A year after the PwC scandal broke, what I wish we’d learned? – Part 2

Apologies in advance for picking on The Mandarin and Tom Ravlic (23-1-2024), however I think it’s time to call this delusion out,

“It doesn’t matter whether it is a private sector firm or a public sector department, agency or some obscure statutory authority, human beings are flawed – regardless of their training and expertise.

The only way to deal with this flawed reality is to create and enforce systems and processes to ensure adequate checks and balances. Penalties need to provide a sufficient deterrent to ensure appropriate, ethical behaviour.

Sometimes the best solution is to not ask what law or regulation might need to be added to the already bulging statute book. This drives most people nuts.

The better question is: What can be done to increase the threat of detecting misconduct and a failure to follow good practice? What, if anything, must be done to ensure there is a penalty that is sufficiently onerous to function as a sanction but also as a deterrent to people thinking of straying from the right side of the road?

All that might be required to ensure good behaviour and the following of sound risk management practices is for a risk manager to be in a position to soil their underpants at the mere thought a regulator might come calling.”

This perspective makes perfect sense as long as you believe in two key assumptions; 1. That ethical behaviour is driven by a logical, rational, cognitive process and; 2. That bad people do bad things. If you believe this then of course the response to unethical behaviour such as the PwC and many others of the same ilk – see the Hayne Inquiry for numerous examples…  is – 1. Weed out the bad apples (tick) 2. Re-educate those that remain with character and Values training (tick) and 3. Put in place strong deterrents to ensure this never happens again (tick)

Anybody actually believe this approach works??

I often ask this question in presentations and workshops – not a single person says yes – but we still persist with the idea that we just need to sort out all the ‘bad’ people and bingo problem solved.

PLEASE can we consider alternatives??

The academic literature is replete with research that shows the rational logical approach doesn’t work and that some new thinking is required. In my research I considered inter-disciplinary research from the fields of moral philosophy, social psychology, criminology and neuro-cognitive science. Given that only 4-5% of the population could be considered ‘bad’ – that is habitually acting in a way counter to the commonly held values of society – and that 90% of fraudsters are first time offenders – I tried to work out what causes these ‘good’ people to create ‘bad’ unethical outcomes.

You know the people I mean – the ones where you look at the case and you think “You idiot – what were you thinking?” eg Scott Morrison signing himself into multiple portfolios

It’s easy to attack their disposition and character – and bizarrely the social psychology research indicates that we all view ourselves as more ethical than others and would like to believe that we would never do such a stupid thing – but come on step up to the plate – I can play a game with you that will get you doing unethical things within the hour – even if I tell you in advance the topic is ethics. The bottom line is we are delusional with regard to our own behaviour.

So, what’s actually going on?

I synthesised the inter-disciplinary research and created a causal factor model that I then tested with people who had either been convicted of corporate crimes or had been whistleblowers. I got the participants to reflect on their experiences and then I refined the model until it was predictive – see below

So note first that this is not a cookie cutter static point in time model – things change over time – we change over time – context shifts over time and we are influenced by context – think frog in the boiling pot analogy – supposedly if you put a frog in a boiling pot of water it will jump out and save itself but if you put it in a pot of cold water and then put the pot on the stove and turn on the heat then the frog will slowly boil to death. We are the same – the slowly changing nature of context deludes us. We have come to accept some things we should never have accepted.

This model then is dynamic – you start at the top left hand corner and go round and round – ideally the graphic would be 3D because either you dig yourself a hole as you spiral down or you spiral upwards. Personal, situational and contextual factors influence our ability to self-regulate and choose between fast emotive and slow rational decisions – see the work of Daniel Kahneman. An example of how contextual factors can influence us is the covid pandemic – when we are stressed out we default to fast emotive reactive decisions.

The next box is the good person v bad person question – a good person has a sense of moral obligation – eg to family, community, organisation, country etc – a bad person has a sense of entitlement – see research on the dark triad of narcissism, sociopathy and Machiavellianism. Then something happens – note that we exist in a dynamic system of systems that roll in and out of equilibrium – so something happens to push things out of equilibrium – in this case a threat to someone’s moral obligation or sense of entitlement. This event creates an emotional reaction – a feeling of unfairness – that something is not just. People describe at this point that they felt “compelled to act” the aim of this compulsion is to balance up the scales of justice. Taken to extreme this is the driver for vigilante action.

When asked why they acted a person will respond with a series of flawed justifications such as; they deserved it; I deserved it; it’s not hurting anyone; everyone else is doing it; I did it for you; it’s a stupid rule anyway; it’s just business – you’re naïve.

When they calm down though they realise they’ve done a ‘bad’ thing – their flawed justifications have neutralised the very Values they aspire to live by. This in turn creates cognitive dissonance – an internal demon that eats away at them. However, because the brain is lazy – the next time they face a similar situation they pattern match and do the same thing – hence digging themselves a deeper hole – and normalising deviance.

So – what to do?

How do we disrupt this process?

Hopefully you can see that no amount of fear based penalty is going to make someone in this situation “soil their pants” – a good person doesn’t even consider the possibility that they are actually doing something wrong – just like you are probably reading this now thinking “yeah well that’s other people but I would never do this…” oh contraire my friend I challenge you to a game…

Anyway – how to disrupt

1.       PLEASE stop teaching people it’s all about rational thinking and ethical decision making models – yes this is part of it BUT it’s a small part

2.       Teach people instead how easy it is to make dumb ass decisions on the fly and what the antecedents or red flags are

3.       Understand that we are living in a rapidly changing environment and hence our thinking needs to change to match – we need a systems approach to manage this – personal well being systems and organisational ethical systems

4.       Teach people how to recognise and confront the flawed justifications – eg bystander training

5.       Create psychologically safe to fail environments where people can fess up if they’ve erred

6.       Create healthy organisations that enhance peoples well being and allow them to thrive

So there you go – I hope this makes you think – feel free to reach out if you’d like to know more.