics. But the latter is very important. It is the difference between a good executive, in the full sense of the expression, and one who only knows how to achieve technical perfection, and how to do things right, but does not know how to do what needs to be done in each case, with long-term vision and a sense of responsibility.

Being ethical in business is difficult, given the nature of the tasks involved with leading an organization:

  1. The decisions are complex; there is no time for reflection, vital information is missing, etc.
  2. The competition is intense, sometimes brutal.
  3. We are enslaved by results: You are what you achieve, and there are perverse incentives, which lead people to do things that should not be done because people get paid to do things they should not be doing.
  4. There is an abundance of inertia, i.e., “that’s how it’s always been done.” It is the success trap.
  5. There are mistakes, inevitably, and the human tendency to deny them or cover them up, which makes change very difficult.
  6. Moral sensitivity is reduced. Ethical problems are not apparent, as they are often masked under technical considerations, which are the dominant force.
  7. There is a lot of cognitive dissonance: resistance to accepting evidence contrary to what we think.
  8. There is the tendency to rationalize the behavior: What is immoral is presented as something acceptable, as a normal practice, “everyone does it”…
  9. There is also a prevalence of bureaucratic culture: “This is how things are done here,” “Follow our lead or you’re out of here,” etc.
  10. Ethics is not considered a part of the company’s decision making. Decisions are made by experts, who only consider their limited field, and overlook the implications of their decisions on others: a salesperson decides what needs to be done to make sales, regardless of whether this affects manufacturing, harms the environment or creates comparative injustices for other departments. In other words, a partial, limited approach is an invitation to not act ethically.
  11. Individualism predominates in business as well: everyone has their own agenda, especially at the executive level. Values are a private matter. The idea of what is ethical bothers me, because it doesn’t allow me to do things my way. The company ends up being an amoral subject: ethics should not come into play here; at most, as an adornment, but that’s it.

The way ethics manifests itself in the company doesn’t make it easy to do the right thing either. We demand that ethics be profitable… because if not, the governing body would not accept it. We reduce ethics to a set of external constraints that are imposed by society or the media. This reduces ethics to a code of conduct, which must be met even if it is not profitable—so we might as well not pay much attention to it.

Or ethics could mean doing something extra: a spa for employees, inviting them to volunteer on weekends, or doing philanthropic work with the profits.

Yes, it is hard to be ethical in business. But it is necessary . Being familiar with the road we must travel on will help us avoid the potholes and roadblocks, and allow us to move forward successfully while being truly good executives. Believe me: it is worthwhile.

About Antonio Argandoña

Antonio Argandoña is Emeritus Professor of Economics and holder of the "la Caixa" Chair of Corporate Social Responsibility and Corporate Governance at IESE. He teaches mainly in the areas of macroeconomics, monetary economics and international economics, and publishes research on business ethics, corporate social responsibility and organizational governance.