Can Companies Act Immorally?

A recent Financial Times column asked an intriguing question: Can moral companies do immoral things? The writer cited two U.K. studies that examined, in part, how people rate their morality and how they rate that morality against others. The consistent finding in both studies was that individuals — even convicted prisoners in one study — tend to rate themselves morally superior.

The writer then made the case that this natural tendency for viewing ourselves as morally superior might help explain why moral companies do immoral things. I believe this kind of thinking, while making for interesting navel gazing, is dangerous.

We cannot afford to fall into the trap of assigning human characteristics to nonhuman subjects when it comes to how we act in business. Known in psychology as anthropomorphism, it is a tool that helps humans cope with everyday challenges – the golf ball will like you and roll true if you whisper a little encouragement, the traffic light hates you because it knows you’re in a hurry and still won’t change to green.

It is a mistake, however, to assign morality to an entity, such as a business or government institution. An organization’s culture consists of the behavior of those within it and is not imposed by the organization on its members. The perfect example is Enron. Part of the U.S. energy company’s code of ethics read, “. . . we are responsible for conducting the business affairs of the companies in accordance with all applicable laws and in a moral and honest manner.” Yet, as we know, the Enron name is now synonymous with accounting fraud and corrupt corporate behavior.

I have written frequently over the past two years about the need for internal audit to take on corporate culture as part of its scope of work. Whether specifically assigned to audit culture or simply understanding that culture may be part of the root cause of some of the engagements we take on, we must have a keen understanding of how culture influences the organization.

The members of the corporate board are the ones who identify organizational goals and set the risk tolerance and the boundaries to achieve those goals. It is the CEO and other C-suite executive who model behavior that the rest of the organization follows. It is imperative that internal auditors understand that culture is driven by individuals and not the organization itself.

I find it troubling that observers of business behavior are willing to assign moral or immoral behavior to an organization. It is too easy to excuse immoral behavior by calling it an aberration of an organization’s typically moral behavior. Instead we should recognize it as a symptom of a bigger problem of a misaligned or, worse yet, corrupted corporate culture.

My comments should not be construed as a criticism of the Financial Times piece. The author makes an important connection between the natural tendency to view ourselves as morally superior and how that can be used as an excuse to act immorally. However, we cannot apply that to organizations.

We must recognize that an organization’s governance practices and policies simply articulate desired behavior. It is ultimately the individual who acts on those practices and policies and must, therefore, be the one held accountable.

As always, I look forward to your comments.