Behavioral Ethics and Corporate Culture

By Nicola Sharpe, Professor of Law, University of Illinois College of Law; Jennifer K. Robbennolt, "Alice Curtis Campbell" Professor of Law and Professor of Psychology, University of Illinois College of Law,

In 2021, the Toyota Motor Company agreed to pay a $180 million fine to settle a U.S. Environmental Protection Agency (EPA) enforcement action against the company. The action stemmed from Toyota’s decade-long failure to file emissions defect reports with the EPA as required by the Clean Air Act. Toyota knew of the reporting violations yet did not act to alter or reveal the company’s compliance failures.

According to Audrey Strauss, Acting U.S. Attorney for the Southern District of New York, “Toyota shut its eyes to the noncompliance, failing to provide proper training, attention, and oversight” and “undermined EPA’s self-disclosure system.” Thus, in addition to the $180 million fine, the largest civil penalty ever imposed for violations of the emissions-reporting obligations, Toyota must follow additional compliance and reporting practices as well as meet several conditions focused on improved training, communication, and oversight.

Source: MicroStockHub on Pixabay

Toyota’s consent decree is the latest instance in a string of emissions-related scandals, including both Volkswagen’s and Daimler’s efforts to engineer their vehicles to circumvent emissions tests. It is just one example of a lack of corporate compliance with regulatory rules or ethical standards.

The psychology of behavioral ethics provides insight into how such ethical failures can occur. Decision-makers with ethical blind spots borne from unconscious biases, external or social pressures, diffusion of responsibility, and other factors they may not perceive may act unethically without always realizing it. As those decisions are made, other aspects gradually take center stage, while the decision’s ethical implications fade into the background.

One explanation why decision-makers may engage in, willfully ignore, or remain ignorant of unethical conduct is that some corporate cultures do not promote ethical and compliant behavior. A corporate culture that values ethics and compliance is critical for optimal organizational functioning, employee engagement, individual commitment to ethical behavior, and whistleblowing in the face of violations.

Corporate culture is so integral to an ethics and compliance program that the U.S. Sentencing Guidelines for Organizations do not consider a program fully effective unless the organization has a culture that promotes ethical behavior and commitment to the law.

How, then, are ethical cultures built or destroyed? Trust or mistrust in the organization is one significant factor. Indeed, trust has been called “the glue that binds corporate culture,” with ethical behavior playing a disproportionately large role in maintaining the trust and unethical behavior destroying it.

Research on behavioral ethics suggests that employees are more likely to speak up when they have a high level of trust in their organization. Conversely, employees with little trust in their company typically lack a sense of personal accountability and, as a result, generally don’t identify and call out their peers’ ethical lapses. Volkswagen’s corporate culture, for example, “hamper[ed] internal communication and may [have] discourage[ed] midlevel managers from delivering bad news.”

Psychological research is essential to understanding and fostering healthy corporate cultures. Existing research has explored the building blocks of an ethical and compliant culture, such as the training, communication, and oversight—the very aspects of Toyota’s culture that were deemed inadequate. In addition, the pandemic’s effects on organizational efforts to build healthy workplace cultures, particularly with the shift to a remote work environment, offer a host of new research opportunities.

Psychological research has shown that remote workers face greater social and professional isolation and have fewer opportunities for information sharing. Companies will “need to shift their culture and norms to support” an ethical remote work environment.

Edits by: Ashley M. Votruba, J.D., Ph.D., SPSSI Blog Editor, Assistant Professor, University of Nebraska–Lincoln