May 16, 2017 by

Years ago, my colleague Butch Ethington showed me a graphic he designed when he was the ethics officer and ombudsman at Union Pacific Railroad. I still use this graphic in my Creighton classes and the department uses it in our Business Ethics Alliance programs.

It is a pyramid. At the bottom are all the rank-and-file employees, the heart and soul of business. Their No.1 ethical issue, Butch says, is fairness. “She got more time off.” “He was given the opportunity for travel.” “She got to work from home.”

In the middle of the pyramid are the managers and directors. In between the top dogs and rank and file employees, managers and directors have tough roles. Their No. 1 ethical issue is accurate reporting. “How do I make my boss happy about the numbers?” “How do I showcase my subordinates?”

At the top of the pyramid are the executives and board members of the organization. They spend a great amount of time interfacing with government, the public, and all stakeholders. Their No. 1 ethical issue is conflict of interest.

Of course, conflicts of interest can occur at any level of an organization. Think about the conflicts that arise for salespeople, or the ones that occur in procurement. Executives have other ethical issues, for example, telling the truth or community responsibilities. Let’s focus on executives and board members and their conflicts of interest.

Three key questions arise. What is a conflict of interest? Why is it so hard to recognize our own conflicts of interest? What can be implemented to reduce conflicts of interest?

As for the first question, we all know that a conflict of interest can arise when someone is responsible for serving competing interests. But this is not, in and of itself, unethical. It is what a person does about the competing interests that matter. Classic examples of conflicts of interest focus on financial interests, for example, an executive who shares confidential information, thereby decreasing his firm’s assets and increasing his own. But a more nuanced definition of conflict of interest includes multi-dimensions and is not always about making more money. For example, what about a board member who provides a building to the firm at reduced rent? In this case, she provides a benefit because of her interest. Is this a conflict that is unethical?

It has been said that half of the battle in ethics is being aware that there is an ethical situation in front of you. Why is it so hard to see one’s conflicts of interest? Behavioral ethicists shine a light on this second question. We have psychological dispositions to think or act in certain ways, due to chemistry or socialization, which are unnoticed or disbelieved. Deeply entrenched and habitual dispositions can be healthy, like being confident. But confidence can become extreme and turn into a bias. Overconfidence bias can block one’s perception of a conflict of interest and when this happens we say a person has a psychological blindspot.

Overconfidence bias can be heard when an executive says, “This is not a problem. If anyone can handle it, I can.” But no one is immune to psychological blindspots and unethical conflicts of interest. No one. The best we can do is recognize our human nature and develop strategies to overcome our extremes. Which takes us to question three.

What can we do to reduce conflicts of interest? At the policy level, it is helpful to have executives and board members sign conflict of interest statements. But make sure the documents are multidimensional, addressing possible financial, as well as non-financial, conflicts. Most conflict of interest statements do not. Second, we can learn from something Bruce Grewcock, CEO of Kiewit, once told me. He says that the company has leaders who are willing to speak up and point out to him when he needs to examine a situation again. He’s expressing the old adage, “surround yourself with good people.” When we do this, we have the best chance of recognizing our overconfidence and reducing the chance that we will act inappropriately and wreak havoc on our world.

Beverly Kracher, Ph.D., is the executive director of Business Ethics Alliance, and the Daugherty Chair in Business Ethics & Society at Creighton University.

 

 

 

 

 

 

 

 

 

 

 

This article was printed in the Spring 2017 edition of B2B.