Ethical creep

It’s not the last ethical slip that gets you, it’s the first….

Ethical creep (my phrase) is the slow moving process that characterizes how most frauds and disasters, in a Shakespearean fashion, start from very small ethical breach, snowballing into something far larger.

I have a strong interest in behavioral economics and incentives so I find stories about the decline of ethics to be enthralling. The fall of medical testing company, Theranos, or the incentive structures that contribute to the bad behavior of financial traders. The stories focus on the big impacts and outsized disasters. Think Barings Bank.

But I am drawn to the beginnings of the stories where authors recounts the history of the person or organization to place the ethics issues in context. Sometimes, the history provides a set of extenuating circumstances that explains the subsequent ethical failings.  In other accounts, the history is used to predict that an ethical issue was unavoidable. A bad apple.

In the early parts of the story, I am more interested in the first innocuous breach….

This breach is the first discernible point that the person or organization prioritizes an outcome over ethical behavior or commits an act of self-serving dishonesty.  It might be the first decision to push a customer into a mildly unsuitable product because there is an incentive scheme that prioritizes sales of that product but no real impact on the customer. It might be that the market sizing for a product is enlarged because an undeveloped product specification is added and this market sizing is then used in an external, general information presentation. It might be that an employee is slightly below their target for their annual bonus and ‘borrows’ a small amount from next year’s likely sales.

These moments are gold to me because I believe that it’s the first lie that gets you and the research supports it.

The first lie is the hardest from a brain chemistry point of view. The first lie creates a signal in the emotion-evoking amygdala but each subsequent lie reduces that strength. Additionally the ‘extent of reduced amygdala sensitivity to dishonesty on a present decision relative to the previous one predicts the magnitude of escalation of self-serving dishonesty on the next decision.’ We can approximate how much self-serving dishonesty will be involved in the next decision based the signal strength in previous decisions!

I remember an interview with Dan Davies, former Bank of England fraud expert and author of “Lying for Money”, who said that he would focus ethics breach processes on capturing and examining the smallest breaches because that is where fraud comes from, not from major, dastardly heist plots. He suggested that any lie from an employee should trigger a significantly higher compliance and monitoring process. He doesn’t say for how long, but I would think it would be at least until the signal in the amygdala returns to full strength…