1 00:00:05,700 --> 00:00:12,700 [Stoica] People look up the chain. For example, if they see their bosses doing something unethical, 2 00:00:12,700 --> 00:00:16,460 they're more likely to do it themselves, or do something else that's unethical. 3 00:00:30,700 --> 00:00:35,480 [Professor Robert Prentice] What does it mean to be an effective ethical leader? 4 00:00:35,520 --> 00:00:38,080 It means at least two things. 5 00:00:38,120 --> 00:00:43,220 First, effective ethical leaders act ethically as an inspiration to others. 6 00:00:43,400 --> 00:00:48,240 No single factor has a bigger impact on the ethicality of firm culture than the 7 00:00:48,250 --> 00:00:52,610 personal examples set by firm leaders. 8 00:00:52,610 --> 00:00:55,800 Second, they communicate and manage their organization's 9 00:00:55,800 --> 00:00:59,640 culture so as to promote ethical action by subordinates. 10 00:01:00,080 --> 00:01:03,619 [Nikki] Most of my managers have always been very ethical, and I've always looked up to 11 00:01:03,680 --> 00:01:09,501 their leadership, but one in particular stood out from the others in that she was always 12 00:01:09,540 --> 00:01:15,280 looking for other people's perspectives and was really able to see like the entire spectrum 13 00:01:15,300 --> 00:01:19,460 of ideas and diverse perspectives in a situation. 14 00:01:20,420 --> 00:01:21,960 "How's this going to impact other people? 15 00:01:22,000 --> 00:01:26,050 What are the downstream impacts of this decision that we're going to make, and is it truly 16 00:01:26,060 --> 00:01:30,620 the right one for our company? For our stakeholders and our client teams?" 17 00:01:32,520 --> 00:01:37,800 Professors Cropanzano and Walumbwa have observed that most adults do not have an adequate moral 18 00:01:37,860 --> 00:01:44,860 compass and therefore "look outside themselves for guidance in moral dilemma situations." 19 00:01:46,140 --> 00:01:50,680 It is the leaders of their organizations to whom they primarily look, and studies show 20 00:01:50,920 --> 00:01:57,590 that few things impact the ethical climate of a firm more than the actions of their leaders. 21 00:01:57,590 --> 00:02:04,090 Importantly, leaders' unethical actions are copied by subordinates even more readily than 22 00:02:04,090 --> 00:02:06,450 their ethical actions. 23 00:02:06,860 --> 00:02:09,360 When you have a non-ethical boss that is always 24 00:02:09,400 --> 00:02:16,070 trying to bend the rules or even break them, that is creating a toxic environment for everybody in the 25 00:02:16,100 --> 00:02:21,760 institution because the more and more people will try to do the same thing. 26 00:02:21,780 --> 00:02:28,560 If it's a big institution and they set such a bad standard that can impact the community because those 27 00:02:28,600 --> 00:02:36,640 people that work there will eventually leave and take their toxic culture to other institutions 28 00:02:36,970 --> 00:02:41,190 and so on. It's going to spread like a virus. 29 00:02:43,360 --> 00:02:45,980 Although it is especially important for leaders 30 00:02:45,980 --> 00:02:51,720 to act ethically, they are often particularly vulnerable to acting unethically. 31 00:02:54,140 --> 00:02:59,000 Professors Tenbrunsel and Bazerman note that it is clear that most people have high opinions of their 32 00:02:59,010 --> 00:03:04,590 own character and do not realize the substantial gap between how ethical they think they are 33 00:03:04,590 --> 00:03:07,700 and how ethical they truly are. 34 00:03:08,500 --> 00:03:10,980 Like for example, I worked for a doctor in 35 00:03:10,980 --> 00:03:17,551 a small practice, and um, he had a very colorful personality but he was also very unethical 36 00:03:17,580 --> 00:03:22,470 about a lot of things because it was just him, and he was the boss. And, um, sometimes 37 00:03:22,470 --> 00:03:27,359 he would disclose really personal information about patients to other patients, and to us. 38 00:03:28,020 --> 00:03:32,159 You know, I would bring it up to him and I would get in arguments with him about it but 39 00:03:32,159 --> 00:03:38,779 then would be so much pushback that it would be really, really hard for me to see it all the way through. 40 00:03:39,560 --> 00:03:43,519 When you're working for somebody who's not concerned with ethics, or they 41 00:03:43,560 --> 00:03:50,560 think that, I think that in some cases they think that they are overconfident that they're 42 00:03:50,600 --> 00:03:53,740 ethical, and really they're not, or what they're doing is not wrong. 43 00:03:53,780 --> 00:03:58,880 They rationalize themselves out of it anyways because, you know, for the doctor I worked for, "He was a doctor, 44 00:03:58,940 --> 00:04:03,140 and so he did lots of good things, so it's okay that he did these things." Or, "He was more 45 00:04:03,180 --> 00:04:06,860 educated than all of us, so he knew what he was talking about, and none of us knew." 46 00:04:09,060 --> 00:04:13,860 Believing that we are moral people and will automatically do moral things, many of us 47 00:04:13,870 --> 00:04:18,930 act with little self-reflection and thereby often make ethical mistakes. 48 00:04:19,860 --> 00:04:23,380 Overconfidence renders leaders particularly vulnerable, 49 00:04:23,380 --> 00:04:26,580 because they have typically had great success in their lives. 50 00:04:27,260 --> 00:04:31,480 Leaders are often given uncritical support, which Professor Frances Milliken 51 00:04:31,520 --> 00:04:35,900 found, leads them to be even more overconfident than the rest of us. 52 00:04:39,380 --> 00:04:40,380 Think of Ken Lay, 53 00:04:40,760 --> 00:04:46,200 former CEO of Enron - minister's son, noted philanthropist... 54 00:04:46,620 --> 00:04:48,620 convicted felon. 55 00:04:49,080 --> 00:04:51,960 Or, think of disgraced lobbyist Jack Abramoff 56 00:04:52,160 --> 00:04:55,400 devout Jew, devoted family man... 57 00:04:55,660 --> 00:04:57,660 convicted felon. 58 00:04:58,460 --> 00:05:04,659 [Tony] You know, as a leadership person, I tended to make more decisions kind of instinctively. 59 00:05:04,720 --> 00:05:08,000 Kind of more, on the fly, on impulse. 60 00:05:08,399 --> 00:05:10,039 [Dillon] I had been put in charge of a group 61 00:05:10,040 --> 00:05:13,339 of people who were very broken, and I had had a couple of good answers for a couple 62 00:05:13,340 --> 00:05:15,060 very difficult problems that we were facing. 63 00:05:15,980 --> 00:05:19,380 And so you get to thinking that you know what to do in every situation. 64 00:05:19,380 --> 00:05:23,980 You know what's best, and you lose friendships over it. 65 00:05:24,060 --> 00:05:28,380 You start telling people what to do, dictating, legislating from on high, I believe 66 00:05:28,380 --> 00:05:29,800 I've heard it termed. 67 00:05:31,140 --> 00:05:36,820 Another behavioral factor that particularly affects leaders is the "instant entitlement bias." 68 00:05:38,240 --> 00:05:41,799 Studies show that if people are told that they are part of a team and that they 69 00:05:41,820 --> 00:05:44,420 should divide up resources allocated to the team, 70 00:05:45,100 --> 00:05:48,220 they tend to divide the resources equally among team members. 71 00:05:48,900 --> 00:05:54,120 But if they are told that they have been selected as the "leader" of the team, 72 00:05:54,120 --> 00:05:57,680 even if they have done nothing at all to deserve that title, 73 00:05:57,820 --> 00:06:01,480 they tend to keep a much larger share of the resources for themselves. 74 00:06:04,540 --> 00:06:06,860 In real life, leaders often fall victim to 75 00:06:06,900 --> 00:06:13,060 the instant entitlement bias, as can be seen in the lavish lifestyles often lived by corporate bigwigs. 76 00:06:13,500 --> 00:06:19,540 Think of former Tyco CEO Dennis Kozlowski, who spent $2 million of company money on his 77 00:06:19,580 --> 00:06:21,980 wife's birthday party. 78 00:06:23,280 --> 00:06:24,980 It's really easy to serve in one's self interest 79 00:06:25,040 --> 00:06:26,540 when you're in a position of power. 80 00:06:26,760 --> 00:06:30,860 It depends on how big a piece of the pie you have at stake. 81 00:06:31,240 --> 00:06:34,700 I could envision a situation where I may be willing to let more things 82 00:06:34,900 --> 00:06:38,020 slide knowing that I had some sort of financial stake. 83 00:06:38,560 --> 00:06:40,180 And I don't like to admit that. 84 00:06:40,900 --> 00:06:42,180 But then again, 85 00:06:43,740 --> 00:06:47,180 you can't put a price on doing the right thing. 86 00:06:49,520 --> 00:06:54,600 Studies show that leaders tend to be extroverts who are prone to impulsive behavior. Many 87 00:06:54,600 --> 00:07:00,400 surround themselves with "yes" men (and women) to gain the self-validation that we all desire. 88 00:07:00,400 --> 00:07:05,000 A study by Professors Flynn and Wiltermuth demonstrated that people at the center of 89 00:07:05,000 --> 00:07:11,560 social networks, such as CEOs, are more likely than others to mistakenly believe that other 90 00:07:11,560 --> 00:07:15,560 people agree with them regarding what is an ethical course of action. 91 00:07:16,360 --> 00:07:21,080 If your decisions have always been supported and you've always been praised for being a 92 00:07:21,080 --> 00:07:26,720 fantastic leader and increasing the value of the firm, it could feel like you can do 93 00:07:26,720 --> 00:07:29,000 no wrong in the eyes of the firm. 94 00:07:29,000 --> 00:07:33,400 "Everything that you've done is great, so keep doing what you're doing, and if it's not broken, don't fix it." 95 00:07:33,400 --> 00:07:35,220 And I think that, if that's your 96 00:07:35,220 --> 00:07:39,180 mentality then it's unlikely, it could be hard for you to slow down and think about 97 00:07:39,180 --> 00:07:44,140 whether you could have made a better decision or whether the decisions you are making are 98 00:07:44,140 --> 00:07:50,340 truly ethical and in the best interest of the firm and your own value structure, you 99 00:07:50,340 --> 00:07:52,820 know, the culture of the company, and your own personal values. 100 00:07:54,560 --> 00:08:00,480 It is often shocking how top corporate officers (like WorldCom's Bernie Ebbers) and high government 101 00:08:00,480 --> 00:08:04,080 officials (like New York's Eliot Spitzer) come to the view that the rules that apply 102 00:08:04,080 --> 00:08:07,120 to everyone else do not apply to them. 103 00:08:07,120 --> 00:08:10,720 Often they do outrageous things with little or no 104 00:08:10,720 --> 00:08:15,040 effort to hide their wrongdoing because they become so convinced of their importance to 105 00:08:15,040 --> 00:08:19,960 their firm's mission, which somehow justifies their exempting themselves from legal and 106 00:08:19,960 --> 00:08:21,840 ethical standards that apply to others. 107 00:08:22,400 --> 00:08:25,380 For example, when Ken Lay was found to have violated 108 00:08:25,380 --> 00:08:29,940 Enron's Code of Ethics by investing in a company that did more than 80% of its business with 109 00:08:29,940 --> 00:08:36,260 Enron, he called suggestions of impropriety "form over substance." 110 00:08:36,400 --> 00:08:38,440 Rules, he said, "are 111 00:08:38,440 --> 00:08:42,621 important, but you should not be a slave to rules either." 112 00:08:43,679 --> 00:08:49,040 When I was in high school and I was doing work with the NGOs back in my community in 113 00:08:49,120 --> 00:08:56,120 Romania, I had a boss that would always try to embezzle money and also try to force a 114 00:08:56,160 --> 00:09:02,240 number of young people, young volunteers in the institution to make loans with fake papers, 115 00:09:02,320 --> 00:09:09,200 and to take the money and he would present everything as being done for the greater good for the organization. 116 00:09:10,320 --> 00:09:14,799 The higher people go up the chain, the more likely they are to 117 00:09:14,880 --> 00:09:17,920 do illegal stuff because they think no one is going to catch them 118 00:09:17,920 --> 00:09:19,440 and they might think that 119 00:09:19,440 --> 00:09:23,920 if they get some money now it's going to be better, but they don't realize that eventually they will 120 00:09:23,920 --> 00:09:29,999 still be caught, or people will just refuse to work with them. They will build a nasty 121 00:09:30,000 --> 00:09:35,440 reputation and it's all going to go down the drain sooner or later. 122 00:09:38,320 --> 00:09:43,600 Professor Dacher Keltner of the University of California at Berkeley, who studies ethical leadership, 123 00:09:43,600 --> 00:09:48,060 further finds that leaders are often tone deaf on ethical issues 124 00:09:48,080 --> 00:09:54,080 and that they have "uniquely self-serving rationalizations for their own unethical actions that often 125 00:09:54,160 --> 00:10:00,120 focus on their rights and crowd out any consideration" of others' rights. 126 00:10:01,200 --> 00:10:02,700 As Professor Zak notes: 127 00:10:02,800 --> 00:10:08,630 "Achieving high social status appears to make it not just lonely at the top but morally 128 00:10:08,720 --> 00:10:11,020 perilous as well." 129 00:10:12,960 --> 00:10:19,080 When people talk about power corrupting, it doesn't have to, only if you are not aware 130 00:10:19,120 --> 00:10:22,320 that your actions have consequences, and networks around you, right? 131 00:10:22,320 --> 00:10:27,420 [Carlos] Realize what's important, what's moral, and question your actions 132 00:10:27,440 --> 00:10:32,620 to make sure that all the decisions you're making are leading to an objective that is ethical, 133 00:10:32,720 --> 00:10:38,220 and along the way your actions are moral. Um, contributing to the greater good. 134 00:10:38,320 --> 00:10:41,760 [Claire] I think if a leader sets a tone that they've never made a mistake, they don't struggle 135 00:10:41,840 --> 00:10:47,169 with anything, they're perfect, then, I mean, that's not realistic, but then how can people 136 00:10:47,200 --> 00:10:49,280 come to them when they're feeling less than perfect. 137 00:10:49,280 --> 00:10:54,600 [Arthur] The best leaders are the ones who acknowledge their own shortcomings. 138 00:10:54,600 --> 00:10:59,680 Acknowledge that they do not know everything, and ask those who they serve and ask those who work 139 00:10:59,680 --> 00:11:03,200 for them just to fill them in on what's happening. 140 00:11:03,200 --> 00:11:07,340 The best companies are the ones that create a culture where their employees 141 00:11:07,360 --> 00:00:00,000 can voice their concerns to their bosses really.