Laws, Ethics, and Unintended Consequences

I watched a great show two of the last three nights. The three-part series, “Prohibition” (on PBS), presented the different aspects of the United States’ “noble experiment” – crime, changing morals, cultural upheaval, rights and responsibilities, the role of government – in a somewhat different light, while at the same staying true to the Ken Burns storytelling formula.

One segment of the show was devoted to “Unintended Consequences”. The Law of Unintended Consequences says that whenever we develop a product, process, system, policy, or regulation to achieve a desired result, we invariably see unintended results. In part, it’s because of human nature (for example, we presume to know more than those who wrote the furniture, exercise bike, etc., assembly instructions).

Another contributor to unintended consequences: as products, policies, etc., have more complexity designed into them, the likelihood of unintended consequences increases. Likewise, when products are released into a highly complex environment, the opportunity for unintended results increases.

Occasionally, unintended consequences are good. Minoxidil, designed to treat high blood pressure, is found to stimulate hair growth and becomes a “cure” for baldness. Often, though, unforeseen or unintended results can be disastrous, as when the 18th Amendment to the U.S. Constitution and the Volstead Act took effect in 1919.

The Anti-Saloon League and other organizations intended to raise the morals and health of U.S. citizens by removing the temptation of alcohol. Merchants and manufacturers hoped for positive side effects like neighborhoods (bad and good) improving and personal spending on “beneficial” goods, services, and entertainment increasing.

Instead, entertainment industries fell, restaurants closed, breweries and taverns shut down, and many thousands of jobs were eliminated. Liquor tax revenues plummeted just as enforcement costs skyrocketed. The criminal class grew exponentially, as we all know, and the low-quality “bootleg liquor” being produced posed a much greater health risk than pre-Prohibition alcohol. As one person put it, Prohibition made criminals of nearly everyone.

We have a similar problem today with respect to business ethics: the many paying for the sins of the few (Enron, Bernie Madoff, etc.). Legislation intended to prevent companies from behaving badly (e.g., Sarbanes-Oxley, Dodd-Frank) instead penalizes the ones that have behaved well and fosters a new class of criminal. Companies must now “prove” they’re in compliance with the letter of the law.

Yet, unethical behavior is on the increase everywhere in business. Unscrupulous people will always take advantage of those in dire financial straits (those who’ve lost their homes in natural disasters, fallen behind in their mortgage payments due to extended unemployment, and on and on) but now they have more tools and are increasingly sophisticated.

Unethical business behavior is not always that obvious. It’s the employee making promises they know will be difficult or impossible to keep. It’s the accounts payable department stretching “net 30 days” out to “net 4 months” to improve their cash flow. It’s the purchasing department buying “adequate” materials instead of more expensive materials that meet customer requirements in order to increase the company’s profit margin. It’s the food processor failing to inspect its product because time is money and inspections take too much time.

Such behavior is clearly wrong, but what are we going to do? Require better employee screening? Enact laws, rules, or policies to prevent the use of questionable judgment? Are we, as managers, at least partly to blame for demanding that tasks and projects be done “at any cost”? Who or what bears the greatest cost?

The failed experiment known as “Prohibition” should have proved one thing to all of us — we cannot legislate moral or ethical behavior into existence, much less correct it with a policy statement. A sound, consistent moral code starts at childbirth and continues from there. It’s a shared philosophy, not a set of rules.

What do you think? When someone tells you, “Don’t do that”, what’s your first reaction? How would you go about correcting the growing plague of ethical lapses and poor judgment in business?


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Posted in Business ethics, Policy development

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