August 20, 2018
Wherever you live, and wherever you stand on the political spectrum, you probably believe that a significant share of the political elite in your country is irredeemably corrupt and unethical. And wherever you work, it is also likely that you know some senior leaders who do a poor job of conveying tone at the top and do not model or respect the organization’s stated values. There is plenty of evidence that once people attain power, they are more likely to engage in unethical behavior. The effects of power can even be compared to a form of brain damage: Power makes people less risk-averse, more impulsive, and less skilled at reading people and situations.
Nonetheless, impunity seems to be a fact of life. The human need for cognitive consistency goes a long way toward explaining why toxic organizational cultures and abuses of power can persist. A psychological mechanism known as the “just world” phenomenon inclines us to ascribe virtue to the powerful while assigning negative traits to the poor and powerless.
Impunity is a daily issue in the lives of many who work in governance, risk, and compliance. Investigating your boss is usually a career-limiting move, but it is difficult, if not impossible, to sustain an ethical culture without the remit or tools to hold senior members of the organization accountable. This contradiction has been driving efforts to amplify the independence, seniority, and remit of chief compliance officers.
But today, something interesting is happening. The structures supporting impunity seem to be growing less reliable.
The structures supporting impunity seem to be growing less reliable.
In politics, corruption has become an issue of far greater concern to voters than it was 20 years ago. A recent report in Foreign Policy found that more than 10 percent of the world’s nations have undergone leadership change in the past five years as a direct result of corruption investigations. In 21 countries, leaders have either resigned or been removed from office before their terms were scheduled to conclude. In many additional countries, incumbents are facing electoral defeat amid the perception that they are corrupt.
To be sure, this hopeful scenario is not playing everywhere. Allegations of corruption, whether true or false, are frequently used by political candidates to gain advantage. But the increasing use of this technique in itself demonstrates that concern about the integrity of political officials may be at an all-time high.
The business world, too, shows signs that impunity is no longer predictable. The removal of chief executive officers for ethical lapses remains infrequent, but such instances increased by 36 percent from 2007-11 to 2012-16. This trend is most pronounced among North American and European companies with high market capitalization. Researchers believe this suggests an overall improvement in governance and accountability to the public.
Company boards have also become more willing to state publicly that a CEO was fired for misconduct, rather than enabling him or her to slip into early retirement. The #MeToo movement has occasioned significant turnover at a growing number of media organizations and consumer-facing companies, and it seems to have positively influenced corporate culture in some cases. A growing number of companies has even made a point of proactively disclosing challenges, rather than responding only to media investigations or internal whistleblowers. Voluntary disclosure facilitates the rebuilding of reputation and trust.
The longer-term consequences of these trends are, as ever, uncertain. The ability to replace disreputable leaders does not necessarily mark a sustained power shift in organizations. Still, today’s corporate leaders are on notice that immunity from consequences is no longer the status quo.
All of this reflects deeper, more profound societal shifts. The most important is hyper-transparency, which makes it exponentially harder for companies to keep their inner workings confidential. Leaked revelations about offshore tax avoidance, soft lobbying, and other standard corporate practices have helped spur concern and distaste over self-serving corporate agendas. Data leaks and hacks have also been embraced by unhappy employees as powerful whistleblowing tools that can help them subvert or sidestep non-disclosure agreements.
Employees in some companies, particularly in the tech industry, feel empowered to demand that the C-suite focus on better alignment between corporate principles and personal values, and companies are listening intently. Indeed, the new trend in corporate activism on social issues is, in large part, being driven by the voices and will of employees—to a surprisingly greater extent than by those of customers or investors.
As societies across the world call for leaders who can demonstrate that integrity is as important to them as personal advantage, the pendulum seems to be swinging away from venerating wealth and power for its own sake and toward valuing integrity and social conscience. This is great news for honest leaders—and for everyone who seeks to drive sustainable, ethical behavior in a public or private organization.
Let’s talk about how BSR can help you to transform your business and achieve your sustainability goals.