Cost of a Lack of Ethical Culture

You’re struggling to meet customer delivery deadlines, but Big Boss doesn’t like hearing bad news. As a result you only report positive outcomes. Problems are kept hidden until the biggest customer cancels its order without notice. What role did honesty play in losing this customer’s business?                                                                                                                           -e-Factor!® scenario

The underlying situation in this scenario is that the organization, and Big Boss, created an environment where ethical behavior is clearly undervalued and maybe even punished. It takes an extreme event like the organization’s biggest customer cancelling its order suddenly before problems are finally addressed. Accountability becomes a “blame game” rather than an opportunity for learning lessons and correcting mistakes. And ethical leadership doesn’t appear to exist here if Big Boss only wants to hear positive news, so leadership becomes part of the problem.  Ethical Culture is not valued here, not by leaders and therefore not by the staff reporting to the leadership team.

The costs to the organization in this situation are huge. Biggest customer means biggest sales dollars, but it also means unmotivated employees, lost productivity, high turnover, and an inability to attract the best people to the organization. People will refuse to work in an organization where they do not believe their leaders to be ethical. And ultimately this could mean death to an organization whose culture punishes rather than rewards honesty. In a study done by the ACFE, unethical behavior can cost a company as much as $145,000 per year (small companies under 100 employees) or up to 5% of revenue annually (larger companies over 100 employees). We’re not talking small change here…!

The VA situation is an extreme version of this very real business situation. Secretary Shinseki’s resignation might make people feel good that someone has “paid the price” for mistakes but the VA and Congress are only playing the “blame game.” The true ethics issues and underlying organizational problems are still swept under the rug. Firing Shinseki does not resolve the mismanagement of resources and it does not change the culture to one that accepts responsibility for problems. We’re still learning about the system-wide misconduct and the people who tried to do something to correct it. Hopefully the newly appointed head of the VA will change the organization to create an environment where it is ok to make mistakes as long as lessons are learned and corrections are made.

Shinseki tried to accept accountability – in a press conference he admitted that he was “too trusting” of people who reported to him. This is a question all leaders have – who to trust, and when. But Shinseki, like all leaders, has to take responsibility for the organizational culture. All organizations, public and private, have the same dilemma: Maximize quality with limited resources. The organizational culture determines how people will respond to this challenge. And tone at the top dictates the actions people will take. The VA has a major mountain to climb in taking a cold hard look at the underlying root causes of their problems. If they are honest with themselves, this is a golden opportunity to start the culture change towards one where people are rewarded for honesty and accountability rather than for the wait times for veterans to be treated. This lesson goes not only to the VA, but to all public and private enterprise as well.

If you were the new head of the VA, what would be the first action you would take?

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