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Leadership & Organisations

Can we stop businesses from behaving badly?

Grace Segran |

Stakeholders often have conflicting interests, at least in the short run. How do you trade off their welfare and still “do the right thing”?

2011 may be remembered as the year of unethical business. While Rupert Murdoch was being eviscerated for running a media conglomerate that hacked into people’s phones, the Occupy Wall Street protesters decried the financial institutions and multinationals for being irresponsible, unethical and untrustworthy. Yet, while many businesses were loudly chided for behaving badly, others were quietly making responsible decisions that considered the social and environmental impact of their actions. What separates the responsible companies from the irresponsible ones?

Jean-François Manzoni, Shell Chaired Professor of Human Resources and Organisational Development and Director of the Global Leadership Centre at INSEAD, says the reasons are plentiful. Most of the people who misbehave knowingly are motivated by fear and greed. Fear that there may be unpleasant consequences to doing the right thing and greed for the potential rewards of unethical behaviour. But Manzoni says that another factor is just plain unawareness. “An increasing amount of research shows that human beings have a tendency to overestimate how ethical they are, to overestimate their own integrity and, by the way, the integrity of their friends.” According to Manzoni, people are often blind to their own transgressions, until these are pointed out to them.

What is organisational culture

With so much ignorance about ethics, it is worth asking whether it is even possible to change the way that companies behave? Is it possible ethical companies are born, not made? Manzoni believes that it is possible to make companies more ethical; however, it is a long and hard process that revolves around organisational culture. To Manzoni, organisational culture is not simply about the mindset and values of the company, but about actions and practices. He quotes Goffee and Jones: “Culture comes down to a common way of thinking, which drives a common way of acting.”

Reshape enough people for long enough

According to Manzoni, “Reshaping corporate culture always includes the same basic premise, which is that you have to reshape the behaviour of enough people for long enough.” Quoting Aristotle, Manzoni says, “We don’t act a certain way because we have a virtue, but rather it is the other way around. We have that virtue because we behave that way repeatedly, over time.” In other words, Manzoni maintains that by changing the way we act, we can progressively change our value system and thinking process. But changing people’s behaviours does not happen overnight. In fact, Manzoni suggests that it may take years.

How then do companies reshape people’s behaviour? Manzoni describes the process as: “Activating a series of levers that are largely under the influence of senior executives. Those series of levers includes the structure of the organisation, the processes that are in place, the key performance indicators, the incentives, the information that is available and the capabilities of the members of the organisation.” Manzoni adds that the quality of the people who work in the company is another very important factor. It is crucial to hire the right people. Manzoni says, “We can train for years and can try to give incentives to square pegs, but they still won’t fit in a round hole.” The behaviour of top management is also key to changing the culture. All of these different "levers” need to work together to send a coherent and persistent signal that will change the behaviour of people within the company.

A success story

Manzoni believes that this approach of sending powerful signals to employees over a long stretch of time is the most effective method of changing corporate culture. He has seen this at work in the British supermarket chain Tesco, which has managed to create a strong culture of customer focus, innovation, employee engagement and overall excellence. Manzoni says that they have succeeded by creating the right signals on a large scale: “These are companies that have put in place very powerful messages, coming from all different parts of the organisation, and these messages are internally consistent.” Individually, the various actions are smart, but not particularly earth-shattering. It is the combination of these practices, the processes and the repetitive emphasis on desired behaviour that will create real and sustainable long-term change.

Manzoni describes how Tesco placed a lot of emphasis for many years on generating the information to become more customer-focused and simultaneously more employee-focused. It also communicated a strong message about the importance of communities and corporate social responsibility. “We’re talking about a concerted effort along multiple dimensions, a lot of intensity and a lot of consistency over time,” says Manzoni.

But evidence shows that while corporate cultures typically take a long time to evolve positively, their benefits can be lost much more rapidly if they are not nurtured, adds Manzoni. “Promoting an ethical focus within an organisation striving for high performance is a journey without a finish line,” he opines.

Being active about ethics

Manzoni believes that the responsibility for becoming more ethical lies in the businesses themselves. While ethics and compliance officers play a role in ensuring that businesses are behaving morally, they can also create an attitude of helplessness and passiveness among those in business. It creates a climate in which executives stop thinking for themselves about whether their business practices are ethical to thinking about whether their practices can get through the system. Manzoni believes that ethics and compliance officers should play a role in helping managers think through the issues and key challenges, so that they begin to own the desire to do what is right for the organisation and its multiple constituencies.

Jean-François Manzoni is Professor of Management Practice and Shell Chaired Professor of Human Resources and Organisational Development at INSEAD. He directs the INSEAD Global Leadership Centre and is the Programme Director of LEAP: Leadership Excellence through Awareness and Practice, part of the INSEAD portfolio of Executive Development Programs, to be offered this spring.

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