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Ethical fading is a condition in a culture that allows people to act in unethical ways in order to advance there interest often at the expense of others while falsely believing that they have not compromised their own moral principles. Ethical fading ofen starts with small seemingly innocuous transgressions that when left unchecked continue to grow and compound
It’s the flawed incentive structure which drives good people to do bad things. Balance sheet i.e. turnover, profitability, growth, salary increments, bonuses etc. drives executives to do thing which otherwise would not have been done. Some are plain unethical. We would expect that people who engage in such behavior would be consumed by guilt and struggle to sleep at night, but they are more relaxed about their choices. How else you would justify 74000 percent price rise overnight. The drug, called Daraprim, was acquired in August by Turing Pharmaceuticals, a start-up run by a former hedge fund manager. Turing immediately raised the price to $750 a tablet from $13.50, bringing the annual cost of treatment for some patients to hundreds of thousands of dollars. In financial service the Wells Fargo miss-selling fiasco.According to social scientist who study the phenomenon of ethical fading, such people are not evil they suffer from self-deception.
We humans have all sorts of clever ways to rationalize our behaviour and deceive ourselves into thinking that the ethically questionable decisions we make are fair and justified, which is actually quite the opposite. We are able to engage in unethical behaviour without perceiving it has unethical. Important we often remove from the chain of causation that we actually lay all the responsibility for how our product effects to the consumer on the consumer. “If they don’t like they don’t have to buy it” the thinking goes. Companies cannot distance away from their responsibilities, Companies like Instagram, snap chat, Facebook and gaming companies will have to take ownership thus cannot deny their role in an addictive technology. Particularly when they knowingly add features such as infinite scroll, “like” buttons, and automatic content play with the intent of keeping us peeled for longer.
Capitalism as per Adam Smith was suppose to benefit the most to the end consumer, but not to a specific class of people which are not end consumers.
One of the problem is with the economics and incentives which drives these companies. Companies are too fixated on profits, returns etc., even at the cost of long term health of the company and society. Companies do not exist only to earn profits they are there to serve the society keeping the society interest at the fore front. But if you ask yourself is this happening the answer would be resounding NO. Let me try to explain this with a example, in 2014, CVS Caremark announced that it would stop selling tobacco related products in all of their 2800 stores. This was in line with the company vision “helping people on the path of to better health”. It was a decision which would cost them more than $ 2 billion per year. General public overwhelmingly supported but the wall street was not happy. The share price fell by 1 percent day after the announcement.
Interestingly decision taken by CVS not to sell tobacco products did not mean that the forgone sales added up in the sales of competitor stores. In-fact total sales of the cigarette fell down in these markets which translated to 95 million fewer pack in 8 month and nicotine patches sold increased by 4 percent. CVS help people to quit smoking. A popular belief among customer was “You know what? I am going to buy from CVS because they are good citizen”. After 18 months’ post announcement the share price had doubled. The stock has hit $ 113 from $ 65 per share.
Ethical fading is not an event it doesn’t happen suddenly it’s more like a tooth decay that fester overtime.Decade before the scandal broke in Wells Fargo, revealed that the organisation toxic condition’s and unethical behavior had already been identified, original review concluded that there was incentive to cheat based on fear of job loss. To explain this further, in a social experiment,volunteers inserted Pamphlets in the wind screen of the car, in places where the volunteers had littered the street with pamphlets the subject threw the pamphlet on the ground and when the street were not littered the subject refrained from throwing the pamphlet on the street. This is also true with ethical fading, with each ethical transgression that is tolerated, we pave the road for more and bigger ethical transgressions. Little by little, we change the norms inside a culture of what is acceptable behavior. “If everyone else is doing it, then it must be okay.”.
In a 2019 opinion piece in The Washingion Post, Mark Zuckerberg, the founder and CEO of Facebook, responded to some of the criticism against his company by asking government for more legislation. “I believe we need a more active role for governments and regulators,” he wrote. “By updating the rules for the Internet, we can preserve whats best about it.” Zuckerberg is he passing the bug or mess which he created during Cambridge analytica on lack of regulation. I feel governance cannot tackle ethical fading , if that was so, look at highly regulated markets like financial services we have not been able to prevent scams, money laundering etc. Its sad that we have reached a point in where we probably do have to legislate ethics.
Fulfilling one’s legal responsibility does not release a company from their ethical responsibility either.
Its take courage to do what was done at CVS, The problem what companies face is leaders think they are there to drive results, and their incentive structures reinforce that belief. As a result, they prioritize near-term financial results above any sense of Cause . The leaders willingly adjust their cultures to meet their priorities. Businesses exist for a larger cause than profit more and more companies are falling pray to this market forces. Good companies are the one who maintain balance towards larger objective, keeping profit has a much needed objective but not the only objective.
The Infinite Game By Simon Sinek
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