How Culture Influences the Ethical Behavior of a Corporation

In recent decades, corporate scandals have ravaged the economy, caused tragic human consequences and captivated public attention. A few examples include the Lockheed bribery scandal of the 1970s (National Affairs: What is "Business Ethics"?), Wall Street insider trading in the 1980s, the Enron collapse of 2001 (International Network on Personal Meaning: Lessons from the Enron Debacle - Corporate Culture Matters!) and 2008s global banking meltdown. (The Week in Ethics: Goldman Sachs’ 2012 Problem with Culture) In each case, the public asks why these disasters happen again and again. The answers inevitably lie in the culture of each corporation and the value, if any, it places on ethical conduct.

What Does “Corporate Culture” Mean?

Simply defined, “corporate culture” is the set of beliefs and behaviors guiding how a corporation operates. But it a list of beliefs and behaviors doesn’t cover it. Top executives act differently from human resources officers or mailroom workers and hold different beliefs. But together they add up to one culture. Corporate culture develops from the way beliefs and behaviors are shared and transmitted, rather than as a monolithic system. Corporate cultures change. For example, former Goldman Sachs executive Greg Smith join the venerable Wall Street firm due to its culture of “teamwork, integrity, a spirit of humility, and always doing right by our clients.” But when the culture grew “toxic,” with client interests “sidelined” in favor of “making money,” he quit.

What Are Corporate Ethics?

Corporate ethics are moral goals to which a company dedicates itself. (National Affairs: What is "Business Ethics"?) While culture is complex, ethical goals can be presented rather simply. Retail chain The Body Shop states such principles as “against animal testing” and “protect the planet.” Goldman Sachs, responding to Smith’s public resignation, reiterated its commitment to client “long-term interests.” Problems arise when ethical ideas aren’t woven into corporate culture. Conflicting cultures within a corporation or the personalities of top executives then take over. Ethics get pushed aside or disappear.

A Case Study in Corporate Culture and Ethics

The Enron scandal is an oft-cited example of how corporate culture can override ethics, resulting in disaster. The apparently thriving energy firm collapsed suddenly in December 2001, putting hundreds out of work, wiping out pensions and ending with criminal prosecutions of management. Enron was said to have only one value, “maximized price per share of common stock.” As long as that was the goal, unethical, illegal strategies were permitted, such as deliberately manipulating financial reports to show much larger revenues than actually existed. While ethics violations often occur in corporate cultures where profit is the only standard, at Enron, even the appearance of profit was enough. Enron’s culture allowed top executives to make a lot of money for themselves, even when the company was going broke.

Changing Corporate Culture to Promote Ethics

Because of their organic development, corporate culture can be difficult to control and shape. For a corporation to maintain good ethics, top executives must exercise not only business leadership, but moral leadership. Leaders should not only hold good ethical values, they need the competence and vision to instill those values throughout their companies. Leaders who communicate moral vision clearly while building structures that encourage community, so that the leader’s ethics become shared values, stand the best chance of creating ethical corporate cultures -- or healing cultures, such as Enron’s, that become dangerously destructive.