The high business cost of an unethical workplace

05 October 2016

Distraught worker

Close to half of top executives say they would act unethically to get business. Such executives assume that they won’t get caught, and therefore there won’t be any negative consequences. The end justifies the means.

But, in his new book Pre-Suasion, Robert Cialdini presents evidence that running an unethical workplace actually undermines your company in some powerful ways.

I’m always on the lookout for evidence that doing things in the right way is better for business. But regular readers will know that I have a high quality filter for such evidence. All those surveys that say things like ‘companies committed to CSR do better in the stock market’ get my criticism because when you study the assumptions underlying them, they prove nothing.

This, however, is in a different league. 

Why business leaders take the risk 

You would think that, in the modern age, we have seen enough scandals exposed with cataclysmic consequences for those involved, that the business case for staying on the straight and narrow would be understood by all.

The key case is based on risk. If you act unethically, sooner or later you will get found out. When that happens, damage to your personal reputation, and the business bottom line, inevitably follows.

Those who cheat for you will cheat against you. Encourage the first, you will also get the second

The downside to that risk-based case is that generally people think it happens mainly in relation to the big-time crooks, not the smaller ethical lapses they may engage in.

But mostly they reject the argument because quite simply they don’t expect to get caught. Therefore, against all logic, the risk-based argument doesn’t have the persuasion impact with executives faced with temptation that we all intuitively assume it will.

How they lose anyway

Cialdini talks about unethical behaviour leading to a ‘triple-tumour structure of organisational dishonesty’. Such workplaces suffer from poor employee performance, high employee turnover, and prevalent employee fraud.

Each of these can have huge costs to the company.

1. Poor employee performance

Cialdini carried out research to understand the impact on honest employees of working within a work environment where they witnessed unethical behaviour amongst their fellow workers. The question was whether being placed in such a situation in itself made the workplace more stressful for those workers, and how that might affect their attitude to work.

Two teams were set up within a scenario where they were given a problem solving task where they had to score a certain number of points to pass. They were told that they’d only gotten a relatively low score after that task had been completed.

In one they had a team leader who honestly reported the low score. In another, the team leader incorrectly reported a higher score in order to get them over the line, saying that there was no way the researchers could detect cheating.

None of the team members stated any objection to this, in either team.

Everyone was then given an individual task where each would read about a business situation and answer critical reasoning questions about it.

There were dramatic differences between the performance of people that had been on the different teams. Those participants from the deceptive group scored 20 percent lower on the test. Why did they perform so poorly? After working on the problem for a while, members of that group just stopped. They didn’t have the same energy or motivation to continue.

This laboratory test gave strong evidence, but it could still be seen as too far removed from the real-world experience in the workplace. So they then carried out a national survey of adults who had been at their current job for an average of three years.

Hidden within lots of other questions were three items of actual interest. They were asked to rate the ethical climate of the organisation as set by its leaders, the amount of stress they felt there, and the quality of their work performance.

The results were even clearer than the laboratory responses. The more unethical the climate, the poorer the workers’ job performance and the more stress they felt at work.

2. Employee turnover

All companies try to reduce their employee turnover if they can. It is massively expensive to lose talented people and to have to undertake the cost of replacing them and training the new hires up to a similar level of performance. 

Cialdini thought it was a reasonable proposition that turnover would be higher in situations where you had people whose personal values conflicted with regular wrongdoing in the workplace.

They carried out similar experiments with volunteers, creating the two groups scenario again and giving people the option to stay with their team for a second round or to leave.

There was a big disparity between the two groups, with 51 percent of those that had been in an ethical group choosing to leave their team, but 80 percent of the unethical group choosing likewise.

Once again, they sought to confirm these findings with data from the national survey of workers, and these showed clear turnover-related patterns. Employees of unethically-related organisations were more likely to want to quit.

3. Employee fraud

It shouldn’t be a big surprise that leaders set the tone. Whereas the previous two points involved the impact on honest employees of an unethical workplace, Cialdini also wanted to see how such a culture played with those that were happy to absorb those tainted values.

The proposition was simple. Those who cheat for you will cheat against you. Encourage the first, you will also get the second.

The original studies had been given an additional element, where the subjects were ‘accidentally’ allowed to see the answer to one of the problems in an untraceable way. The nature of the problem was that doing well enhanced your own position at the expense of those around you.

The results were clear. Participants who had been part of an honest team and had elected to stay in it did not take the opportunity to cheat. But participants who chose to stay in an unethical team cheated big time. 

Leaders set the tone

The overall conclusion is this. If leaders build a workplace that is based on integrity and honesty, they will get higher performance from their employees, great loyalty and retention, and lower levels of employee fraud and misbehaviour.

The real costs of poor behaviour don’t depend on bad leaders getting caught. By creating the wrong kind of environment, they consequences naturally follow regardless.

The interesting thing, by the way, is that Robert Cialdini’s book isn’t about this. It is actually about the fascinating and powerful factors that persuade people - factors that they might not even notice in action even while they’re being influenced by them. I highly recommend it to anyone who is a sustainability-minded change agent within business or elsewhere.

When we see so many exhortations to better behaviour and practice falling short of success, it’s important to understand why this might be the case, and how we might be more successful.

Cialdini included this work on the impact of unethical behaviour specifically because he understood that such persuasion techniques could be misused and he wanted to demonstrate why that attempt would always fail.

In so doing, he also provided powerful material for those of us arguing for higher standards in the workplace overall. 


(Note: No sponsorship or other relationship is involved with this blog post. Links provided are not affiliate links. I only recommend things I like because I think they deserve wider attention.)