Managers need to adapt to the fact that everything that happens in their organization will bear scrutiny, writes Øyvind Kvalnes.

Norway’s biggest corruption case in history ended this summer with the top four managers at Yara, including previous CEO Thorleif Enger, being sentenced to prison for gross misconduct.

Senior Attorney Knut Høivik has previously written in Dagens Næringsliv on how the sentencing highlights the legal dimension by holding managers accountable not only for what they knew, but also for what they should have known.

This is a theme that also illustrates the close relationship between business ethics on the one hand, and freedom of speech in an organization on the other:

  • To what extent do the senior managers of a company know what goes on in everyday contact with customers, suppliers and authorities?
  • Are managers informed about procedures that might fall in the grey area between right and wrong, about unpleasant dilemmas where people on the ground need to prioritise between ethics and profits?

The Yara case is an example of how it can be personally costly for senior managers to neglect ethics and creating a climate for freedom of speech within their own organization.

Turn a blind eye

When we turn a blind eye, we are shutting out the information we would rather not know.

The phrase is attributed to an event during the early career of the British Admiral Nelson, who was blind in one eye. During the Battle of Copenhagen in 1801, he was ordered by signal flag to retreat his ship from the battle. Nelson wanted to fight on. He put the telescope to his blind eye, and stated that he could not see any signal to retreat. Thus, he was able to continue.

Risky strategy

The blind eye strategy is risky, especially at a time when activities within the business world are become increasingly transparent. Social media allows anyone with internet access to publish any information and opinions they wish. Transgressions can become public knowledge in a second.

People are intent on sharing knowledge, and that includes knowledge of questionable behaviour. Managers need to understand that whatever happens in an organization must be able to withstand scrutiny, because there are no nooks or crannies crannies where shady activities can be hidden. Companies are increasingly becoming like greenhouses, where those passing by outside can stop anytime and take a peek at what is happening inside.

“We did not know anything”

Norwegian business leaders have often turned a blind eye towards areas where they will make money. The idea is that they can then say in hindsight that they knew nothing, should employee get involved with corruption or other questionable behaviour. In banking and finance, this was a common strategy leading up to the financial crisis, as financial advisors had a strong incentive to sell questionable products to their customers, and so they did.

I even spoke with leaders in finance who thought that everything was in perfect order in the industry and that an idyllic harmony existed between what was in the customer’s interest and what was in the bank’s interest.

This perception was probably rooted in a more or less conscious choice not to look so thoroughly at the quality of their products or sales methods that were used.

Withstand scrutiny?

Management with open eyes would do well to have the so-called freedom of information-principle as an ethical guideline: Would what we are doing now withstand public scrutiny? Is it something I would be willing to talk about and defend against to a journalist or any other interested people?

This principle is often confused with the so-called opportunism principle: Is what we are doing now going to end up in public, and will I have to talk about and defend it to others?

On the surface, these principles are fairly similar, but the content is radically different. The first pays no attention to whether or not it is possible that the activity will become public knowledge. The question considers whether the activity would withstand scrutiny regardless of whether it will actually get public attention.

The second is a reputation principle, and about what you can get away with. A senior executive who takes ethics in their business seriously, operates with the first of these principles, and pays attention to what is going on in their own business, considering that anyone at anytime will be able to peer in and see what happens there.

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