Saturday, January 24, 2009

Organisational Behaviour - Acting on signs of misconduct

Scandals, scandals and more scandals everywhere! This has become a common phenomenon in the corporate world. The most famous of companies have not been left behind in this mess. As if being rated so is an honour in the industry!

The recent spate of corporate wrongdoings in the news reveals the misconduct of well-known organisations. Business publications, however, had reported such happenings even decades ago.
Well, yes! Decades ago. Ironically, nothing has been done to stop such unethical activities. Reasons are countless.

Bob Gandossy, a Global Practice Leader at Hewitt Associates and an expert in organisational behaviour and effectiveness, says, "As we have seen in the aftermath of such scandals, signs of trouble are typically present but simply missed by the people involved."

School of thought

The Buddhist school's thought on human suffering is truly applicable to organisations. In the corporate world, there is misconduct, there are causes for such misconduct and factors that prevent people from seeing and acting on those signs of misconduct. However, there are also steps to reduce the likelihood of misconduct.

Great companies need the foresight and forethought to curb the "evil" lurking in their organisations. Rosabeth Moss Kanter, a business advisor and professor at Harvard Business School avers, " We should look closely at the corporate wrongdoing for lessons about how to get the best out of people by preventing the worst. Corporate crime anchors one end of a continuum of performance problems."

Being blind to the applicability of such unlawful activities can be disastrous. The ability to detect corporate crime is directly proportional to organisational performance. For instance, crimes committed by the production manager, who overlooks substandard products being shipped, or a loan officer crediting loans to an individual with suspicious financial records. Such fraud, as Kanter says, not only blinds but paralyses performance.

Contributors to misconduct

Basically, three conditions lead to corporate misbehaviour. These can teach corporate biggies, some real big lessons.

Short is not always smart...

First and foremost, rewards for short-term performance. " If salaries, bonuses and promotions are tied to quarterly profits, it's difficult for managers to stop practices that affect their bottom line performances," says Gandossy. Management is highly pressurised when reward systems act as performance triggers.

Short-term performances must be rewarded but not at the cost of neglecting long-term business success. Undoubtedly short-term payouts motivate employees. Organisations must thus review their executive compensation practices, says, Hewitt's Executive Compensation Practice Leader, Michael Powers. The practice of integrating a balanced pay programme with long term performance and retention features would be ideal.

Benchmarking or setting standards is crucial for efficient measurement of performance. Standards must not be set towards the extreme ends. The compensation committee should benchmark pay against the 50th percentile of a reference group.

Too many but not any...

Secondly, increased complexity in today's business with a number of organisations contributing towards one transaction obscures inadequate performance and scams. All vendors are segmented on the basis of their roles and responsibilities. The emphasis is more on miniscule points, than on the bigger picture. Only during tough times do companies explore reasons for poor quality products or misconduct. That is the time when organisations and vendors shift the responsibility for errors committed and play innocent.

"Organisations that come together for a particular project, joint venture, or a series of transactions generally have very specific, often narrow concerns", Gandossy says. To avoid such misconduct, he suggests that the vendors be treated as an integral part of the organisation and not as separate entities. They must be communicated of the behaviour expected of them. An expert employee must, however, supervise the flow of active communication whether upward, downward or horizontal.

Kendell Sherrer, Vice President of Benefits and HRIS at Cardinal Health says, "Forging trust-based relationships with service providers does require extra effort, but pays off by ensuring shared values among the companies."

Agreeing on mutually shared objectives promotes mutual trust, which pays off by certifying shared value systems both among employees and vendors. Also top management must keep their employees informed of the need to employ service providers. Clarity in communication is always a saviour during tough times.

Up.. Up..And away!

Ignoring details and lack of accountability leads to poor performance. Higher aims and greater attention to detail prevent misconduct and inefficiency. Employees notice even subtle conflicts between professional and personal values and this might lead to diminished moral standards. Therefore, the differential perceptual threshold must be negligible when organisational and individual values are compared. Hewitt's Values Alignment Study helps companies and employees identify integrated values of the company and values that need to be focused upon.

Playing Good Samaritan

A sure shot recipe to reduce an organisation's misconduct is to provide employees balanced rewards. These encourage intelligent mistakes and sharing responsibilities. However, certain other methods that reduce susceptibility to misconduct could prevent instances of misbehaviour.
Ethical code It's not enough to have an ethical code it must be disseminated to all employees. Applying key ethical values reduces the pressure on employees to compromise ethical standards and resort to misconduct.

Audit Auditing business practices helps determine the sensitive areas of companies and prevents them from falling prey to misconduct.

Communicate Communication of business practices, both acceptable and unacceptable encourages good conduct.

Tie-up Employees who are pressurised to compromise ethical standards observe more misconduct at work. To avoid this, good conduct must be linked to performance appraisals. Therefore, employees must always be encouraged to resolve ethical dilemmas.

Balance Balanced benchmarking and balanced reward systems provide appropriate payoffs to the employees and the organisation as a whole.

Action A stitch in time saves nine is apt to this context. Acting swiftly on any reporting of misconduct will save time and resources.


Perception of values that influence conduct seldom differs across organisations. Definitely a high percentage of observed misbehaviour in organisations signals problems. A lower percentage on the other hand must not be mistaken for absence of misconduct altogether. It is therefore highly essential to carefully evaluate the circumstances.

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