Monday, January 4, 2016

How Top Management Decisions Shape Culture

A brief article* in the December 2015 The Atlantic magazine asks “What was VW thinking?” then reviews a few classic business cases to show how top management, often CEO, decisions can percolate down through an organization, sometimes with appalling results.  The author also describes a couple of mechanisms by which bad decision making can be institutionalized.  We’ll start with the cases.

Johnson & Johnson had a long-standing credo that outlined its responsibilities to those who used its products.  In 1979, the CEO reinforced the credo’s relevance to J&J’s operations.  When poisoned Tylenol showed up in stores, J&J did not hesitate to recall product, warn people against taking Tylenol and absorb a $100 million hit.  This is often cited as an example of a corporation doing the right thing. 

B. F. Goodrich promised an Air Force contractor an aircraft brake that was ultralight and ultracheap.  The only problem was it didn’t work, in fact it melted.  Only by massively finagling the test procedures and falsifying test results did they get the brake qualified.  The Air Force discovered the truth when they reviewed the raw test data.  A Goodrich whistleblower announced his resignation over the incident but was quickly fired by the company.  

Ford President Lee Iacocca wanted the Pinto to be light, inexpensive and available in 25 months.  The gas tank’s position made the vehicle susceptible to fire when the car was rear-ended but repositioning the gas tank would have delayed the roll-out schedule.  Ford delayed addressing the problem, resulting in at least one costly lawsuit and bad publicity for the company.

With respect to institutional mechanisms, the author reviews Diane Vaughan’s normalization of deviance and how it led to the space shuttle Challenger disaster.  To promote efficiency, organizations adopt scripts that tell members how to handle various situations.  Scripts provide a rationale for decisions, which can sometimes be the wrong decisions.  In Vaughan’s view, scripts can “expand like an elastic waistband” to accommodate more and more deviation from standards or norms.  Scripts are important organizational culture artifacts.  We have often referred to Vaughan’s work on Safetymatters.

The author closes with a quote: “Culture starts at the top, . . . Employees will see through empty rhetoric and will emulate the nature of top-management decision making . . . ”  The speaker?  Andrew Fastow, Enron’s former CFO and former federal prison inmate.

Our Perspective

I used to use these cases when I was teaching ethics to business majors at a local university.  Students would say they would never do any of the bad stuff.  I said they probably would, especially once they had mortgages (today it’s student debt), families and career aspirations.  It’s hard to put up a fight when the organization has so accepted the script they actually believe they are doing the right thing.  And don’t even think about being a whistleblower unless you’ve got money set aside and a good lawyer lined up.

Bottom line: This is worth a quick read.  It illustrates the importance of senior management’s decisions as opposed to its sloganeering or other empty leadership behavior.


*  J. Useem, “What Was Volkswagen Thinking?  On the origins of corporate evil—and idiocy,”  The Atlantic (Dec. 2015), pp.26-28.

6 comments:

  1. In many ethical atrocities the answer to the following question would help.
    What were the earlier, better, cheaper, safer, more compliant ways that the harmful conditions, behaviors, actions, and inactions could have been recognized and arrested?

    The latest on VW Dieselgate is at
    http://www.nytimes.com/2016/01/05/business/vw-sued-justice-department-emissions-scandal.html?emc=edit_th_20160105&nl=todaysheadlines&nlid=10921895

    When I do a deep examination of conscience (not excessively deep) I can think of times that I knew about ethical transgressions and did nothing.

    The first was becoming aware that doctored baptismal certificates were being used to employ children is labor work.

    The second was becoming aware that naval vessels did not submit required casualty reports because having a casualty was frowned upon by the squadron. This was part of the Navy's "can do" attitude.

    The third was coming aware that one of my colleagues had given false verbal information to a government agency. I did nothing about it.

    If only he who is without blame casts the first stone the first stone will never be cast.

    What keeps people from exposing ethical atrocities that they see?

    ReplyDelete
    Replies
    1. Those are good examples. Most people, if they are somewhat observant, have probably witnessed similar behavior. And the vast majority did nothing. Why? One common cause is fear, basically the fear of the uncertain negative consequences of speaking out which may range from a simple rebuke to going to jail. Fear makes it easier to ignore what’s going on or rationalize it with “No harm, no foul” or “That’s a gray area.”

      Delete
  2. Here's the latest on Takata. Part of an epidemic of ethical atrocities?

    http://www.nytimes.com/2016/01/05/business/takata-emails-show-brash-exchanges-about-data-tampering.html?emc=edit_th_20160105&nl=todaysheadlines&nlid=10921895

    ReplyDelete
    Replies
    1. I don’t believe there’s an epidemic; sadly, this is the normal ebb and flow of the public searchlight illuminating problems with ethical dimensions. Such problems have probably been around forever. For example, three perennial motivators of human behavior - money, power and sex – each contain the potential for good and evil, and act like opposing magnetic forces on the functioning of the moral compass.

      Delete
    2. Lewis,

      I'm sure that appetites for money, power, and sex are involved in many ethical atrocities. My personal observation is that there is at least one other deep seated desire that comes into play. That is the desire not to disrupt the status quo.

      A problem report or a recall recommendation is always a budget buster.

      How strong is the desire not to rock the boat?

      Delete
  3. How valid/ important is the concept of "Chilling Effect?"

    https://app.box.com/files/0/f/37734740/1/f_23717653473

    ReplyDelete

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